Civil Law and UAE Litigation Finance Market Dynamics

1. Introduction

Litigation finance, also called third-party litigation funding (TPF), is an arrangement under which an independent funder finances some or all of the costs of litigation in return for an economic benefit connected with the outcome of the dispute. The funding may cover lawyers' fees, court fees, experts, translations, enforcement expenses and other litigation costs.

The UAE litigation-finance market is not governed by one uniform regime. The legal position differs substantially between:

1. UAE onshore courts — Dubai, Abu Dhabi and other emirate courts;
2. DIFC Courts — common-law based;
3. ADGM Courts — common-law based.

As of 2026, third-party funding is expressly accommodated in the DIFC and ADGM systems, while onshore UAE litigation does not have an equivalent comprehensive statutory framework. Current professional commentary describes onshore funding as legally possible but comparatively uncertain and less developed.

The distinction is particularly important because litigation finance affects access to justice, costs, control of proceedings, conflicts of interest, confidentiality, security for costs, settlement and enforcement.

2. Meaning of Litigation Finance

A typical litigation-finance structure involves:

Claimant → Litigation Funder → Financing → Lawyers/Experts/Court Costs

If the case succeeds:

Recovery → Claimant + Funder according to LFA

If the case fails, the commercial risk may remain substantially with the funder, depending on the agreement.

A Litigation Funding Agreement (LFA) normally deals with:

• amount of funding;
• legal and expert expenses;
• funding duration;
• return payable to the funder;
• settlement;
• termination;
• control of proceedings;
• adverse costs;
• confidentiality;
• disclosure;
• enforcement of the judgment;
• treatment of recovered money.

The DIFC's Practice Direction No. 2 of 2017 expressly defines funding as financial assistance potentially giving the funder an economic benefit linked to the proceedings, including a share of proceeds.

3. UAE Legal Framework

A. Onshore UAE Courts

There is currently no comprehensive statutory regime specifically regulating third-party litigation funding before the ordinary UAE courts.

Therefore, funding arrangements are principally assessed through:

• general contract law;
• good faith;
• public policy;
• professional ethics;
• rules governing litigation and representation;
• assignment principles;
• confidentiality and privilege;
• procedural rules concerning costs and security.

Current UAE litigation guidance describes onshore third-party funding as not expressly prohibited but relatively untested. It is more frequently encountered in high-value arbitration than ordinary court litigation.

This creates an important market distinction:

Onshore UAE = contractual and relatively uncertain framework.

DIFC/ADGM = express common-law-based funding frameworks.

4. Impact of the New UAE Civil Transactions Law

The Federal Decree-Law No. 25 of 2025, effective from 1 June 2026, replaced the previous Civil Transactions Law.

The new law introduced a more developed framework for assignment of rights, which is relevant to litigation finance because a funder may sometimes seek an economic interest in a claim or its proceeds. The UAE Government itself identifies assignment of rights as one of the reforms introduced by the new Civil Transactions Law.

However:

Funding a claim ≠ automatically acquiring the claim.

A litigation funder normally finances the claimant rather than becoming the claimant.

This distinction is legally important because a funding arrangement that is structured as an outright transfer of the underlying claim can raise different questions from a financing agreement based on a contractual return.

5. DIFC Third-Party Funding Regime

The DIFC has the clearest UAE court framework.

Practice Direction No. 2 of 2017 establishes requirements for funded parties and funders.

Among other things:

• the funded party must disclose the existence of funding;
• the funder's identity must generally be disclosed;
• the actual LFA does not automatically have to be disclosed;
• the Court can consider funding when dealing with security for costs;
• funding alone is not automatically determinative of security;
• the Court has stated that it possesses jurisdiction that may permit costs orders against third-party funders in appropriate circumstances. 

This has made the DIFC a particularly important UAE jurisdiction for litigation-finance activity.

