Common Litigation and Dispute Financing Mistakes to Avoid in Dubai

Funding a claim changes the economics of litigation, not the law of it. A funder takes a share of what is recovered in exchange for carrying the cost of the case, which is useful to a claimant with a good claim and no appetite to spend on it. Where clients get into difficulty in Dubai is not with the concept but with the arithmetic and the paperwork around it: the case is valued optimistically, the recovery is assumed rather than tested, and the funding agreement quietly transfers control of decisions the claimant thought it had kept.

These are the errors we see most often, in roughly the order they cause damage.

Budgeting for the judgment instead of for the money

A judgment is a document. Getting paid is a separate exercise with its own timetable, its own applications and its own cost, and it is the part most funding models underestimate. Before any funding is discussed, someone should establish where the defendant's assets are, whether they are held in the name of the entity you are suing, and whether that entity is likely to be solvent at the end of the process.

The answer determines the case as much as the merits do. A claim against a well-capitalised UAE company with local bank accounts is a different proposition from a claim against a special purpose vehicle whose only asset is a contract. If the second is what you have, the useful money is spent early on securing assets — precautionary attachment onshore, or the equivalent interim relief in the DIFC or ADGM — rather than on a longer trial.

Assuming your costs come back

Clients frequently build a funding case on the assumption that the losing party will pay their legal fees. That assumption travels badly across the forums available in Dubai. In the DIFC and ADGM courts, costs generally follow the event and a successful party can expect a meaningful, though not complete, recovery. Onshore, an award in respect of legal fees is at the court's discretion and in practice tends to be a small fraction of what was actually spent. In arbitration it depends on the rules chosen and the tribunal.

Model the case on the assumption that you bear your own costs, and treat any recovery as upside. A funding structure built on the opposite assumption looks viable on paper and is not.

Signing before the claim has been valued properly

Funders price risk. If the claimant has not done its own analysis, the funder's analysis becomes the only one in the room and the pricing reflects that. The work that should precede any term sheet is unglamorous: pinning each element of the claim to the document that creates the right, quantifying loss on a basis an expert would defend, and identifying the two or three documents the other side will lead with and what they do to the valuation.

That exercise frequently changes the claim. It also changes what a funder will charge for it, which is the point.

Funding a claim too small to justify it

Third-party funding suits large, document-heavy commercial claims. It rarely suits small ones, because the funder's return, the legal fees and the time cost consume the recovery. Many disputes in Dubai fall into that second category, and several of them already have a dedicated forum built for claims of that size — tenancy claims are the obvious example, and the sensible strategy for a landlord or tenant is almost always to bring the claim there directly rather than to build a funded case around it. Our rental dispute team handles those matters on that footing.

The general test is whether the claim, discounted for the risk of losing and the risk of not collecting, still leaves the claimant materially better off after the funder's share. If it does not, the answer is a commercial settlement, not a funder.

Letting the agreement take decisions you meant to keep

The clauses to read closely are the ones about control. Who decides whether to accept a settlement offer? What happens if the claimant wants to settle and the funder does not, or the reverse? Can the funder withdraw, and if so on what notice and with what consequence for work already done? What triggers repayment, and does that trigger include an in-kind or deferred settlement? Who chooses and instructs counsel and the experts, and who receives their advice?

A funding agreement that leaves settlement authority ambiguous creates a second dispute inside the first one, at the moment the claimant most needs to act quickly. It is worth paying for a proper review of the funding agreement itself, separately from the merits work. That is a distinct piece of advice, and we treat litigation funding review as its own engagement.

Not checking what the forum requires you to disclose

Whether the existence of a funding arrangement, or the funder's identity, must be disclosed to the court or tribunal and to the other side is not the same question everywhere. Courts and arbitral institutions have addressed it differently, and the requirement may bear on conflicts of interest for the tribunal and on applications for security for costs. Establish the position in your specific forum before signing, because a disclosure obligation discovered late is capable of interrupting the proceedings and of handing the defendant an application it would not otherwise have had.

Relatedly, expect the fact of funding to prompt a security for costs application against you in forums where that relief exists. Budget for it.

Treating privilege and confidentiality casually

Diligence for a funder means sharing an assessment of your own case, including its weaknesses, with a third party. Do that under a properly drafted confidentiality agreement, with a clear position on who owns the material and what happens to it if the funding does not proceed. Assume a document created for a funder may one day be sought by an opponent, and write it accordingly.

Before you sign

• Have you located the defendant's assets, and can they be secured now?
• Does the case work if you recover none of your legal costs?
• Who has authority to accept a settlement, in writing?
• What must be disclosed about the funding in your chosen forum?
• What is the total cost of the funding as a percentage of the realistic, not the pleaded, recovery?

None of these questions is difficult. All of them are harder to answer after the agreement is executed.

Related Services: Explore our litigation and dispute financing and funded claims services for practical legal support in this area.

We act for claimants negotiating with funders and for parties on the receiving end of funded claims, and we run the underlying cases in the onshore courts, the DIFC and ADGM, and in arbitration. Our litigation team will give an honest assessment of recoverability before any funding conversation begins, and where the claim is better run conventionally we will say so. For the merits side of a funded matter, see our commercial dispute resolution practice; for the structure of the funding itself, our dispute financing advisers review the agreement line by line.

Disclaimer: The information provided in this article is for general informational purposes only and does not constitute legal advice. Readers should seek professional legal advice tailored to their specific circumstances before making any decisions or taking any action based on the content of this article.

Nour Attorneys Team

Additional Resources

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