Litigation Funding in the UAE

Litigation funding (also known as litigation finance) enables parties to obtain funding to conduct or defend litigation from third parties who are otherwise uninvolved in the litigation. The litigation funder would typically agree to do so in return for a fee payable from the proceeds recovered by the funded litigant or for a multiple of the amount of funding provided – which may only be payable in circumstances where the litigant is considered to be successful in the litigation (either by way of a decision or settlement). In some jurisdictions, the litigation funder is also entitled to charge an uplift or is entitled to a percentage of the sums recovered by the litigant.

Litigation funding has become relatively common in many Western jurisdictions, such as the UK, USA and Australia – particularly in relation to large, complex litigation (including class/representative actions), and its use is on the rise. For example, it has been reported that in June 2022, UK litigation funders' assets hit a record £2.2 billion (an 11% increase from the previous year), reflecting a 10-fold increase in the decade from £198 billion in 2011/2012.

Whilst the use of litigation funding has historically not been as common in the Middle East, it has, in recent times, become more popular in the UAE.

By way of background and summary, the UAE essentially covers three separate legal systems - the civil law "onshore" system (which applies Sharia law) and two common law "off-shore" court systems, which are the Dubai International Financial Centre (the "DIFC") based in Dubai, and the Abu Dhabi Global Market (the "ADGM").

Litigation Funding in the Different UAE Legal Systems

The UAE "onshore" court system has not historically proven to be an active market for third party funding. However, it remains open to litigation funders to fund parties to "onshore" legal cases if they wish to do so. There are no specific legislation, rules or regulatory bodies that govern these agreements. However, any parties that wish to enter into such funding arrangements need to comply with any applicable Sharia law principles, including (for example) the concept of good faith. It is also important that any funding provided in such cases not be considered to be a speculative or highly uncertain transaction, as this is likely to not comply with the Sharia law principle of gharar.

On the other hand, litigation funders are likely to be more interested in funding cases that are being heard in the DIFC and/or ADGM. This is, in part, because the DIFC/ADGM adopt common law principles. By way of example, the ADGM adopts English common law on an evergreen basis. Accordingly, these Courts are likely to be more familiar to US and UK based funders in the context of any analysis of the merits of a case.

Parties who wish to enter into funding arrangements in either the DIFC or the ADGM will need to comply with certain requirements and be subject to certain conditions, including the following:

  1. The DIFC issued Practice Direction No. 2 of 2017 on Third Party Funding in the DIFC Courts ("PD 2017"). PD 2017 sets out various requirements that must be complied with by "Funded Parties" in respect of their relationships, interactions and contracts with "Funders" concerning proceedings in the DIFC Courts. In particular:
    1. A Funded Party is required to put every other party to the relevant dispute on notice that it has entered into a litigation funding agreement and must disclose the identity of the funder.
    2. Practitioners are under a general duty to avoid conflicts of interest.
    3. The DIFC Courts may take into account that a party is funded when making determinations on application for security for costs (but this will not itself be determinative).
    4. The DIFC Courts also have inherent jurisdiction to make costs orders against third parties, including Funders, where the Court deems it appropriate given the circumstances of the case.
  1. The ADGM Regulations and the ADGM Funding Rules (issued in 2019) set out requirements that a funding agreement must contain in order to be recognized as valid by the ADGM Courts. In particular:
    1. A Funded Party is required to disclose the fact that it has entered into a litigation funding agreement.
    2. The agreement must be in writing and set out minimum information, including the scope, amount and timing of the funding, the funder's recovery, the funder's involvement in potential settlements and confidentiality obligations on litigation funders.
    3. The funder must take reasonable steps to ensure that the funded party has received independent legal advice on the funding agreement.
    4. The funding agreement must not contain terms which could induce the funded party's lawyer to breach their professional duties or allow the funder to influence the funded party's lawyer in such a way that the funder takes control of the dispute.

Increased use of Litigation Funding in the

There is currently no publicly available data or statistics that reveal the extent to which litigation funding is being utilized in the UAE. However, various commentators have stated that they have seen an increase in the use of litigation funding following the relatively recent updates to the ADGM and DIFC rules. Most commentators also agree that the use of litigation funding in the UAE is only likely to further increase.

Such views have coincided with an increase in the number of litigation funders who are offering third party litigation funding in the UAE. For example, Burford Capital (a company listed on the London stock exchange) opened an office in Dubai in early 2023 and is currently offering litigation funding in that jurisdiction. This is in addition to a number of other entities who are offering these services in the UAE, such as Omni Bridgeway and Fulcrum Capital.

Considerations for Parties, Funders and Practitioners Entering into Funding Arrangements

It is, of course, important for parties and funders to seek independent legal advice before entering into funding arrangements in the UAE (or any other jurisdiction). Furthermore, funders who wish to enter into funding arrangements in respect of local court matters should consider the risks, including the unlikelihood that the funded party will recover legal costs even if it is successful.

One of the key issues that must be considered by parties and practitioners is ensuring that the funder is subject to strict confidentiality obligations. Documents or information shared with funders is unlikely to attract legal privilege in the UAE, and accordingly it is important that parties not share privileged information with funders if they wish to maintain privilege over that information. It is recommended that the funding agreements in place with funders make clear that the agreement (or any documents shared with the funder prior to or after execution of the agreement) do not amount to a waiver of legal privilege. Parties should also carefully consider whether they must provide copies of legally privileged documents to funders and only provide such documents if absolutely necessary and if their provision is subject to strict confidentiality obligations.

As noted above, it is also important (and a requirement of both the DIFC and ADGM) that practitioners avoid conflicts of interest and ensure that the funder does not, in effect, take control of the litigation. Accordingly, practitioners should always ensure they are taking instructions on the conduct of the litigation directly from their clients and not from funders. Any agreement in place between a party and a funder should make clear that it is the party who makes all the decisions on the conduct of the litigation.

Conclusion

Litigation funding is likely to prove attractive to parties who are involved in UAE litigation, particularly where a party would otherwise find it economically difficult to bring or defend proceedings which are otherwise considered to be strong. There are a number of funders who are currently active in the UAE and who may be interested in funding such cases, particularly if they are brought in the DIFC or ADGM. It is expected that the number of funders will increase.

Parties who wish to enter into such arrangements may be required to and should seek independent legal advice before entering into such arrangements. Quinn Emanuel is well placed to advice any clients on such arrangements, having recently opened offices in both Abu Dhabi and Dubai.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.