I MARKET OVERVIEW

The Dubai International Financial Centre (DIFC) is a free zone within the United Arab Emirates (UAE), which was established in 2004. The DIFC is a common law jurisdiction – an enclave within the UAE's otherwise civil law legal system – and has its own courts (DIFC Courts), where proceedings are governed by the Rules of the DIFC Courts (RDC), which are closely modelled on the English Civil Procedure Rules. The DIFC also has its own civil and commercial legal framework, which is different from the UAE law onshore. As part of that framework, the DIFC has its own Arbitration Law,2 which is based on the UNCITRAL Model Law.

The UAE, and the Middle Eastern region in general, has not been a traditional market for litigation funding, and that has been mostly because funders have perceived Middle Eastern jurisdictions as not offering the level of certainty and predictability they look for in the legal process. However, the introduction of common law free zones such as the DIFC (and more recently Abu Dhabi Global Market), with their own courts and arbitration laws, gives rise to more attractive new markets for funders.

Since their establishment in 2011, the DIFC Courts' caseload has increased steadily, and they are becoming the preferred dispute resolution forum in the region for both local and regional parties, as well as parties from other international jurisdictions. According to DIFC's annual report for 2017, the total number of cases before the DIFC Courts and arbitration was 520 with the average value of 24,425,369 dirhams at the Court of First Instance and arbitration and with the average value of the enforcement cases being 49,538,813 dirhams.3 In the first half of 2018, the DIFC Courts reported 64 per cent increase in the number of cases compared to the same period in 2017.4 This, in turn, indicates potential for growth for litigation funding.

As things stand, there are no funders based in the DIFC. However, various international funders have funded disputes in the DIFC in the past or have expressed interest in doing so in the future.

One point that has attracted some interest from international funders is the enforcement of foreign arbitral awards through the DIFC as a conduit jurisdiction to the wider UAE jurisdiction (see Section VI).

II LEGAL AND REGULATORY FRAMEWORK

The DIFC is a relatively new common law jurisdiction, being established in 2004. As a result, it does not have the same history of changing attitudes to third party funding (TPF) and champerty as that shared by other common law jurisdictions. The DIFC legislation is silent on the issue of TPF and champerty, but having its origins in the English common law system, the DIFC jurisdiction has inherited much of the same modern approach to these issues.

The position in England is that maintenance and champerty are no longer crimes or torts under English law, but that champertous agreements, as a matter of public policy, are unenforceable. TPF agreements, if properly structured, have been held to be in the public interest and not champertous. This is relevant, because English court judgments have persuasive authority in the DIFC Courts.

However, any English law precedent must be approached with caution, because the DIFC Courts recently issued Practice Direction No. 2 of 2017 (PD), which creates new rules that are similar, but not identical, to the English law position.

In adopting the PD, the DIFC Courts have opted for a light-handed approach to regulation, with the main requirement being that of disclosure of the fact of TPF and the identity of the funder. It is worth noting that Subsection 3 of the PD makes it clear that the PD 'is without prejudice to any subsequent determination of the DIFC Courts regarding LFAs ('Litigation Funding Agreements') in general or any specific LFA in particular (or any part thereof)'.5 This means that we can expect further pronouncements of the DIFC Courts regarding the TPF that will continue shaping the procedural requirements to TPF in the DIFC.

Currently, the TPF market in the DIFC is not regulated, but things may change shortly as the DIFC is considering expanding the powers of the DIFC Courts to issue regulations regarding TPF (see Section VII).

It is worth noting that contingency fees, or 'no win no fee' arrangements and agreements where a lawyer is rewarded by way of a share of the proceeds, are prohibited in the DIFC court proceedings. Conditional fee arrangements (where the legal representatives receive an uplift in fees, as opposed to a share in the proceeds, in the event that the client is successful) are permitted.6

III STRUCTURING THE AGREEMENT

TPF in the DIFC is growing in popularity, but is yet to reach the levels comparable with funding available in other common law jurisdictions. As a result, the TPF agreement structure is borrowed heavily from the structures typical in other common law jurisdictions, and the parties can expect to negotiate similar provisions relating to exclusivity, withdrawal, confidentiality, pricing, settlement and liability for costs.

