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Commercial Special Features

An LFJ Conversation with Louisa Klouda, CEO at Fenchurch Legal

By John Freund |

As the litigation funding industry continues to evolve, Louisa Klouda, CEO of Fenchurch Legal shares insights into the sector and Fenchurch Legal’s approach and practices.

Below is our LFJ Conversation with Louisa Klouda:

What drew you to the world of litigation funding?

My entry into the world of litigation funding wasn’t a direct one, but rather a spark of curiosity during my previous role in corporate finance and the asset-backed lending world. I came across the concept of litigation funding and found myself instantly drawn to its unique characteristics. I discovered a market dominated by large funders focusing on large cases like class actions. However, I noticed a significant gap: a lack of support for smaller claims, particularly in areas like housing disrepair and the challenges the law firms faced in accessing funding for these meritorious claims.

Recognizing the gap in the small-claims market, I saw an opportunity to create Fenchurch Legal in 2020. The aim of the business was twofold: to facilitate access to justice for smaller claims and to provide an avenue for investors looking for alternative investment opportunities.

Can you provide an overview of small ticket litigation funding and its significance in the UK legal landscape?

Small ticket litigation funding plays a vital role in the UK legal landscape, offering an alternative approach to financing legal claims. In essence, it involves providing funding to law firms for smaller value cases across various areas like personal injury, housing disrepair, and financial mis-selling, unlike large-ticket funding which targets high-stakes class actions.

Small-ticket funders like Fenchurch Legal focus on quantity, funding a high volume of smaller cases. These case types have clear legal precedent, and are protocol-based and process-driven consumer claims, with high success potential.

This subset of litigation funding addresses a gap in the legal financing ecosystem created by rising legal costs and resource-intensive cases. Small ticket litigation funding ensures that even modest claims, like housing disrepair receive the backing necessary to navigate the legal process, ultimately facilitating access to justice and contributing to a more balanced and inclusive legal landscape.

How does this subset of litigation funding attract investors?

The appeal of small-ticket litigation funding to investors is multifaceted, driven by three key factors –  flexible entry points, portfolio diversification, and unique security features.

Firstly, it provides investors with lower entry points compared to larger funders. This is particularly attractive to those moving away from traditional markets and seeking a more balanced investment approach with steady returns. The accessibility of smaller minimum investment amounts aligns with the preferences of investors aiming for a diversified and resilient portfolio.

Small-ticket funders focus on quantity, funding a high volume of smaller cases. This diversification approach effectively spreads the risk across various law firms, multiple cases and case types, reducing the reliance on the success of a single case. Investors are drawn to the stability and risk mitigation inherent in this investment strategy.

Moreover, investors like the insurance-backed nature of this investment. All cases are supported by an After the Event (ATE) insurance policy, covering all costs and disbursements if the case is unsuccessful. Additionally, upfront interest is charged, debentures are in place and there is an assignment over the case proceeds.

How has Fenchurch emerged and established itself in this market, and what key strategies contributed to its growth?

Our key strategy is to have a niche focus on smaller claims within specific case types where we have a deep understanding and only partnering with fully vetted law firms.

Recognizing growing interest in litigation funding as an alternative asset class, Fenchurch strategically lowered investment entry barriers making it a more accessible investment solution. This has enabled us to broaden our investor base, enabling us to raise more capital and support a wider range of law firms seeking funding.

How have you seen the landscape of small ticket litigation funding evolve, and what trends do you anticipate for the future?

There’s a noticeable shift towards recognising the significance of smaller-scale claims in the funding market.

I anticipate the market to continue its expansion into new case types beyond traditional areas but with that will come changes in the regulatory landscape, potentially impacting market dynamics and requiring adaptation from funders.

As a funder specialising in small ticket claims, especially those funded at volume, staying ahead of regulatory changes is important. We remain cautious about specific case types, recognising that shifts in litigation trends could render a case type unviable, as witnessed in the Road Traffic Cases (RTA) cases when fixed costs were brought in. Funders must develop a broad network of contacts to stay informed about evolving market conditions.

