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High-Volume Claims Funding: Strategies for Efficiency and Risk Management

By Louisa Klouda |
May 13, 2024

High-Volume Claims Funding: Strategies for Efficiency and Risk Management

The following is a contributed piece by Louisa Klouda, CEO at Fenchurch Legal.

Litigation funding is a well-established concept that provides essential financial support for legal claims. While financing for high-value lawsuits is commonplace, small-ticket funding, especially at high volumes, remains a niche area.

This article explores the challenges and opportunities of funding high volumes of small-ticket claims. It outlines the strategies employed by some small-ticket litigation funders to efficiently manage these claims while ensuring investor confidence.

The Challenge of High-Volume Claims

While a single small claim might seem manageable, the sheer volume of “no win, no fee” cases can overwhelm a law firm’s financial and operational resources. Each claim demands substantial time and effort for investigation, evidence gathering, and legal representation.

Without additional funding, managing multiple cases simultaneously becomes a significant financial burden. This can limit a firm’s ability to take on new clients or dedicate sufficient resources to each claim.

Litigation funding bridges this gap by providing the resources law firms need to handle a high volume of claims effectively. Securing funding to cover the costs of these claims allows law firms to build strong processes and procedures, ultimately benefiting from economies of scale.

Strategies for Success

Firms specialising in high-volume claim funding can achieve success through a combination of technology, experienced teams, and robust processes.

  • Technology: State-of-the-art software isn’t just an advantage – it’s an imperative. It can streamline every aspect of the operations, automating repetitive tasks and facilitating efficient case vetting through rigorous risk management, ensuring efficient and reliable funding solutions.
  • Experienced Team: A knowledgeable team plays a crucial role in assessing claims, managing risk, and ensuring compliance with regulations. A team must go beyond just general experience – they should possess deep market knowledge and a nuanced understanding of the specific claim types.
  • Robust Processes: Clearly defined processes for loan approval, monitoring, and repayments are essential for maintaining transparency and accountability.

The Importance of Software

Limitations of manual processes can hinder efficiency. Software solutions can streamline the loan process, enhance risk management, and provide robust audit trails. This software should:

  • Facilitate Efficient Case Vetting: Streamline the process of assessing claims for eligibility.
  • Enhance Risk Management: Built-in safety measures can prevent errors like double-funding and identify potential risks.
  • Ensure Transparency and Accountability: Robust audit trails provide a clear picture of the funding process.

Funders like Fenchurch Legal have gone further. Recognising the limitations of off-the-shelf loan management software, they have built their own bespoke software, which serves as the backbone of their operations and enables them to manage a high volume of claims efficiently. It eliminates manual errors and incorporates built-in safety measures, such as preventing double-funded cases and cross-referencing duplicate data across the platform. This seamless approach is essential for managing drawdowns and repayments and ensuring the integrity of their funding processes.

A Streamlined Funding Process

An efficient funding process benefits both law firms and funders.  Here’s a simplified example of how it might work:

  1. Clear Eligibility Criteria: Law firms understand the types of cases that qualify for funding based on pre-agreed criteria (i.e., success rate thresholds).
  2. Batch Uploads: Law firms can easily request funding by uploading batches of cases to a secure online platform.
  3. Auditing and Approval: A sample of cases is audited to ensure they meet agreed upon terms. If approved, funding is released in a single lump sum.
  4. Monitoring and Repayment: Software facilitates seamless monitoring of the loans and the repayment status, ensuring efficient management of repayment schedules.

Managing Risk in High-Volume Funding

Risk management is vital in high-volume funding. Here are some strategies that can be employed to mitigate risk effectively:

  • Diversification: Spreading funding across different law firms and case types is a crucial strategy for mitigating risk in high-volume claim funding. It minimises overexposure and creates a well-balanced portfolio.
  • After the Event (ATE) Insurance: Provides an extra layer of protection for investments in high-volume claim funding. It specifically covers the legal costs if a funded claim is unsuccessful.
  • Rigorous Due Diligence: Thorough assessment of cases and the law firm’s capacity to handle them ensures informed decision-making.
  • Continuous Monitoring: Proactive risk identification and mitigation safeguard investments. This includes requesting regular updates and performance data from law firms.

Conclusion

By leveraging technology, team expertise, and robust processes, funders can efficiently manage high-volume small claims, presenting a compelling investment opportunity. This approach can minimise risk and ensure transparency throughout the funding process.

