The Landscape of Litigation Funding in the United Arab Emirates (UAE)

This is the third article in Clyde & Co’s latest international arbitration series covering the topic of litigation funding across various international jurisdictions. In this piece, Keith Hutchison (Partner), and Naser Hashem (Associate) from our Dubai office provide the legal perspective from the UAE.

Litigation funding, or third-party funding (“TPF”), is where a non-party (someone not involved in the dispute) agrees to fund a party’s (typically the claimant’s) costs in a dispute in litigation, in exchange for an agreed return once the case is concluded successfully.

The UAE as a jurisdiction is a hybrid system, with some courts following a civil law system (the ‘onshore’ system) and others applying a common law system (the ‘offshore’ system) based on the English model. The UAE has a federal legal system whereby each emirate (of which there are seven) has the authority to issue its own laws in certain areas, but federal laws take precedence. Each emirate may elect to participate in the onshore Federal Courts system or to establish its own local court system. Dubai, Abu Dhabi and Ras Al Khaimah emirates have each adopted their own local onshore court system.

Dubai and Abu Dhabi have also each established special legal zones which have their own ‘offshore’ common law jurisdiction and laws: respectively, these are the Dubai International Financial Centre (“DIFC”) and the Abu Dhabi Global Market (“ADGM”). 

The local onshore UAE courts apply a civil system that is derived from codified civil laws, whereas the offshore courts of the DIFC and ADGM apply a common law system that is heavily influenced by English law.

Given the absence of binding legal precedent in the UAE’s onshore courts, it can be difficult to foresee the outcome of legal decisions in those courts. Historically, this has discouraged the development of a TPF market within the UAE. However, with the increasing development of the DIFC and ADGM, and the predictability offered by their common law models, TPF is gradually becoming more common in the UAE, even for onshore court proceedings.

(1)  Is litigation funding permitted in your jurisdiction?

TPF is not expressly prohibited in the onshore UAE courts, however, there are no express provisions that acknowledge and regulate it either. Sharia law does prohibit interest (riba), excessive speculation (gharar), and profiting from ventures that are considered to be sinful. Accordingly, a TPF agreement that is subject to the jurisdiction of the UAE’s local courts would need to be carefully structured such that it does not fall foul of any of the Sharia law principles, otherwise, the agreement could be unenforceable.

Turning to the offshore courts, TPF agreements are more clearly regulated. The DIFC’s Practice Direction No. 2 of 2017 on Third Party Funding in the DIFC Courts provides that a funded party that enters into a TPF agreement must notify each other party in the proceedings of the TPF agreement. Similarly, Article 225 of the ADGM Courts, Civil Evidence, Judgments, Enforcement and Judicial Appointments Regulations 2015 and the ADGM’s Litigation Funding Rules 2019 set out the necessary requirements for TPF agreements.

(2)  Does this position on litigation funding apply in the same way to arbitration?

The status of TPF with respect to arbitration is the same as outlined above. While different arbitration laws apply in the onshore courts, DIFC Courts, and ADGM Courts, none of these laws prohibit TPF.

Arbitration in the onshore courts is governed by Federal Law No. 6 of 2018, while arbitration in the DIFC and ADGM is governed by the DIFC Arbitration Law No. 1/2008 and the ADGM Arbitration Regulations 2015, respectively. All of these laws are based on the UNCITRAL Model Law, which has brought the UAE in line with international best practices in arbitration.

Notably, the Dubai International Arbitration Centre (“DIAC”) has recently enacted the DIAC Arbitration Rules 2022 which, similar to the TPF disclosure requirements under the ADGM and DIFC rules, require that a party to a TPF arrangement must disclose details of the TPF arrangement to the tribunal.

(3)  Are there any upcoming or proposed rules or regulations in respect of litigation funding that may alter how your jurisdiction approaches litigation funding?

At present, we are not aware of any upcoming rules or regulations in respect of TPF.

(4)  Have there been any key decisions or awards?

There are no recent key decisions or awards concerning TPF arrangements, but the recently enacted rules in the DIFC, ADGM, and DIAC on TPF provide a high-level of clarity on the requirements surrounding TPF.

(5)  What is the current landscape of litigation funding in your jurisdiction – is there a notable market and are there any litigation funders well established in your jurisdiction?

There are a few internationally recognised litigation funders who are now established and operating in the UAE, together with several boutique funders as more recent entrants. The market for TPF is still not as developed as it is in the UK or the US. 

As confidence in the UAE’s legal system continues to grow, we expect to see the market continue to grow with increased TPF activity. 
 

This series will continue next week with the perspective from Hong Kong.