Another trend I see growing is wider tech adoption within the industry. Technology is playing a pivotal role in streamlining processes, enhancing risk assessment and driving efficiency and scalability. Recognizing the limitations of off-the-shelf solutions, we developed our own loan management software, providing a bespoke platform for managing loan repayments, monitoring, and onboarding. Continued tech integration is needed to enable automation, boost efficiency, enhance risk assessment capabilities, and improve investor reporting.

I also see increased awareness and interest from investors. I think small-ticket litigation funding will become increasingly more attractive as investors become more familiar with the potential benefits and opportunities, resulting in a rise in investment inflows.

Lastly, the focus on Environmental, Social, and Governance (ESG) considerations is likely to gain prominence, influencing investment decisions and funder strategies. The growing recognition of the value and impact of small-ticket litigation funding aligns with ESG requirements.

What sets Fenchurch Legal apart from other funders? What are your unique value propositions?

Our core strength lies in our deep understanding of the small-ticket claims landscape. We have developed a rigorous and data-driven selection process tailored to this specific segment, allowing us to identify top-tier law firms and high-potential case types with lower individual risk profiles.

Through discussions, we’ve learned that law firms often face challenges with other funders, including issues like complex drawdown procedures, undisclosed fees, and the non-funding of crucial costs like WIP capital or case acquisition expenses. Recognizing these pain points, we’ve developed an offering specifically designed to avoid these issues.

As mentioned before having access to our own proprietary software has been a game-changer. It has significantly enhanced our whole business operations, driving efficiency and enabling us to scale. This technological edge not only sets us apart but also positions us as an innovative and forward-thinking player in the industry.

Additionally, our team is a vital component of our unique value proposition. Made up of experienced professionals who understand the industry, our team ensures we look thoroughly at both legal merit and financial viability. This dual expertise ensures that every funding decision is based on a thorough understanding of the legal intricacies and financial soundness of each case.

Could you elaborate on your approach to case selection and investment criteria?

Our selection process is multi-layered, considering both legal merit and financial viability. In the initial stages, we conduct an in-depth evaluation of case strength, law firm expertise, financial strength and claim history, while also examining the specific legal and procedural landscape surrounding each claim.

After completing the underwriting process, we grant each firm a facility limit. They can regularly draw down against this limit, as long as they adhere to the terms of the agreement, including providing a list of claims for auditing and granting us access to their systems.

We also employ robust financial modelling and stress testing to evaluate potential returns and manage risk effectively. This approach ensures we invest in case types with strong success potential and manageable risk profiles.

So far, we’ve funded various case types with strong merits, including Plevin, Motor Finance Mis-selling (PCP), Tenancy Deposit Schemes, and Housing Disrepair claims. Our compliance criteria for each case type involve thorough vetting, examining details such as case referrals, fee earners, and the experience of law firms. This process enables us to partner with trusted law firms, further mitigating risks associated with our investments.

Importantly, Fenchurch Legal only provides funding for cases where After the Event (ATE) insurance has already been obtained. This insurance covers costs and disbursements in the event of an unsuccessful claim. By advancing the premium directly to the ATE Insurer, we ensure that each policy is live at the time of funding, adding an extra layer of security to our investment strategy. This unique security feature enhances the attractiveness of funding ATE claims, aligning with our commitment to minimising associated risks.

The recent PACCAR ruling in the UK has sparked discussions about the future of litigation funding. What are your thoughts on its implications and potential impact on the industry?

The recent PACCAR ruling didn’t impact Fenchurch as our small ticket business model is focused on charging a fixed return per case, regardless of the outcome and not a percentage of damages recovered. However, whilst the ruling presents certain challenges, I believe it ultimately presents an opportunity for the industry to strengthen its practices and regulations.

Could you share your vision for Fenchurch Legal’s future growth and expansion plans?

We plan to maintain our focus on small-ticket litigation funding, leveraging our experience, growing our loan book, and onboarding new borrowers. As the business grows, we plan to deploy more capital aiming to reach a loan book value of £75 million within the next two years. We will also recruit key roles to bolster our team.

Lastly, for investors considering small ticket litigation funding, what key factors should they take into account, and how can Fenchurch Legal add value to their investment strategies?

