This year, I have been a rolling stone, and will continue to be so, as next week I am visiting Dubai. I hope to see the Dubai International Financial Centre (DIFC) and meet a number of local and expatriate lawyers. Something of a busman’s holiday you might say. But I have long wanted to visit the burning sands of Arabia, and see the steel and crystal spires of the city of Dubai.
As an ongoing project of mine this year, relates to litigation funding I have been reading about its use in Dubai, and considering what lessons might be drawn from that jurisdiction, which might be relevant to the ongoing Civil Justice Council review of litigation funding in England and Wales.
There is a discernible pattern to be seen across the globe. The use of third-party litigation funding has grown substantially across various jurisdictions in recent years, emerging as a significant tool for improving access to justice and providing risk management options for litigants.
This growth has prompted various regulatory responses, with the DIFC establishing one of the more structured frameworks. As England and Wales currently reviews its approach to litigation funding, the DIFC model offers valuable insights that might inform potential reforms.
The DIFC established a regulatory framework for third-party funding through Practice Direction No. 2 of 2017 (“PD 2/2017”) and subsequently enhanced practitioner obligations through Order No. 4 of 2019, which sets out the Mandatory Code of Conduct for Legal Practitioners in the DIFC Courts. See the Practice Direction here: https://www.difccourts.ae/rules-decisions/practice-directions/practice-direction-no-2-of-2017-on-third-party-funding-in-the-difc-courts and the Order here: https://www.difccourts.ae/wp-content/uploads/2019/09/DIFC_Courts_Order_No._4_of_2019_Mandatory_Code_of_Conduct_for_Legal_Practitioners_in_the_DIFC%20Courts.pdf
PD 2/2017 formally recognised and regulated third-party funding in the DIFC Courts. It came into effect on March 14, 2017, setting out clear requirements for “Funded Parties” in their relationships and interactions with “Funders”. The Practice Direction provides precise definitions of key terms including:
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A “Funded Party” – a party to proceedings who has entered into a Litigation Funding Agreement with a Funder
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A “Funder” – a person or entity independent from the Funded Party and the Associated Law Firm that provides Funding
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“Funding” – financial assistance that potentially confers an economic benefit to the Funder linked to the outcome of the proceedings
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A “Litigation Funding Agreement” (LFA) – an agreement between a Funder and a Funded Party relating to the Funding2
One of the most important aspects of PD 2/2017 is the mandatory disclosure requirement. A Funded Party must notify every other party to the dispute that they have entered into an LFA and disclose the Funder’s identity, though not the terms of the funding unless specifically ordered by the Court The timing of this notification depends on the type of claim:
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For Part 7 claims, notice must be given in the Case Management Information Sheet prior to the Case Management Conference, or within 7 days of entering the LFA if after the CMC
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For other claims, written notice must be served as soon as practicable after commencing proceedings or within 7 days of entering into an LFA
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For Small Claims Tribunal matters, notice is only required if the claim is transferred to the Court of First Instance.
Significantly, PD 2/2017 explicitly states that the DIFC Courts have inherent jurisdiction to make costs orders against third parties, including Funders, where deemed appropriate. The Practice Direction also clarifies that while the Court may consider the fact that a party is funded when determining security for costs applications, the mere existence of funding is not determinative by itself.
Building on PD 2/2017, the DIFC Courts issued Order No. 4 of 2019, which established a Mandatory Code of Conduct for Legal Practitioners. Although the Code’s scope is much wider than being limited to third party funding, the Order within its provisions implemented specific obligations regarding third-party funding arrangements. Key requirements include:
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Practitioners must maintain a general duty to avoid conflicts of interest
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Practitioners are explicitly prohibited from being “swayed from their duties to the client by any instructions or interest of a Funder, unless the client has given written authorisation for the Practitioner to take instructions from the Funder instead of the client”
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Practitioners must advise clients who are entering or have entered into an LFA about the effect on their potential responsibility for legal costs and expenses, which remain the client’s responsibility unless otherwise agreed with the Funder.
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Practitioners cannot accept commission or referral fees from funders without making full disclosure to the client.
Unlike the DIFC’s formalised approach, third-party litigation funding in England and Wales has developed primarily through case law and self-regulation. Currently, litigation funders in England and Wales operate under a self-regulatory framework through the Association of Litigation Funders of England & Wales Code of Conduct.
