This article considers the use and regulation of third party funding in the United Arab Emirates (UAE), historical impediments to the proliferation of third party funding, recent legal developments that may favour the growth of third party funding in the market, and views on the future landscape of third party funding.
While third party funding has existed in some form or another for some time, its use in recent years has significantly expanded in a number of jurisdictions across the world, both in court litigation and in both international and domestic arbitration.
What is third party funding and why it is used?
Third party funding is effectively a mechanism by which a party (the funder) who is unrelated to the parties in the dispute provides financial support to one of the parties in the dispute. Typically, this financial support will cover the party’s legal costs and disbursements. These costs (whether they are incurred in litigation or arbitration) can often be substantial and therefore sometimes discourage legitimate actions from being commenced. Third party funding provides an avenue to ensure that the cost of the legal proceedings is not an impediment to a party’s right to bring an action.
This was, and remains, particularly attractive for parties who could not afford the costs of the dispute and/or did not have the cash liquidity for the costs of litigation or arbitration, which can in some cases be disproportionately high compared to the amounts in dispute. This is particularly true where the claim is complex and requires a substantial amount of legal analysis and expert opinion.
In today’s market, third party funding is also used by parties who want to manage their financial risk and the exposure associated with litigation or arbitration, by removing these costs from their company’s balance sheet. By seeking external funding, a company can ensure that its financial resources are not diverted away from the day-to-day operations of their business towards often costly and lengthy proceedings.
Each funding arrangement is different, but generally a third party funder will be reimbursed its investment, along with an agreed percentage of any sum recovered in the judgment or award.
Third party funding can be used by either claimants or defendants/respondents, and the funding arrangement put in place is tailored to each case or portfolio of cases.
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