For investors contemplating small ticket litigation funding, several key factors should be carefully considered to make informed and strategic decisions.

Firstly, understand the specific criteria and due diligence processes the litigation funder uses and pay attention to their track record in managing and funding small ticket claims.  Risk management is vital and investors should seek funders with robust strategies in place. This includes an assessment of how the funder mitigates risks associated with smaller claims and adapts to changing circumstances.

In the case of Fenchurch Legal, our approach to small-ticket litigation funding is grounded in a commitment to comprehensive due diligence, case assessment, and risk management. We have created an offering suitable for investors seeking diversification, lower risk profiles, access to a broader market, and lower entry points.

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Commercial Special Features

Key Highlights from the Inaugural LF Dealmakers European Edition

By John Freund |

Last week, the LFJ team attended the inaugural LF Dealmakers European Edition, held across two days at the Royal Lancaster in London. Building on the longstanding success of Dealmakers’ New York event, the first edition of the European conference brought together an impressive selection of leaders from across the industry.

Spread across two days, LF Dealmakers featured an agenda packed with insightful conversations between some of the most prominent thought leaders in the European litigation finance market. An array of panel discussions covered everything from the looming potential of regulation to the increasing corporate adoption of third-party funding, with these sessions bolstered by a keynote interview between two of the key figures in the Post Office Horizon litigation.

A long road to justice for the postmasters

In a conference that managed to fill every single panel discussion with speakers engaged in some of the largest and most influential funded disputes taking place in Europe, the standout session of the two days provided unparalleled insight into one of the most famous cases of recent years. The keynote interview on ‘The Future of Litigation Funding in the Wake of the Post Office Horizon Scandal’ saw James Hartley, Partner and National Head of Dispute Resolution Freeths, and Neil Purslow, Founder & CIO, Therium, offer up a behind-the-scenes tale of the sub-postmasters campaign for justice.

Going back to their first involvement with the case, James Hartley reminded attendees that whilst those looking at the case post-judgement “might think it was a slam dunk”, this was not the viewpoint of the lawyers and funders who first agreed to lead the fight against the Post Office. As Hartley described it, this was a situation where you had “a government owned entity who would fight to the end”, with a multitude of potential issues facing the claimants, including the existence of criminal convictions, the limited amounts of documented evidence, and the fact that the Post Office was the party that had ninety percent of the data, documents, and evidence.

Hartley also offered his own perspective on the legal strategy adopted by the Post Office and its lawyers, noting that at every stage of the litigation, “every single issue was fought hard.” He went on to explain that whilst he was “not critical” of the defendant’s strategy in principle, there remains the underlying issue that “the arguments they made were not consistent with the evidence we were seeing.” Hartley used this particular point to illuminate the issues around defendant strategies in the face of meritorious litigation that is being funded. He summarised the core issue by saying: “There is nothing wrong with fighting hard, but it’s got to be within the rules, and in a way that helps the court get to a just outcome.”

Offering praise for the support provided by Purslow and the team at Therium to finance the case, Hartley stated plainly that “without Therium’s funding it would not have gone anywhere, it would not have even got off the ground.” Both Purslow and Hartley also used the case to highlight problems around the lack of recoverability for funding costs and how that incentivises defendants such as the Post Office to prolong litigation and inflate legal costs. Hartley said that he would welcome a change to rules that would allow such recoverability, arguing that in this case “it would have neutralised the Post Office’s strategy to just keep driving up costs on the claimants side.”

What problem is regulation solving?

It was unsurprising to find that questions around the future of regulation for the litigation funding industry were a regular occurrence at LF Dealmakers, with the event taking place only a few days on from the House of Lords’ debate on the Litigation Funding Agreements (Enforceability) bill. From the opening panel to conversations held in networking breaks between sessions, speakers and attendees alike discussed the mounting pressure from government and corporate opponents of third-party funding.

The view from the majority of executives at the event seemed to revolve around one question, which was succinctly put by Ben Moss from Orchard Global: “What are the specific issues that require regulation, and what is the evidence to support those issues?”

