There are a number of judicial authorities within the United Arab Emirates and it is necessary to look at each separately when considering third-party funding.
Commercial disputes arising in the United Arab Emirates will be resolved by the local civil law courts unless the parties have opted into another jurisdiction or signed a valid arbitration agreement.
The United Arab Emirates consists of seven emirates. ‘Local courts’ or ‘onshore courts’ (see below) refer generically to the courts of the seven emirates.
In addition, the United Arab Emirates has a number of free zones where companies can set up and do business under the rules of the free zone. These rules are different from those that apply to companies doing business elsewhere in the United Arab Emirates. Businesses located in the free zones are commonly referred to as being in ‘offshore’ United Arab Emirates, with areas outside the free zones being known as ‘onshore’ United Arab Emirates.
Two free zones in the United Arab Emirates have their own courts, the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM). The rules of those courts determine the circumstances in which the courts have jurisdiction. Additionally, contracting parties, whether registered in these free zones, in onshore United Arab Emirates or outside the United Arab Emirates altogether, can agree that the DIFC or ADGM courts have jurisdiction to resolve their commercial disputes.
The DIFC and the ADGM also have their own common-law based laws. The DIFC’s laws are modelled closely on the principles of English common law. English common law is directly applicable in the ADGM, as are certain United Kingdom statutes.
Parties doing business in the United Arab Emirates also have the option to agree that disputes will be resolved by arbitration. Parties can choose between having the arbitration seated in onshore United Arab Emirates, in the DIFC or in the ADGM. In the case of an onshore seat the arbitration will be governed by the recently enacted UAE Federal Arbitration Law (Law No. (6) of 2018). Arbitration seated in the DIFC will be subject to the DIFC Arbitration Law (DIFC Law No. 1 of 2008) while arbitration in the ADGM is governed by the ADGM Arbitration Regulations 2015.
There are no rules or laws that prohibit litigation funding in the United Arab Emirates. Indeed, there is a strong argument that litigation funding is consistent with the key jurisprudential principle in sharia law that a transaction should benefit public interest (maslaha) in the sense that funding can give parties of limited financial means a method of funding meritorious claims that they might otherwise be unable to pursue.
Case reporting of local court decisions is confined to important decisions of the Courts of Cassation and so the attitude of the local courts to third-party funding is difficult to discern. However, there has been no indication from reported cases that it is either discouraged or regarded unfavourably although it is still relatively uncommon in the local courts.
Some commentators have suggested that the sharia law prohibition on speculative or highly uncertain transactions (Gharar) may apply to third-party funding arrangements in onshore UAE. However, funders usually carry out extensive due diligence on the merits of a case before agreeing to funding, and in those circumstances it seems unlikely that the Gharar prohibition would apply. The risk can be further mitigated by careful drafting of the funding agreement, with the risks and benefits to both parties being clearly identified so that it is clear that neither party is taking excessive risk.
Third-party funding in the DIFC court is permitted and the DIFC court issued a Practice Direction on Third Party Funding in March 2017. The rules in the DIFC Practice Direction largely mirror the position in England and Wales but they are not identical.
Third-party funding in the ADGM courts is permitted by Part 9 of the ADGM Courts, Civil Evidence, Judgments, Enforcement and Judicial Appointments Regulations 2015 (ADGM Courts Regulations), unless the matter relates to proceedings that cannot be the subject of an enforceable conditional fee agreement, or to any proceedings specifically prescribed by the Chief Justice.
Third-party funding is not addressed specifically in the arbitration laws applicable in onshore United Arab Emirates, the DIFC or the ADGM but there is no reason to suppose that it would not be permitted under the general laws applicable in those jurisdictions. The fact that third-party funding is specifically permitted in litigation in the DIFC and ADGM courts is a good indicator that it would not be prohibited in arbitration seated in the DIFC or ADGM.
The reference to third-party funding in the draft new Dubai International Arbitration Centre (DIAC) Rules is another recognition of the legitimacy of third-party funding in an arbitration context.
The new Federal Arbitration Law in the United Arab Emirates is based on the 2006 United Nations Commission on International Trade Law (UNCITRAL) Model Law, with some adaptations to fit the local legal framework. The grounds for challenge of an arbitration award closely follow the equivalent provisions in the Model Law, with some additional grounds for challenge based on irregularities in the arbitral proceedings. Much will depend on how the new law is interpreted by the onshore courts, but the new law should generally lessen concerns over enforcement of onshore UAE-seated arbitration awards against assets in onshore United Arab Emirates. This should make the funding of arbitration in the United Arab Emirates a more attractive prospect than it was previously.
Back to top