With the UAE’s rise as a business and commercial center in the world, arbitration has emerged as one of the most sought-after methods of conflict resolution in business and commercial disputes. From construction and real estate disputes to financial and international trade disputes, arbitration has emerged as the best alternative to traditional and time-consuming litigation.
In the changing face of the UAE’s laws and regulations, third-party funding is also gaining significant importance in the UAE’s arbitration process. Businesses and organizations are increasingly adopting this method of funding to pursue sound and valid legal claims without compromising their cash flow.
At Charter Legal, we recognize the significance of third-party funding in the UAE’s arbitration process and its potential to help businesses resolve their conflict resolution issues in an effective and efficient manner.
What is Third-Party Funding in Arbitration?
Third-party funding is defined as an arrangement whereby an independent and unbiased party bears the costs of the legal and arbitration proceedings of one of the parties in conflict.
These expenses may include:
- Legal counsel fees
- Arbitrator fees
- Expert witness costs
- Administrative charges
- Enforcement expenses
In return, the funder receives an agreed percentage of the final settlement or arbitral award if the case is successful.
If the claim does not succeed, the funded party typically does not need to repay the funder. This makes it a non-recourse funding model, which is highly attractive for businesses facing expensive arbitration proceedings.
Why Third-Party Funding is Growing in UAE Arbitration
The UAE is one of the leading destinations for international business, foreign investment, and large-scale commercial projects. With this growth comes an increase in contractual disputes, especially in sectors such as:
- Construction
- Infrastructure
- Energy
- Real estate
- International trade
Arbitration institutions such as the Dubai International Arbitration Centre (DIAC), DIFC Arbitration, and ADGM Arbitration Centre have made the UAE a preferred arbitration destination.
However, arbitration can be expensive, especially in complex commercial matters. This is where third-party funding becomes a practical solution.
At Charter Legal, we have seen how TPF helps businesses pursue valid claims while protecting their operational capital.
Legal Framework for Third-Party Funding in UAE
The legal perspective of third-party funding in the UAE is subject to the jurisdiction of the arbitration.
Onshore UAE Arbitration
Currently, there is no legislation in UAE that deals with third-party funding, as is evident in the Federal Arbitration Law
Although there is no legislation that deals with third-party funding in UAE, it is also important to understand that there is a need to clarify that there is no legislation in UAE on third-party funding, which in no way means that third-party funding is not allowed.
This is on a positive note, especially since third-party funding is becoming popular in business disputes.
However, it is also important that the agreement is valid in order to avoid any procedural problems that may arise in the future.
As Charter Legal states, “Businesses are advised to be cautious when entering into third-party funding agreements to avoid any future procedural-related problems.”
DIFC Arbitration
It is believed that the DIFC may be more favorable to third-party funding agreements.
It is the most popular choice of international businesses because it has modern laws and is favorable to arbitration.
Although the agreements are easy to make, it is important to be transparent and comply.
ADGM Arbitration
The Abu Dhabi Global Market (ADGM) has a more defined position in relation to third-party funding.
The rules of the ADGM state that the parties must disclose the following:
- The existence of the third-party funding agreement
- The identity of the funder
- This ensures transparency and avoids conflicts of interest.
- Key Benefits of Third-Party Funding
- Access to Justice
Many businesses, especially startups and SMEs, may possess good legal merits but are unable to access arbitration due to insufficient funds.
Key Benefits of Third-Party Funding
Third-party funding is the answer to access to justice.
Better Cash Flow
Businesses do not need to spend their capital on legal disputes; instead, they can utilize their funds more efficiently.
Reduced Financial Risk
The risk of the arbitration is entirely the responsibility of the funder.
Strategic Case Review
The funder conducts thorough due diligence before investing, which increases the confidence in the case merits.
We at Charter Legal assist clients in determining the viability of the case to proceed with third-party funding.
Risks and Important Considerations
While TPF offers major advantages, businesses must also consider:
Disclosure Requirements
Certain jurisdictions require mandatory disclosure.
Conflict of Interest
Arbitrators must remain independent and free from any connection with the funder.
Reduced Final Recovery
The successful party will need to share a portion of the award with the funder.
Control of the Claim
Funding agreements should clearly define whether the funder can influence settlement decisions.
How Charter Legal Can Help
At Charter Legal, we provide expert legal guidance on arbitration and dispute resolution in the UAE.
Our team assists clients with:
- Arbitration strategy
- Funding agreement review
- Risk assessment
- Disclosure compliance
- Enforcement support
We help businesses make informed decisions about third-party funding while protecting their legal and commercial interests.
Conclusion
Third party funding in UAE arbitration proceedings is becoming an increasingly valuable tool in the fight for cost-efficient business dispute resolution.
Regardless of the arbitration venue, on-shore UAE, DIFC, or ADGM, the right legal advice is crucial.
At Charter Legal, we are dedicated to helping businesses make sense of arbitration funding schemes.
For expert advice on arbitration and third party funding in the UAE, we at Charter Legal are here to help.