This question became somewhat of a rallying cry throughout the conference, with suggestions of increased scrutiny and oversight being turned back on the industry’s critics who make claims of impropriety without citing evidence to back up these claims. Whilst several speakers referenced the recent LFJ poll that found a broad majority are open to the potential for new regulation, Ben Knowles from Clyde & Co described a lot of the discourse around the issue as “a fairly partisan debate.”

Among the few speakers in attendance who offered a contrasting view on regulation, Linklaters’ Harriet Ellis argued that “regulation done right would be good for the industry.” However, even Ellis acknowledged that any rules would have to be carefully crafted to provide a framework that would work across the wide variety of funded disputes, saying that a “one size fits all approach does raise issues.”

Regarding the government’s own approach to the issue through the draft legislation making its way through parliament, all of the executives in attendance praised lawmakers’ attempts to find a solution quickly. Alongside these government-led efforts, there was also a feeling among legal industry leaders that funders and law firms have to be part of the solution by promoting more education and understanding about how litigation finance works in practice. Richard Healey from Gately emphasised the need for firms to engage in “hearts and minds work” to change wider perceptions, whilst Harbour’s Maurice MacSweeney emphasised the need to “create the environment where law firms and funders can flourish.”

Innovation through collaboration

Outside of the narrow debate around legislation and regulation, much of the conference was focused on the speed at which litigation finance continues to evolve and create new solutions to meet complex demands from the legal industry. This was perhaps best represented in the way speakers from a variety of organisations discussed the need for a collaborative approach, with executives from funders, insurers, law firms, investors and brokers, all discussing how the industry can foster best working practices.

The interplay between the insurance and funding industry was one area that offered plenty of opportunity for insightful discussions around innovation. Andrew Mutter from CAC Speciality noted that even though “insurers are not known for being the fastest and moving the most nimbly,” within the world of litigation risk “the insurance markets are surprisingly innovative.” This idea of an agile and responsive insurance market was backed up by the variety of off the shelf and bespoke products that were discussed during the conference, from the staples of After-The-Event and Judgement Preservation Insurance to niche solutions like Arbitration Default Insurance.

Delving into the increasingly bespoke and tailored approach that insurers can take when working with funders and law firms, Jamie Molloy from Ignite Speciality Risk, described how there are now “very few limits on what can be done by litigation insurers to de-risk.” Whilst there is sometimes a perception that insurers are competing with funders and lawyers for client business, Tamar Katamade at Mosaic Insurance offered the view that it is “more like collaboration and synergy” where all these parties can work together “to help the claimant and improve their cost of capital and reduce duration risk.”

Class action fervour across Europe

Throughout both days of the LF Dealmakers conference, the volume and variety of class actions taking place across the European continent was another hot topic. However, in contrast to an event focused on the American litigation finance market, the common theme at last week’s forum was the wideranging differences between large group claims across individual European jurisdictions. In one of the most insightful panels, the audience were treated to an array of perspectives from thought leaders practicing across the UK, Spain, and the Netherlands.

The example of Spanish class actions provided an incredibly useful view into the nuances of European claims, as a country that is still in the process of implementing legislation to comply with the EU’s collective actions directive, but has already evolved routes for these types of actions over the last decade. Paul Hitchings of Hitchings & Co. described how the initiative to innovate has come “more from the private sector than the legislature”, with domestic law firms having become “experienced with running massive numbers of parallel claims” as an inefficient, yet workable solution. Hitchings contrasted Spain’s situation with its neighbouring jurisdiction of Portugal, which he argued has been comparatively forward thinking due to the country’s popular action law.

Speaking to the Dutch class actions environment, Quirijn Bongaerts from Birkway, argued that the “biggest game changer” in the country was the introduction of a real class actions regime in 2020. Bongaerts explained that the introduction of this system allowed for “one procedure that fits all types of claims”, which allows not only claims for damages, “but also works for more idealistic cases such as environmental cases and ESG cases.”

LFJ would like to extend our thanks to the entire Dealmakers team for hosting such an engaging and insightful event, which not only offered attendees a view into the latest developments in litigation finance, but also created a plethora of networking opportunities throughout both days. LFJ has no doubt that after the success of the inaugural LF Dealmakers European edition, a return to London in 2025 will cement the conference as a must-attend feature in the litigation funding events calendar.

