The Permissibility of Litigation Funding in the Middle East
The Middle East is, of course, comprised of many distinct legal systems and so caution should be taken when considering the region as a whole. However, broadly speaking, litigation funding is not prohibited in the region. This is not surprising as most Middle East legal systems are either code-based, civil law or Islamic law based systems. As such, they did not inherent the English common law’s feudal prohibitions on champerty and maintenance, which, although they have gradually fallen away in most jurisdictions, have somewhat slowed the growth of litigation funding in some common law regions.
Moreover, Woodsford believes that litigation funding is fundamentally consistent with the basic tenets of Islamic finance. A key principle of Shariah is that the underlying transactions should benefit maslaha or public interest, which is consistent with litigation funding’s goal of helping meritorious claimants obtain access to justice. Further, when Woodsford partners with a claimant, it is not merely providing capital but truly sharing in the risks and rewards of the claimant. If a claim is unsuccessful, there is no guaranteed return and no recourse to underlying assets; if the claim is successful, then Woodsford and the claimant share in the award, with the claimant maintaining a majority interest. As such, litigation funding is in keeping with the traditional prohibitions on riba (interest), gharar (speculation) and maysir (gambling). Ultimately, litigation funding agreements are bespoke agreements and Woodsford has the flexibility and sophistication to structure them in way that accounts for the unique considerations of Shariah compliance.
Promulgation of New Rules & Guidelines
Recent developments in the region’s legal landscape underscore both the permissibility of litigation funding and herald a likely uptick in litigation funding in the coming years.
In early 2017, the Dubai International Financial Centre (DIFC) Courts released Practice Direction No. 2, which set out the rules for how funded matters should proceed in the DIFC Courts.
Under the new Practice Direction, a party must disclose their funded status and the identity of the funder. However, unless the Court orders otherwise, parties are not required to disclose the terms of their underlying funding agreement. Thus, the rule ensures that potential conflicts may be avoided at the outset, while maintaining appropriate confidentiality between the party and funder.
Further, consistent with the approach of other jurisdictions globally, the Practice Direction provides that funding may be taken into account when considering a security for costs application, but the fact that a party is funded does not by itself warrant such an order.
By proactively issuing these rules, the DIFC underscored the permissibility of funding and signaled the likely growth of funding in the near term.
Similarly, the Abu Dhabi Global Market (ADGM) has issued Regulations (partially modelled on English and Australian common law) that expressly allow for litigation funding and outline the procedures to be followed for matters before the ADGM Courts. Specifically, the regulations provide that such agreements shall not be “Under the new Practice Direction, a party must disclose their funded status and the identity of the funder. However, unless the Court orders otherwise, parties are not required to disclose the terms of their underlying funding agreement.” unenforceable merely because they involve litigation funding (§225.1). Further, while the regulations mandate the disclosure of funding, they expressly limit that disclosure to “only the fact” of a party’s funded status rather than the underlying funding agreement or terms (§225.6). Finally, the regulations allow the Courts to issue costs orders that include the costs payable under a funding agreement (§225.10-11).
Finally, the Dubai International Arbitration Centre (DIAC) is currently revising and updating its arbitration rules, which are expected to be adopted early this year. Although not yet final, it is understood that the new rules will include provisions funding and costs orders.
From Woodsford’s perspective, such rules are helpful because they give clarity to the allowable status of litigation funding, provide direction on disclosure to alleviate concerns for conflicts and provide an opportunity for the larger community of practitioners to familiarise themselves with the uses of litigation funding. Woodsford expects that other jurisdictions and arbitral centers in the region will issue similar guidelines in the coming years to stay at the forefront of emerging legal issues and, perhaps, as a competitive effort to encourage more funded matters within those jurisdictions.
Woodsford is a global litigation funder that is committed to access to justice, funding meritorious claims that might otherwise be frustrated by the substantial costs and risks involved in high-value litigation and arbitration. The Middle East region, led by the forward-thinking work of the DIFC, ADGM and DIAC, is already receptive to the use of litigation funding and we expect that the region will see a continued increase in the use of litigation funding in the coming years, especially as the region continues to solidify its status as an attractive venue for international arbitration. Woodsford looks forward to working with lawyers and arbitrators in the region and we stand ready, willing and able to contribute to access to justice in the region through the funding of meritorious claims.
About the authors
Zachary has extensive trial litigation experience, having represented both plaintiffs and defendants in a wide variety of commercial disputes in state and federal courts in the United States, as well as in international proceedings. He has particular expertise in intellectual property disputes and technology related matters, complex business litigation and competitor disputes, government contracts and whistleblower actions, art related matters, and international human rights litigation.
Prior to joining Woodsford, Zachary was a Senior Associate in the Los Angeles office of the global litigation firm Quinn Emanuel Urquhart & Sullivan. Prior to that, Zachary clerked for Judge Shira A. Scheindlin in the Southern District of New York and was an associate in the New York office of Shearman & Sterling, where he focused on international disputes and project finance.
Zachary received his J.D. from Cornell Law School, where he was an Articles Editor on the Cornell Law Review, and his B.A. from Yale University, where he was a Sulger Scholar.
Helena Eatock is an Investment Associate at Woodsford Litigation Funding. Prior to joining Woodsford she was at London law firm Harcus Sinclair. Helena is fluent in Spanish. She graduated from Oxford.
For further information, or to discuss a matter for funding, contact Zachary directly