6. Market Dynamics

A. Access to Justice

One of the principal economic functions of litigation finance is to enable a claimant without sufficient liquidity to pursue a valuable claim.

For example:

A company has a AED 100 million commercial claim but cannot comfortably spend AED 5 million on lawyers, experts and other litigation expenses.

A funder may finance those expenses in exchange for an agreed economic return.

Thus:

Claim value alone does not determine litigation viability.

The claimant's ability to finance the litigation becomes another variable.

The DIFC itself has described third-party funding as a mechanism capable of improving access to justice and reducing the importance of unequal financial resources between parties.

7. B. Corporate Balance-Sheet Management

Litigation finance is not limited to financially distressed claimants.

A financially strong corporation may use funding to:

• preserve cash;
• manage litigation budgets;
• avoid concentrating capital in disputed claims;
• transfer some litigation risk;
• finance enforcement;
• pursue multiple claims simultaneously.

Consequently, litigation finance can operate as a risk-management instrument, not merely as emergency financing.

8. C. Case Selection by Funders

Professional funders normally assess:

1. merits of the claim;
2. quantum;
3. defendant's ability to pay;
4. enforceability;
5. duration;
6. legal costs;
7. jurisdiction;
8. evidence;
9. settlement prospects;
10. potential return.

This creates a form of private economic screening.

A strong claim with a large recoverable amount may attract funding even when the claimant lacks liquidity.

Conversely, a theoretically valid claim may not attract funding if:

• recovery is uncertain;
• defendant is judgment-proof;
• enforcement is difficult;
• costs are disproportionate;
• proceedings are excessively lengthy.

9. D. Security for Costs

Security for costs is one of the most important market dynamics.

The DIFC Rules specifically allow security applications where the claimant is unable to pay the defendant's costs, and Rule 25.104 expressly contemplates situations where another person contributes to litigation costs in return for a share of recovered money.

Therefore:

Funding does not automatically eliminate the defendant's costs risk.

The court may examine:

• claimant's financial position;
• funder's financial capacity;
• amount of funding;
• adverse-costs coverage;
• enforceability;
• terms of the LFA;
• practical ability to recover costs.

10. Case Law

Case 1 — Vannin Capital PCC PLC v Al Khorafi & Others [2014] DIFC CFI 036

This is one of the most significant UAE litigation-funding decisions.

Vannin Capital had entered into a litigation funding agreement with the Al Khorafi claimants.

Following a substantial judgment in the underlying litigation, Vannin sought protection of its contractual interest in the recovered proceeds.

The DIFC Court ordered substantial sums to be paid into court pending determination of the competing entitlements.

Significance

The case demonstrates that:

• litigation funding agreements can create commercially significant rights;
• the court can protect disputed proceeds;
• funding arrangements can become the subject of separate litigation;
• the funder's economic interest can become relevant to distribution of judgment proceeds.

It is an important illustration of litigation finance becoming part of the procedural architecture of a dispute, rather than merely a private financial arrangement.

11. Case 2 — Al Khorafi & Others v Bank Sarasin-Alpen (ME) Ltd & Another — CFI-026-2009

The underlying litigation was itself funded.

The DIFC Court record expressly records the existence of litigation funding and the subsequent dispute concerning how the recovered sums should be dealt with.

Significance

The case demonstrates the practical relationship between:

judgment proceeds → funding agreement → lawyers → claimant → funder.

It also demonstrates why a funding agreement should clearly specify:

• payment mechanism;
• priority;
• control of proceeds;
• termination;
• lawyer obligations;
• settlement;
• distribution.

12. Case 3 — LXT Real Estate Broker LLC v SIR Real Estate LLC [2025] DIFC CFI 073/2024

This is particularly important for modern UAE litigation-finance practice.

LXT acknowledged that it relied on third-party funding. The defendant sought security for costs, arguing that LXT's financial position created difficulty in recovering an adverse costs award.

The Court considered the funding arrangement and the funder's financial position when dealing with the security application.

