Abu Dhabi Global Market Courts (ADGM Courts) have issued their Litigation Funding Rules in response to the growing interest in third party funding of proceedings in the Middle East and Africa (MENA) region. The new Rules have immediate effect. They apply to ADGM arbitration and ADGM litigation proceedings.

The Rules are enacted under section 225 of the ADGM Courts, Civil Evidence, Judgments, Enforcement and Judicial Appointments Regulations 2015, which regulate litigation funding agreements (including the duty of a funded party to disclose the existence of funding to the court and the other parties).

Generally, the Rules adopt a “light touch”, and focus in on certain fundamental issues, such as qualifying requirements for third party funders, financial and other interests in third party funders, litigation funding arrangements, and conflicts of interest:

Requirements for Third Party Funders (“Funders”)

A Funder must satisfy the following at the time the Litigation Funding Agreement is made, and continue to satisfy the following:

• the Funder must carry on as a principal business the funding of proceedings to which the Funder is not a party
• the Funder must have qualifying assets (i.e., cash and cash equivalents) of not less than US$5 million or the equivalent amount in foreign currency.

Prohibitions against financial and other interests in Funders

A Funder must not be owned (whether wholly or partly, and whether directly or indirectly, and whether by way of shares or otherwise) by a lawyer or a law firm:

• who has introduced or referred the Funder to a client in relation to the proceedings
• whose client has a Litigation Funding Agreement in force with the Funder in relation to ongoing proceedings.

Litigation Funding Agreements

• The Funder must take reasonable steps to ensure that the Funded Party has received independent legal advice in relation to the Litigation Funding Agreement and its terms prior to its execution.
• The Litigation Funding Agreement must include provisions setting out at a minimum:
  • the scope of funding
  • the amount of funding
  • the timing of each tranche of funding
  • the Funder’s recovery in accordance with the ADGM Court Regulations.

Conflicts of interest

• The Litigation Funding Agreement must not contain any terms that:
  • could induce the Funded Party’s lawyer or law firm to breach their professional duties which are owed to the Funded Party or to ADGM Courts including under the ADGM Courts Rules of Conduct
  • allow the Funder to influence the lawyer or law firm so that it takes control of the dispute or assumes conduct of it.
• Funding Agreements which include more than one Funded Party must include provisions for managing conflicts of interest between the Funder, the Funded Parties and the lawyers.
• The Funder to take reasonable steps to ensure that it has satisfied itself that there are no circumstances arising from the funding that might give rise to any reasonably foreseeable conflicts of interest, whether in connection with the Funded Party, its lawyer or law firm, the other parties to the proceedings or their lawyer or law firm, or ADGM Courts or arbitral tribunal hearing the proceedings.

The enactment of the Rules follows an extensive consultation process in November 2018, in which the ADGM Courts sought the views of the legal and litigation funding communities. The Rules, which are the first comprehensive framework for third party funding in the MENA region, are designed to provide parties and funders with greater certainty in relation to the enforceability of funding arrangements in proceedings for resolving disputes. The Rules are perfectly timed, as we at Al Tamimi & Company see growing interest by third party funders in funding arbitration and litigation proceedings in this region.

Key Contacts:

Rita Jaballah
Partner, Head of
DIFC Litigation
r.jaballah@tamimi.com

John Gaffney
Senior Counsel,
Arbitration
j.gaffney@tamimi.com

Peter Smith
Senior Associate,
Litigation
p.smith@tamimi.com