Fenchurch Legal specialises in this niche area, efficiently managing and supporting a high volume of small-ticket consumer claims with an average loan value of £3,000 each. They handle diverse areas such as housing disrepair and personal contract payment claims. Their proven track record of funding over 12,000 cases is driven by their bespoke software, knowledgeable team, and robust processes.

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About the author

Louisa Klouda

Louisa Klouda

Commercial

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Commercial Regulatory Issues

Chartered Institute of Arbitrators Issues First Guidance on Third-Party Funding in Arbitration

By John Freund |

The Chartered Institute of Arbitrators (CIArb) has issued its first-ever Guideline on Third-Party Funding in arbitration, offering comprehensive direction on how parties, counsel, tribunals, and funders should navigate funded disputes. This milestone guidance is aimed at promoting transparency, consistency, and effective case management in arbitration where third-party funding plays a role.

The guideline addresses two primary areas. First, it outlines the third-party funding process, explaining funding structures, pricing models, and key provisions typically found in funding agreements. It provides a practical overview of the benefits and potential pitfalls of using funding in arbitration proceedings. Second, it tackles arbitration-specific case management issues, such as how funder involvement—though often portrayed as passive—can influence strategic decisions, including arbitrator selection, settlement discussions, and procedural posture. The guideline stresses the need to clearly delineate the scope of the funder's control or influence in any agreement.

CIArb also emphasizes the importance of early disclosure. The existence of funding and the identity of the funder should be revealed at the outset to avoid conflicts of interest and challenges to tribunal impartiality. On confidentiality, the guidance urges parties to reconcile the typically private nature of arbitration with the disclosure obligations inherent in funded cases.

Additionally, the guideline explores three critical cost issues: whether funders may cover arbitrator deposits, the increasing prevalence of security for costs orders targeting funders, and the evolving question of whether tribunals should allow recovery of funding costs.

Commercial Regulatory Issues

Minister Urges Litigation Funders to Embrace Self-Regulation

By John Freund |

UK Courts Minister Sarah Sackman has issued a clear call to third-party litigation funders operating in England and Wales: join the Association of Litigation Funders (ALF) and commit to self-regulation as the government weighs potential legislative reforms for the industry.

An article in Legal Futures notes that while speaking in Parliament, Sackman underscored the importance of litigation funding in promoting access to justice and enhancing the UK’s global standing as a legal hub. However, she also warned that regulatory uncertainty following the Supreme Court’s PACCAR ruling in 2023 could drive funders to more predictable jurisdictions such as New York, Paris, or Singapore.

The Civil Justice Council (CJC) earlier this year urged Parliament to swiftly pass legislation reversing the PACCAR decision, which cast doubt on the enforceability of many litigation funding agreements by classifying them as damages-based agreements. The CJC also advocated for a light-touch regulatory approach, aiming to preserve funding’s benefits while instituting safeguards.

In the Commons, Conservative MP Sir Julian Smith echoed this sentiment, suggesting that strengthened self-regulation through ALF membership may be sufficient, possibly avoiding the need for more burdensome legislation. Sackman did not commit to a timeline for government action but emphasized that litigation funding’s reputation and long-term viability hinge on transparent practices and adherence to recognized standards.

Commercial

Alberta Pays AU$95M to Montem Resources, Highlights Risk of Litigation-Funding Exposure

By John Freund |

In a striking development, the Province of Alberta has awarded a CA$95 million (roughly AU$102 million) settlement to the Australian mining entity Montem Resources (now rebranded as Evolve Power Ltd.) to resolve a CA$1.75 billion lawsuit alleging that Alberta’s 2022 reinstatement of its coal-moratorium policy amounted to a de facto expropriation of its coal-licence interests.

According to an analysis in The Tyee, the settlement followed earlier compensation to another Australian-backed miner, Atrum Coal Ltd., which reportedly collected CA$143 million though it declared sunk costs of approximately CA$46 million. For Montem, the article notes its declared investment into the assets was about CA$15 million, yet it received a multiple of that in the final settlement.

The piece further highlights that about one-third (roughly CA$35 million) of the Montem payout will go to an Australian litigation-funding firm, Wahl Citadel, which backed Montem’s suit after providing loans totaling around AU$6 million on conditional terms, effectively “betting” on a successful outcome.

Critics argue Alberta’s government under Premier Danielle Smith and Energy Minister Brian Jean did not vigorously defend the case through mechanisms provided under the Mines & Minerals Act, and instead opted to settle for large sums—arguably far exceeding what the firms had originally invested.