On 14 March 2017 the DIFC Courts issued “Practice Direction 2 of 2017 – Third Party Funding in the DIFC Courts” (PD 2/2017) forming part of the Courts’ procedural rules. This followed a period of public consultation over a draft of the Practice Direction, which is believed to have generated a good level of industry feedback from the local legal community and third party funders themselves.

Why has PD 2/2017 been issued?

As we noted in our recent article “Legal developments and funding in the UAE”, the increase in local market awareness of litigation funding as a commercial and financial tool has been coupled with growing international business confidence in the UAE’s legal landscape, prompting litigation funders to view more favorably the opportunity for funding claims in DIFC Courts proceedings.

The growth of litigation funding in international commercial litigation has seen its (public) advent in the DIFC Courts highlighted in the recent case of Al Khorafi v Bank Sarasin (CFI 026/2009) and related interim relief proceedings brought by the claimants’ third party funder, Vannin Capital (CFI 036/2014).

In anticipation of an increase in the number of claims in the DIFC Courts involving some form of third party funding, and in an apparent desire to provide some early ‘light touch’ rules around the practice (the use of which in some jurisdictions remains more strictly controlled, or is prohibited) while signaling they are receptive to it, PD 2/2017 in short requires a party using third party funding in respect of litigation in the DIFC Courts to disclose the fact of the funding by giving notice to the other parties.

What are the new requirements and who is affected?

PD 2/2017 sets out the “requirements to be observed by ‘Funded Parties’ in respect of their relationships, interactions and contracts with ‘Funders’ concerning legal “Proceedings” in the DIFC Courts” where proceedings are commenced on or after 14 March 2017.

Funded parties entering into a Litigation Funding Arrangement (LFA) in respect of DIFC Courts proceedings must provide, to every other party to the relevant dispute, notice of:

  • the identity of the funder (defined as a person or entity independent from the funded party and their legal representatives, including a parent entity, subsidiary entity or group of entities, that provides funding towards the proceedings); and
  • the fact that an LFA has been entered into (although disclosure of a copy of, or any part of, the LFA is not required unless otherwise the ordered by the DIFC Courts).

There are no obligations imposed by the PD on third party funders, while the PD reiterates the DIFC Courts’ existing power to make costs orders against non-parties, which includes funders, where appropriate.

What will be the effect of PD2/2017?

The DIFC Courts have put themselves ahead of the regional curve in this area by putting in place some rules around the use of third party funding.

The adoption of a light touch “notice” requirement - so, not going so far as to require disclosure of the commercial terms of the funding - as opposed to any form of (or attempt at) regulation of the market for funding in the DIFC Courts, is likely to be welcomed by funders and funded parties alike. It provides a degree of certainty and a level of comfort for all parties in a case to know where they stand in terms of non-party financial stakeholders with interests in a claim, particularly where the matter of costs is inevitably an ongoing consideration for parties during the life of a case. Knowledge of a claimant being funded can, for example, be a relevant factor in how parties deal with a dispute and the conduct of the litigation.

The PD is also a clear and positive demonstration of the DIFC Courts’ acceptance and recognition of the trend for funding as a feature of modern commercial litigation that is rising in prominence and, as the UAE legal landscape continues to mature, putting the DIFC Courts at the forefront as a progressive and responsive forum for international dispute resolution.