Colin Craig has dropped his damages claim against Rachel MacGregor, saying she couldn't afford to pay them if he won.
Mr Craig is however pressing on with his defamation claim against his former press secretary. She is making the same claim against him.
The Auckland High Court battle got underway on Monday morning, four years after their professional relationship abruptly ended right before the 2014 election.
The pair settled and signed a confidentiality agreement, but Mr Craig went on to repeatedly break it. Ms MacGregor took a case to the Human Rights Tribunal, which ordered Mr Craig to pay her more than $120,000.
Mr Craig launched the defamation suit against Ms MacGregor in 2017, and she responded with a counter-suit of her own.
She told Stuff at the weekend "people have mainly heard his side of the story and... the little bits of mine that they've heard, I haven't been able to lead the narrative".
"I haven't been able to tell my story on my terms and it's really frustrating."
Supporters started a Givealittle page hoping to raise $300,000 - the estimated cost of a "good legal defence".
Mr Craig reportedly opened proceedings on Monday citing Ms MacGregor's comments in the Stuff story, and dropping his claim for monetary compensation.
He outlined the three alleged defamation incidents against him - one in a publication, another a media release and the third in a tweet. He showed the court folders of screenshots of messages, letters and cards the pair had sent to one another between 2011 and 2014 to show the supposed true nature of their relationship.
"We developed a close and affectionate working relationship and close friendship. We shared similar interests and values, including a Christian faith. It is pretty obvious people working together become quite close."
Ms MacGregor has alleged four defamation incidents against her.
Mr Craig has previously lost a defamation case brought against him by Taxpayers' Union founder Jordan Williams. He was ordered to pay Mr Williams $1.3 million, which Mr Craig appealed. That case remains before the Supreme Court.
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