This code establishes ethical and commercial standards, including capital adequacy requirements, conditions for withdrawal, and separation of roles between funders, litigants, and legal counsel. However, a significant limitation of this approach is the low participation rate, with only 36% of litigation funders being members of the Association as of 2021.
As is well known, the landscape of litigation funding in England and Wales was significantly disrupted by the UK Supreme Court’s decision in PACCAR in July 2023. That judgment held that litigation funding agreements with payments based on a proportion of damages recovered should be classified as damages-based agreements (DBAs) and thus subject to the Damages-Based Agreements Regulations 2013. This has created substantial uncertainty about the enforceability of many pre-existing LFAs, particularly relevant for opt-out collective proceedings in the Competition Appeals Tribunal, where DBAs are prohibited.
In response to these developments and the growing significance of the funding industry (estimated to be worth between £33 billion and £67 billion globally as of 2024), the Civil Justice Council established a working group to review third-party litigation funding. The working group published an interim report and consultation on October 31, 2024, examining:
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Whether third-party funding should be regulated and, if so, how and by whom
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The impact on access to justice
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The merits of self-regulation versus other regulatory approaches
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Whether there should be caps on funder returns
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Comparisons with other funding sources
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The role of courts in controlling funded litigation
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The impact on claimant protection and litigation encouragement514
The CJC is expected to issue its final report with recommendations by summer 2025, with the government indicating it will consider comprehensive legislative reform after this report is published.
When comparing the DIFC’s approach to third-party funding with that of England and Wales, several key differences emerge. First, the DIFC has implemented a formal regulatory framework through specific Practice Directions and professional conduct rules. This provides certainty and clarity for all parties involved in litigation funding arrangements.
In contrast, England and Wales rely on self-regulation through a voluntary code of conduct with limited participation, creating inconsistencies in standards and practices across the industry, but I suspect that this is going to change. The prospect that the review will suggest that “doing nothing” is the best option, can be regarded as low.
Secondly, the DIFC mandates clear disclosure of both the existence of funding arrangements and the identity of funders, providing transparency for courts and opposing parties without necessarily revealing commercially sensitive details of the funding agreement itself.
Disclosure requirements in England and Wales are less formalised and consistent, relying on the concept of an implied power to order disclosure of key details, though courts have increasingly required such disclosure in certain contexts.
Thirdly, the DIFC’s Mandatory Code of Conduct explicitly addresses practitioners’ duties in relation to third-party funding, creating specific professional obligations and ethical guardrails. While solicitors in England and Wales are bound by general professional conduct rules, these do not contain the same level of specific guidance regarding funded matters, potentially creating ambiguity in some situations.
Lastly, both jurisdictions recognise the court’s power to make costs orders against funders, but the DIFC has codified this power explicitly in its Practice Direction, removing any doubt about the court’s authority in this area.
As the Civil Justice Council completes its review and considers recommendations for reform, several aspects of the DIFC’s approach offer valuable lessons. First, the DIFC demonstrates that a clear, purpose-built regulatory framework can provide certainty while supporting access to justice. Rather than relying on self-regulation with limited industry participation, England and Wales could benefit from a similar formal regulatory structure that establishes baseline requirements for all funders operating in the jurisdiction.
Secondly, the DIFC’s balanced approach to disclosure—requiring notification of funding and the funder’s identity without automatically exposing the commercial terms of the agreement—offers a practical model that promotes transparency while protecting legitimate commercial interests. As the Law Society noted in its response to the CJC review, proper disclosure can help courts ensure “proper conduct of litigation, including proportionality of costs and recoverability where appropriate”.
Thirdly, the detailed provisions in the DIFC’s Mandatory Code of Conduct for Legal Practitioners provide clear guidance on potential conflicts of interest and the proper relationship between lawyers, funded clients, and funders. Similar explicit professional conduct rules could benefit practitioners in England and Wales by clarifying their obligations in funded cases.
Lastly, the DIFC’s regulatory framework strikes a balance between enabling access to justice through funding while maintaining appropriate safeguards. As the Civil Justice Council considers its recommendations, the Legal Services Board’s view that “consumer protection should be at the heart of any recommendations” with “the correct balance between protecting those who seek and acquire litigation funding, with the ongoing ability for funders to operate effectively” aligns well with the DIFC approach.
With the CJC’s final report expected by summer 2025, time will tell whether England and Wales will adopt a similar approach to that successfully implemented in the DIFC, or whether it will forge its own distinct path toward balancing access to justice with appropriate regulation of third-party funding.