Significance

The case demonstrates that:

A funded claimant can still face a substantial security-for-costs requirement.

Funding is therefore not equivalent to a guarantee that the opposing party's costs will be paid.

13. Case 4 — LXT Real Estate Broker LLC v SIR Real Estate LLC [2025] DIFC CA 005/2025

The Court of Appeal provided an important clarification.

It rejected the proposition that the mere existence of a litigation funder automatically justifies reducing security for costs.

The court stated that the assessment must be fact-sensitive, including consideration of:

• the substance of the funding arrangement;
• the funder's financial capacity;
• the extent of the funder's commitment to adverse costs. 

Significance

This creates an important principle:

Funding ≠ automatic financial protection.

A court must examine the actual funding arrangement.

14. Case 5 — Bank Sarasin-Alpen (ME) Ltd v Sassoon & Others [2023] DIFC CFI 009/2023

This case provides another important illustration of litigation finance.

The liquidator approached approximately ten commercial litigation funders before ultimately obtaining funding from Mr Al Khorafi.

The funding arrangement was unusual because it did not require the usual interest or uplift and did not give the funder control over the litigation. The liquidator retained control of the proceedings.

Significance

The case shows that the market is not restricted to one standard funding model.

Possible structures include:

• commercial return funding;
• claimant-side funding;
• litigation finance by interested parties;
• funding without conventional interest;
• arrangements preserving claimant/litigation-manager control.

It also illustrates the importance of examining the economic substance of a funding arrangement rather than merely its label.

15. Case 6 — Bank of Baroda (DIFC Branch) v Neopharma LLC & Others [2020] DIFC CFI 043

The case involved discussion of the DIFC Practice Direction's provision concerning potential costs orders against third-party funders.

The Court noted that the Practice Direction refers to the DIFC Court's inherent jurisdiction to make costs orders against third parties, including funders, but also recognised that the exact scope of that jurisdiction had not been fully determined in the proceedings before it.

Significance

This is important because it prevents an overly broad proposition:

A funder is not automatically liable for every adverse cost.

Instead, the potential liability depends upon the applicable procedural jurisdiction and the circumstances of the case.

16. Case 7 — Rafed Abdel Mohsen Bader Al Khorafi & Others v Bank Sarasin-Alpen — CFI-026-2009

The litigation record demonstrates that the claimants had third-party litigation funding and that the funder subsequently became involved in protecting its contractual economic interest in the judgment proceeds.

The Court dealt with the mechanism through which the money was to be held pending determination of competing rights.

Significance

The case illustrates a fundamental litigation-finance issue:

Who controls recovered money after judgment?

A carefully drafted LFA should therefore specify the payment waterfall and the funder's rights concerning proceeds.

17. Case 8 — Techteryx Ltd v Aria Commodities DMCC & Others [2025] DIFC DEC 001/2025

This case is particularly useful for understanding the relationship between funding/security and interim relief.

The DIFC Court considered security for costs and explained that security exists to provide a fund from which an adverse costs order can be satisfied.

The Court ultimately ordered security of USD 650,000, applying a broad assessment of the relevant circumstances and balancing prejudice.

Significance

Litigation funding therefore operates alongside other forms of litigation security.

A claimant may have:

• litigation funding;
• injunction protection;
• asset preservation;
• security for costs;

at the same time.

These mechanisms serve different purposes.

18. Case 9 — SBM Bank (Mauritius) Ltd v Renish Petrochem FZE & Another [2018] DIFC CFI 054

The case record contains evidence concerning third-party funding and an application concerning access to funds for legal expenses.

The Court examined the practical evidence concerning the funding arrangements and the claimant's ability to finance the proceedings.

Significance

Funding is not simply a contractual concept. Courts may have to examine:

• whether promised funding is actually available;
• whether funding can be accessed;
• whether litigation can realistically proceed;
• whether financial evidence is credible.

