Third Party Funding in UAE Arbitration

Overview

Third Party Funding has become an increasingly relevant feature of international arbitration, and its emergence within the United Arab Emirates reflects broader global trends in dispute resolution. Although it is not a new concept, its application in the UAE has gained momentum only in recent years, particularly in the industries of construction, energy, and various other high-value commercial disputes where the costs of arbitration can be substantially high. 

Third Party funding usually involves a non-party funder financing all or certain aspects of the legal costs of an arbitrational dispute in exchange for an agreed return in the event of success. In many established arbitration jurisdictions, it has developed into an entrenched mechanism that promotes access to justice while allowing parties to manage financial and litigation risk. 

In the UAE, although third-party funding is still developing in onshore disputes, it is increasingly recognised by dispute resolution lawyers as a viable, and in some cases essential, tool for parties seeking effective dispute resolution services. 

UAE Landscapes and Developments

Currently, the UAE does not have legislation that expressly allows or regulates third party funding. Equally, there is no law that prohibits it either. The absence of express regulation is not unusual in civil law and Sharia-influenced jurisdictions, which do not share the common law doctrines of maintenance that historically restrict external funding of claims. 

Due to this regulatory silence, funders have traditionally approached this region with caution. Concerns have been centered around unfamiliarity with local legal systems, uncertainty around enforcement, and historically inconsistent judicial approaches to arbitration. Prior to 2018, the absence of a standalone arbitration law was often viewed as a significant risk factor by funders and international dispute resolution practitioners. 

This position has changed significantly. The introduction of the Federal Law No. (6) of 2018 Concerning Arbitration, largely based on the UNCITRAL Model Law, marked a crucial step towards modernising arbitration practices within the region. The law replaced the previous provisions of the Civil Procedure Code and has been widely welcomed. 

There have also been material changes within the UAE’s financial freezones. In particular, the Dubai International Financial Centre Courts issued Practice Direction No.2 of 2017, which addresses funded proceedings before those courts and sets out certain disclosure and conduct requirements. Although this guidance does not have a direct impact on onshore UAE arbitrations, it reflects an institutional acceptance of third-party funding within the region and has contributed to building confidence among funders. 

Sharia Law Considerations. 

Third Party funding is not specifically addressed under Sharia Law, but it can be argued that it is not prohibited in principle. Three fundamental prohibitions of Sharia Law include riba (Interest), gharar (excessive uncertainty), and maysir (gambling). Coherent structured funding arrangements do not explicitly conflict with these principles. Funders would receive a pre-agreed share of proceeds rather than interest, and funding decisions are based on extensive legal and factual due diligence rather than speculation. Many UAE dispute resolution lawyers view third-party funding as compatible with Sharia-compliant dispute resolution practices when carefully structured.

Benefits of Third-Party Funding. 

The UAE continues to generate a significant volume of complex, high-value disputes, specifically in areas such as construction and infrastructure. These kinds of disputes usually involve long timelines, extensive expert opinions, and significant legal costs. Even in situations where one party has a high chance of success in their case, committing substantial capital towards arbitration may be commercially undesirable. 

Third-party funding allows parties to pursue or defend claims without the burden of diverting capital from core business operations. Most arrangements are structured on the basis that if the claim fails, the funded party is not required to repay the funding, which in turn can significantly reduce risk, and provide increased protection to business finances. 

Furthermore, the involvement of an experienced funder shows confidence in the merits of a claim and the claimant’s ability to pursue the dispute through to a final judgment. Funders also typically conduct rigorous legal due diligence before investing, which provides an additional layer of merit assessment that can strengthen the funded party’s overall strategy.  In cases where parties have multiple disputes, funding can be used to manage risk across a portfolio of claims allowing stronger cases to support weaker ones, enabling a more structured approach to dispute resolution. 

Challenges of Third- Party Funding

Despite several advantages, third party funding in the UAE is not without its challenges. The absence of detailed statutory regulations means that issues such as disclosure, conflicts of interest and the degree of funder involvement in proceedings need to be managed carefully. Flexibility also creates uncertainty, especially where local courts’ opinions have not been fully tested. 

Enforcement of judgments remain a concern for funders. Although enforcement regimes in the region have improved considerably over the years, perceived risks can still affect funding decisions. While recent decisions suggest a growing acceptance of the notion, there remains limited case law directly addressing the validity or consequences of funding arrangements. 

The Road Ahead

Recent legal and institutional developments have strengthened confidence in arbitration and third-party funding in the UAE. The Civil Law foundations of the UAE legal system combined with the absence of historical restrictions on funding, place the jurisdiction in a favourable position as the market develops. It will be interesting to see how things progress over the coming years in this region.

If you are involved in a high-value commercial dispute or arbitration and are exploring strategic funding options, our experienced dispute resolution lawyers can help. We advise clients on arbitration strategy, third-party funding arrangements, and risk management across complex disputes.

Contact our dispute resolution team today to discuss how third-party funding and tailored dispute resolution services can support your case.