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Commercial Regulatory Issues

The Dangers of Retrospective Legislation in Litigation Funding

By John Freund |

The debate around whether the Litigation Funding Agreements (Enforceability) Bill should be retrospective is a complex one, with valid arguments on both sides. A recent op-ed makes the case that retrospectivity poses significant dangers and unfairness.

Writing in LegalFutures, Jeremy Marshall, Chief Investment Officer of Winward UK, argues that the core issue is whether it is unfair to allow litigation funders to rely on contractual agreements that were freely entered into by both parties, even if those agreements were based on a mistake of law.

Marshall claims that the common law right to recover money paid under a mistake only applies when the mistake led to one party receiving an unintended benefit. In the case of litigation funding, the only benefit that has accrued is the one that was explicitly drafted into the contract. Allowing retrospectivity would open the door to satellite litigation and unreal counterfactuals, according to Marshall.

Claimants who have already received funding and won their cases are now arguing for the "right" to renegotiate and keep all the proceeds for themselves. But what about the funders' arguments that cases may have gone on longer or become more expensive than intended? Fairness demands that both sides' positions be considered.

Marshall insists that the true drawback in retrospectivity is the inherent danger of prejudicing one party to the exclusion of the other, or conferring an unexpected benefit to one party at the expense of the other. Ironically, this is precisely what those challenging the bill are attempting to do. So while the debate is a complex one, one can make a compelling case that retrospectivity in litigation funding poses significant dangers and unfairness.

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Commercial Regulatory Issues

The CJC’s Review of Litigation Funding Will Have Far-Reaching Effects

By John Freund |

The following is a contributed piece by Tom Webster, Chief Commercial Officer at Sentry Funding.

Reform is on its way for the UK’s litigation funding sector, with the Civil Justice Council firing the starting gun on its review of litigation funding on 23 April.

The advisory body set out the terms of reference for its review, commissioned by lord chancellor Alex Chalk, and revealed the members of its core working group.

The review is working to an ambitious timetable with the aim of publishing an interim report by this summer, and a full report by summer 2025. It will be based on the CJC’s function of making civil justice ‘more accessible, fair and efficient’.

The CJC said it will set out ‘clear recommendations’ for reform in some areas. This includes consideration of a number of issues that could prove very significant for funders and clients. These include:

  • Whether the sector should be regulated, and if so, how and by whom;
  • Whether funders’ returns should be subject to a cap; and if so, to what extent;
  • The relationship between third party funding and litigation costs;
  • The court’s role in controlling the conduct of funded litigation, including the protection of claimants and ‘the interaction between pre-action and post-commencement funding of disputes’;
  • Duties relating to the provision of funding, including potential conflicts of interest between funders, lawyers and clients;
  • Whether funding encourages ‘specific litigation behaviour’ such as collective action.

The review’s core working group will be co-chaired by CJC members Mr Justice Simon Picken, a Commercial Court judge, and barrister Dr John Sorabji. The four other members are:

  • High Court judge Mrs Justice Sara Cockerill, who was judge in charge of the commercial court 2020 – 2022, and who is currently involved in a project on third party funding for the European Law Institute;
  • Academic and former City lawyer Prof Chris Hodges, chair of independent body the Regulatory Horizons Council which was set up to ensure that UK regulation keeps pace with innovation;
  • Lucy Castledine, Director of Consumer Investments at the Financial Conduct Authority; and
  • Nick Bacon KC, a prominent barrister and funding expert who acts for both claimants and defendants

The CJC had said that it may also bring in a consumer representative, as well as a solicitor experienced in group litigation.

In a sign that the review seeks to be informed by a wide range of views, the CJC has also extended an invitation for experts to join a broader consultation group, which will directly inform the work of the review and provide a larger forum for expert discussion. Meanwhile the advisory body has said there will also be further chance ‘for all to engage formally with this review’ later this year.

Given the broad remit of the review and significant impact that its recommendations may have on the litigation funding industry, litigation funders, lawyers and clients would be well advised to make the most of these opportunities to contribute to the review.

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