19. Case 10 — Trafigura Pte Ltd & Another v Prateek Gupta & Another [2025] DIFC CFI 040/2025

The Court record referred to litigation funding provided by Nomas Global Investments LLC in connection with proceedings.

The case demonstrates that funding arrangements may become relevant to the court's assessment of financial circumstances and enforcement-related applications.

Significance

Modern litigation finance is increasingly intertwined with:

• asset tracing;
• enforcement;
• freezing orders;
• cross-border litigation;
• disclosure of financial arrangements.

20. Major Market Dynamics in UAE

21. Litigation Finance and Settlement

Settlement is one of the most sensitive issues.

Suppose:

• claimant's claim = AED 50 million;
• funder has invested AED 5 million;
• defendant offers AED 10 million.

The claimant may want to reject the offer because the claim has a higher potential value.

The funder may prefer settlement because it reduces:

• additional legal costs;
• duration risk;
• enforcement risk;
• adverse-cost exposure.

Therefore, the LFA should establish:

• who decides whether to settle;
• whether the funder's consent is necessary;
• what happens if the claimant rejects a reasonable settlement;
• how settlement proceeds are distributed.

The DIFC framework also places importance on avoiding inappropriate influence by funders over litigation and settlement decisions.

22. Litigation Finance and Lawyer Independence

A major legal principle is:

The funder finances the case but should not improperly become the lawyer or decision-maker.

Potential conflicts include:

• funder selecting counsel;
• funder controlling settlement;
• funder receiving confidential information;
• lawyer owing duties simultaneously to claimant and funder;
• funder's economic interests conflicting with claimant's interests.

This explains why disclosure and professional-conduct rules are important in the DIFC.

23. Litigation Finance and Confidentiality

Funders normally conduct extensive due diligence before investing.

They may request:

• pleadings;
• contracts;
• expert reports;
• correspondence;
• financial records;
• evidence;
• valuation material;
• previous legal advice.

This creates confidentiality questions.

A well-structured funding process should therefore address:

1. confidentiality;
2. privilege;
3. permitted disclosure;
4. data protection;
5. secure information exchange;
6. use of expert material.

The existence of funding does not automatically mean that the entire LFA becomes publicly available. Under DIFC Practice Direction No. 2 of 2017, the funder's identity must generally be disclosed, while the LFA itself need not ordinarily be disclosed unless ordered.

24. Litigation Finance and Assignment of Claims

A critical distinction should be maintained between:

Funding

The funder finances litigation but the claimant retains ownership of the claim.

Assignment

The legal right itself is transferred to another party.

These structures can produce very different legal consequences.

The new UAE Civil Transactions Law expressly develops the law of assignment, including assignment-related rights and obligations.

Therefore, future UAE litigation-finance structures must be carefully drafted to avoid accidentally transforming financing into a transaction with fundamentally different legal characteristics.

25. Onshore UAE vs DIFC

The DIFC therefore currently provides a much more developed judicial environment for litigation finance.

26. Economic Advantages

Litigation finance can:

1. Improve access to justice

A claimant need not abandon a legitimate claim solely because of lack of liquidity.

2. Spread litigation risk

The claimant transfers some financial risk to the funder.

3. Preserve corporate cash

Businesses can retain capital for operations.

4. Increase enforcement activity

A judgment with significant value may become commercially enforceable through funded enforcement.

5. Professionalise dispute assessment

Funders conduct detailed merits and recovery analysis.

6. Facilitate complex litigation

Large construction, shareholder, financial, fraud and cross-border claims may require significant expenditure.

27. Potential Risks

Litigation finance also produces legal and commercial risks.

A. Conflict of interest

The funder's financial objectives may differ from those of the claimant.

B. Excessive funder control

A funder should not improperly control litigation strategy or settlement.

C. Security for costs

A funded claimant may still be required to provide security.

D. Funding withdrawal

The agreement should carefully address circumstances in which funding can terminate.

