Mohamed El Hawawy Joint Managing Partner, Dubai
Third party funding in the Dubai International Finance Centre
Interest in third party funding (“TPF”) has been on the rise in recent years with a number of common law jurisdictions relaxing the ancient laws regarding maintenance and champerty in relation to TPF arrangements. Formerly both crimes and torts in these jurisdictions, including England and Wales, maintenance is unjustifiably providing financial assistance for civil proceedings and champerty is maintenance in return for a share of the proceeds. As a matter of public policy, champertous agreements are unenforceable but, as reported in our last Bulletin, properly conducted TPF has been held to be in the public interest and not champertous. We have previously noted the developments with regard to TPF in Singapore and Hong Kong is due to follow suit shortly.
Dubai International Financial Centre (“DIFC”) is a free zone within the United Arab Emirates (“UAE”). DIFC is a common law jurisdiction, an enclave within the UAE’s otherwise civil law legal system. The DIFC free zone has its own courts (“DIFC Courts”), where proceedings are governed by the Rules of the DIFC Courts (“RDC”) closely modeled on the English Civil Procedure Rules (“CPR”).
Whilst the DIFC free zone has its own legislation, it is silent on the issue of champerty. In principle, English cases have persuasive authority in the DIFC Courts, but the DIFC Courts have recently issued Practice Direction No. 2 of 2017 (“the PD”) in relation to TPF. This creates new rules that are very similar but not identical to the position in the English courts so any English law precedent should be approached with care. In adopting the PD, the DIFC Courts have opted for a light-handed approach to regulation with the main requirement being that of disclosure.
The CPR does not require the funded party to disclose the fact of TPF although it is possible to obtain a court order to that effect (Wall v Royal Bank of Scotland plc  EWHC 2460 (Comm)). The DIFC Courts by contrast require the funded party to disclose the fact of funding and the identity of the funder. The court may also order that party to disclose the terms of the funding agreement. This move towards transparency has been welcomed by professional funders. Indeed, it is often said that it can work to the advantage of the funded party to disclose that a third party has sufficient faith in and support for the claim.
Further, the RDC sets out the standards which the defendant has to meet in order to obtain an order for security for costs and the PD clarifies that the court will take into account the fact of disclosure when making a determination on the application for security for costs, but the fact of funding by itself shall not be determinative.
The position in relation to security for costs orders against funders is similar to that of the CPR. The defendant may seek an order for security for costs against the third party funder and the court may make this order if it is satisfied, having regard to all the circumstances of the case, that it is just to do so.
The PD also confirms that the DIFC Courts have jurisdiction to make costs orders against third party funders although it is silent on the amount of costs that can be so recovered. The PD says that it is issued without prejudice to future decisions of the DIFC Courts regarding validity of TPF agreements. So far the DIFC Courts have demonstrated that in principle they will recognize the validity of such agreements and will make orders securing the rights of funders as demonstrated in the recent satellite litigation in the case of Al Khorafi & ors v Bank Sarasin- Alpen (ME) Ltd and Bank Sarasin & Co Ltd.
The continuing development and maturing of the DIFC Courts as a common law jurisdiction has already made it an attractive new market for third party funders in recent years and we expect that the attention given by the DIFC Courts to this method of funding litigation will give further confidence to funders and encourage litigants to consider this option.
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