The DIFC Courts have not yet had an opportunity to consider specific clauses in contractual disputes between funders and claimants. In one case,7 the claimant's funders filed a Part 8 claim with the DIFC court to protect and preserve its interest in the funding agreement following a change of legal representation by the claimant without finalising the replacement payment mechanism under the funding agreement. The funders obtained an order that the defendants pay the sum adjudged by the DIFC court to the claimant (in excess of US$11 million) into court and that this sum be held by the court until the parties reach settlement or until final award or judgment. This indicates the willingness of the DIFC Courts to uphold the rights of the funders under TPF agreements, which is a positive trend in this jurisdiction.

IV DISCLOSURE

The PD requires the funded party to disclose the fact of funding and the identity of the funder. The PD also sets out when and how notice must be given. For a standard claim (RDC Part 7), notice must be given in the case management information sheet, which needs to be submitted before the case management conference (CMC) pursuant to RDC 26.3. Alternatively, if a party enters into a TPF agreement after the CMC, notice must be given in writing to all the other parties, as well as the DIFC Courts' Registry, within seven days of entering into the agreement. In all other claims, written notice must be served to all other parties to the dispute as well as the DIFC Courts' Registry, where proceedings have yet to be commenced, as soon as practicable after commencement, including within the claim form or the particulars of claim, and in instances where the agreement was entered into after the proceedings were commenced, notice must be given within seven days from the date of the agreement.8

The PD also makes it clear that there is no notice requirement for claims made in the Small Claims Tribunal unless those claims are transferred to or appealed to the Court of First Instance, in which case notice must be given in accordance with the procedures outlined above.

This move towards transparency has its advantages, but parties should bear in mind potential consequences that this may entail. The PD does not require disclosure of a copy or of any part of the TPF agreement, but it is notable that the court may order such disclosure. TPF agreements often contain confidential and privileged information, so it is sensible that there is no standard requirement to disclose an agreement. It remains to be seen in which circumstances the DIFC Courts would order the disclosure of an agreement or parts of it. Being a common law jurisdiction, the DIFC Courts recognise the concept of privilege, and therefore the parties can seek to protect their interests by utilising carefully drafted non-disclosure and common interest clauses in TPF agreements.

Finally, while there is no general requirement to disclose any information about TPF in DIFC arbitrations, the tribunals can exercise their powers to order such disclosure.

V COSTS

The position in relation to the liability of funders for adverse costs, security for costs and recovery of costs of securing TPF in the DIFC is broadly similar to the position in the UK.

The PD clarifies that the DIFC Courts have inherent jurisdiction to make costs orders against third parties, including funders, where the court deems appropriate. However, the PD is silent on the amount of costs that can be so recovered. It remains to be seen whether a cap similar to the Arkin cap on costs recoverable from third party funders will apply.

A defendant may seek an order for security for costs against a third party funder, and the DIFC Courts have jurisdiction to make this order if it is satisfied, having regard to all the circumstances of the case, that it is just to do so.

RDC Rule 25.103 clarifies that the defendant may seek an order for security for costs against someone other than the claimant, and the court can make such an order if it is satisfied, having regard to all the circumstances of the case, that it is just to make such an order; and one or more of the conditions in Rule 25.104 applies. RDC Rule 25.104 stipulates two conditions: that the person has assigned the right to the claim to the claimant with a view to avoiding the possibility of a costs order being made against him or her; or has contributed or agreed to contribute to the claimant's costs in return for a share of any money or property that the claimant may recover in the proceedings, and is a person against whom a costs order may be made.

In addition, the PD says that the court may take into account the fact of disclosure of TPF when deciding on the application for security for costs, but the fact of funding shall not by itself be determinative.

The PD does not address the question of whether the costs of TPF are recoverable in DIFC court proceedings; therefore, this remains an area of uncertainty.

In line with other major jurisdictions, the arbitration legislation in the DIFC does not authorise arbitrators to make costs orders against third parties as they are not parties to the arbitration agreement. The position regarding recoverability of TPF costs in DIFC-seated arbitrations has not been addressed in case law yet. In England, the judgment in Essar v. Norscot 9 addressed this issue, finding that the definition of 'other costs' in Section 59(1) of the English Arbitration Act 1996 includes TPF costs. Notably, Section 38(5) of the DIFC Arbitration Act, which defines the scope of what constitutes costs of arbitration, is not as wide as Section 59(1) of the Arbitration Act 1996.