E. Excessive economic return

A disproportionate return may create contractual, public-policy or fairness questions, particularly in an onshore setting.

F. Confidentiality

Disclosure of sensitive documents during funding due diligence must be managed carefully.

G. Enforcement risk

Winning a case is not equivalent to recovering money.

28. Future Development of the UAE Market

Several developments are likely to influence the UAE litigation-finance market:

1. Growth of sophisticated commercial disputes

More complex corporate, financial, construction and technology disputes create potential funding opportunities.

2. Development of DIFC jurisprudence

Cases such as LXT demonstrate that courts are increasingly examining the economic substance of funding arrangements.

3. Greater institutionalisation

Funding is moving from informal arrangements toward professionally documented investment structures.

4. Greater emphasis on funder solvency

The LXT decisions demonstrate that the financial capacity of the funder can matter when security for costs is considered.

5. Increased interaction with arbitration

Funding remains particularly relevant to expensive international arbitrations involving UAE parties.

6. Assignment reform

The 2025 Civil Transactions Law's development of assignment principles will make the legal structure of rights-based finance increasingly important.

29. Practical Checklist for a UAE Litigation Funding Agreement

A properly structured LFA should address:

1. Identity of the funder;
2. Identity of the funded party;
3. Nature of the dispute;
4. Amount of funding;
5. Permitted expenditure;
6. Funding period;
7. Funder's return;
8. Treatment of interest;
9. Settlement authority;
10. Litigation-control arrangements;
11. Counsel's independence;
12. Confidentiality;
13. privilege;
14. disclosure obligations;
15. adverse costs;
16. security for costs;
17. termination;
18. withdrawal;
19. enforcement;
20. distribution of recovered proceeds;
21. assignment restrictions;
22. dispute-resolution clause;
23. governing law;
24. consequences of insolvency.

30. Important Legal Principle

The most important conceptual distinction is:

Litigation finance is not simply a loan.

Its economic return may depend upon the outcome of litigation. Consequently, the arrangement sits at the intersection of:

contract law + civil procedure + professional ethics + costs law + assignment law + insolvency + enforcement + public policy.

That is why the DIFC has developed a specific framework rather than treating funding as an ordinary commercial loan.

31. Conclusion

The UAE litigation-finance market is developing but remains jurisdictionally fragmented.

The onshore UAE system does not presently have a comprehensive statutory third-party litigation-funding regime. Funding therefore has to be structured carefully within general principles of contract, good faith, public policy, professional conduct and procedural law.

The DIFC, by contrast, has expressly recognised third-party funding through Practice Direction No. 2 of 2017. Its jurisprudence demonstrates that the central issues are disclosure, security for costs, funder solvency, control of proceedings, protection of proceeds and possible costs consequences.

The cases from Vannin Capital, Al Khorafi, LXT, Bank Sarasin, Bank of Baroda, Techteryx and SBM Bank demonstrate the evolution of litigation finance from a private funding arrangement into an issue capable of affecting the procedural and financial management of litigation itself.

Quick Revision Points

• Litigation finance = third party finances litigation for an economic return.
• UAE has no single uniform TPF regime.
• Onshore UAE funding remains comparatively underdeveloped and legally less tested.
• DIFC expressly recognises third-party funding.
• DIFC funder identity generally must be disclosed.
• LFA itself is not automatically disclosed.
• Funding may affect security-for-costs applications.
• Funding does not automatically guarantee payment of adverse costs.
• Funder financial capacity can be important.
• Courts can protect judgment proceeds where competing funding interests exist.
• Funder control must be distinguished from legitimate economic protection.
• Funding is different from assignment of the underlying claim.
• The 2025 Civil Transactions Law's assignment reforms are relevant to future funding structures.
• Litigation finance can promote access to justice but creates conflicts, confidentiality and costs issues.
• DIFC jurisprudence is presently the most developed UAE judicial source on litigation funding.