Originally from Handbook on Third-Party Funding in International Arbitration, Second Edition

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PART I.  THE THIRD-PARTY FUNDING LANDSCAPE

1.  The TPF market in the UAE

1.1.  Please shortly describe the TPF market in your Jurisdiction.

To understand third-party funding of arbitration in the UAE, it is first important to understand the jurisdiction more broadly. The UAE is comprised of seven distinct Emirates, being: Abu Dhabi; Dubai; Sharjah; Ajman; Umm Al-Quwain; Fujairah; and Ras Al Khaimah. Each of these Emirates is subject to the federal laws of the UAE and its own local law. In addition to these ‘onshore’ civil law jurisdictions, the UAE contains two ‘off-shore’ common law jurisdictions – the Dubai International Financial Centre (‘DIFC’) and the Abu Dhabi Global Market (‘ADGM’). The result is a jurisdiction comprising several distinct legal systems, spanning both civil and common law.

UAE law is also informed by Sharia law, with the Constitution of the UAE providing that Islamic Sharia is the main source of legislation in the country. While much of the law in the UAE has been codified, Sharia law may be adopted to fill any gaps in which no relevant legislation exists. For instance, Federal Law No. 5 of 1985 on Civil Transactions (as amended) expressly allows UAE judges to decide matters according to Sharia in the event there is no relevant provision in the civil law.

Historically, funders have been hesitant to be involved in disputes before UAE courts or tribunals, due to the perceived uncertainty of outcome. As regards arbitration, this uncertainty largely stems from the unpredictability of the onshore UAE courts, which have a supervisory role in respect of any onshore seated arbitration. As they use a civil law system, the onshore courts do not recognize the concept of precedent, reducing the predictability of any proceeding for interim measures or enforcement. Additionally, it is unclear whether the federal law of the UAE allows a judge to uphold a tribunal’s award of legal costs in favour of the successful party and therefore may only allow nominal cost recovery. As such there is risk that the proportion of total recovery from a successful action will be lower in the UAE than in jurisdictions that permit full recovery of legal costs for the successful party. A separate concern for funders is that UAE law recognizes the Sharia concept of ‘gharar’, which prohibits excessive speculation, requiring careful structuring of funding agreements and increasing the risk that a funding agreement could be found to have been illegal (although there is no actual prohibition against third-party funding in the UAE).

These concerns are less pronounced in the DIFC and ADGM courts which, among other things, are common law systems and operate on the basis of binding precedent. However, as these systems are relatively new, outcomes can still be uncertain when compared to more established jurisdictions such as those of the United Kingdom and United States.

However, the publication of the Federal Arbitration Law (federal law No. 6 of 2018) has brought the law governing arbitrations seated in the onshore UAE more clearly in line with international best practice, providing an additional degree of certainty and stability for third-party funders with an interest in the region.