VI THE YEAR IN REVIEW

One type of case often discussed in the context of TPF is the enforcement of foreign arbitral awards in the DIFC. The past 10 years have seen the rise and fall (almost) of the DIFC Courts as a conduit jurisdiction for enforcement of foreign arbitral awards and judgments in the onshore UAE jurisdiction. The historical difficulties involved in enforcing foreign arbitral awards and judgments in the local UAE courts led claimants to seek an alternative route via the DIFC Courts, which gave rise to its emergence as a conduit jurisdiction. In relation to the enforcement of foreign arbitral awards, claimants have successfully obtained judgments from the DIFC Courts to enforce such awards in the DIFC in the absence of any connection between the parties or the facts of the case and the DIFC.10 The intention of such parties was then to enforce the DIFC court judgment in Dubai courts, which is a straightforward procedure. This trend was followed by claimants seeking to enforce foreign judgments in the DIFC11 purely with a view to enforcing it onshore. Both trends were welcomed by many local practitioners, as these promised to simplify the process for enforcement of foreign arbitral awards and judgments in Dubai and the UAE generally, although doubts always remained regarding other emirates.

At the time of writing, it appears that these recent trends have been halted by the establishment of the Judicial Tribunal for the Dubai Courts and the DIFC Courts (JT) by Dubai Decree No. 19 of 9 June 2016, and the recent decisions that have followed. The JT's remit is to determine conflicts of jurisdiction between the DIFC Courts' and Dubai courts' jurisdiction. The concern raised regarding the use of the DIFC Courts as a conduit jurisdiction has usually been framed in terms of a potential conflict between the DIFC Courts and Dubai courts to enforce foreign arbitral awards and judgments. It is not surprising therefore that many of the cases submitted to the JT revolved around the issue of enforcement. The decisions published by the JT to date indicate that it is likely to find in favour of the Dubai courts' jurisdiction whenever there are parallel proceedings issued in the DIFC and Dubai courts. It is likely that we will see an increase in the number of defendants commencing local court proceedings as a strategic step with a view to derailing the process of enforcement of foreign arbitral awards and judgments before the DIFC Courts. It is also worth noting that the JT has demonstrated willingness to dismiss challenges to DIFC jurisdiction in the absence of parallel proceedings in the Dubai courts.

It should be noted that these developments do not affect the enforcement of foreign arbitral awards against defendants and assets based in the DIFC itself, or the enforcement of DIFC-seated arbitration awards onshore.

In 2016, the Emirates Maritime Arbitration Centre opened its doors to parties as a new specialised maritime arbitration centre with a default seat in the DIFC. There are also indications that Dubai International Arbitration Centre is considering moving its default arbitration seat from onshore Dubai to the DIFC. These developments show the growth of the DIFC as an arbitration jurisdiction.

VII CONCLUSIONS AND OUTLOOK

The DIFC Courts have dedicated significant attention on developments in TPF worldwide and to creating a regulatory environment that benefits parties' access to TPF. In June 2017, the DIFC issued a consultation paper proposing amendments to the DIFC Court Law 2004 specifically addressing the issue of TPF. The consultation paper proposed an amendment that would give the Chief Justice of the DIFC Courts powers to issue regulations regarding TPF in the DIFC Courts. According to the paper, the intention is to enable to the DIFC Courts to 'monitor the conduct of parties and practitioners before the DIFC Courts in relation to TPF of the DIFC Courts' proceedings, mirroring a global trend towards increased regulation of this swiftly changing industry'. The outcome of the consultation remains to be seen, but it is clear that the DIFC Courts are keen to ensure that TPF in the DIFC is available to the parties and is appropriately regulated.

Another development in the DIFC Courts that will be interesting to watch in the coming years is the establishment of the Technology and Construction Division (TCD) to deal with construction and engineering disputes. The TCD offers a forum similar to that of the Technology and Construction Court of England and Wales. It is staffed with specialist judges who are able to handle complex technical disputes that, until now, have mostly been referred to arbitration by parties in the region.


Footnotes

1 Mohamed El Hawawy and Pavlo Samothrakis are partners, Anna Fomina is a practice development lawyer and Monika Humphreys-Davies is an associate at Ince & Co Middle East LLP.

2 DIFC Law No. 1 of 2008, as amended.

3 2017 Annual Report, http://annualreview.difccourts.ae.

7 Vannin Capital PCC PLC v. Mr Rafed Abdel Mohsen Bader Al Khorafi and ors 2014 DIFC CFI 036.

9 Essar Oilfields Services Ltd v. Norscot Management Pvt Ltd [2016] EWHC 2361 (Comm).

10 (1) Egan (2) Eggert v. (1) Eava (2) Efa [2013] DIFC ARB 002.

11 DNB Bank ASA v. Gulf Eyadah Corporation and Gulf Navigation Holdings PJSC CA 007/2015.