Is Your Company Treating a Valuable Legal Claim as an Expense Instead of a Potential Asset?

PostedSeptember 8, 2026

UpdatedSeptember 8, 2026

The hidden economics of a legal claim

When a company becomes involved in a substantial commercial dispute, the immediate financial consequences are usually easy to identify. Legal fees begin to accrue. Experts may need to be appointed. Court or arbitration fees must be paid. Management time is diverted from the business. If the dispute crosses borders, translation, investigation, asset tracing and enforcement can add further cost and complexity.

What is less visible is the potential economic value embedded in the claim itself. A contractual right, unpaid debt, damages claim, arbitral award, judgment or intellectual property right may represent a meaningful source of recovery. Yet that value is uncertain, illiquid and dependent on a legal process that can take time. It should therefore not automatically be described as an accounting asset: accounting recognition depends on the applicable standards, facts and professional advice. Commercially, however, it may still be a potential legal asset that deserves structured assessment.

This distinction matters. If management sees litigation only as a cost, the natural response may be to delay, settle prematurely or abandon a legitimate claim. If the claim is assessed as a combination of legal merits, recoverable value, cost, duration and enforcement risk, a broader range of strategic options becomes visible.

What is third-party litigation funding?

Third-party litigation funding is an arrangement under which an external funder finances some or all of the costs of pursuing a legal claim. In return, the funder receives an agreed return if the matter produces a successful financial recovery. Commercial funding is commonly structured on a non-recourse basis, meaning the funder ordinarily bears the agreed investment risk if the claim does not succeed, subject always to the terms of the funding agreement and any exceptions it contains.

The funded party normally remains the owner of the claim and continues to instruct its lawyers. A properly structured arrangement should define the funding scope, decision-making boundaries, settlement process, confidentiality obligations, termination rights, priority of payments and the calculation of the funder’s return. The exact structure varies by matter, jurisdiction and provider.

Funding may cover more than lawyers’ fees. Depending on the transaction, it may include court or tribunal fees, expert costs, document review, translation, investigation, asset tracing, security for costs, adverse-cost exposure, enforcement expenses or a monetisation payment that provides liquidity against a pending claim, judgment or award.

Why would a financially strong company use litigation funding?

A persistent misconception is that litigation funding exists only for claimants that cannot afford lawyers. Access to justice remains an important use case, but commercial legal finance is also used by solvent and sophisticated businesses for financial and strategic reasons.

1. Protecting operational capital

Every dirham committed to a long-running dispute is a dirham that cannot simultaneously be invested in employees, technology, expansion, inventory or other core priorities. External funding can help a business pursue a claim while preserving capital for operations and growth.

2. Sharing an uncertain financial risk

Even a well-prepared claim carries uncertainty. Evidence may be challenged, procedural issues may arise, witnesses may become unavailable, appeals may follow and enforcement can fail. Funding transfers an agreed portion of this financial exposure to a third party whose return depends on recovery.

3. Improving budget predictability

Litigation costs can be difficult to forecast, particularly in complex arbitration or cross-border proceedings. A funding arrangement may give legal and finance teams a clearer framework for approved costs, reserves and decision points.

4. Bringing legal and financial decision-makers together

General counsel may see a meritorious claim that should be pursued. The CFO may see uncertain expenditure and delayed cash recovery. Litigation funding creates a common analytical language: probability, required investment, timing, downside, realistic recovery and enforceability.

5. Supporting enforcement and recovery

A favourable judgment or award is not the same as cash received. If the losing party does not pay voluntarily, the successful party may need further capital for asset tracing and enforcement in one or more jurisdictions. The commercial value of the claim is ultimately tested at recovery.

When may litigation funding be considered?

A business does not necessarily need to wait until proceedings are advanced. Funding may be explored at different stages:

Before proceedings, when counsel has assessed the claim and an initial legal strategy and budget can be prepared.
During litigation or arbitration, when costs increase or the business decides to transfer part of the remaining risk.
After a favourable judgment or award, when enforcement requires further capital, expertise or time.
When a portfolio of claims could be financed together, subject to the funder’s criteria and applicable law.
When a company wants liquidity against part of the expected recovery, subject to valuation and transaction structure.

Early engagement can be useful, but approaching a funder before the case is documented may lead to delay or rejection. A concise legal memorandum, key evidence, realistic damages analysis, procedural timetable, budget and information about the respondent’s assets can materially improve the quality of the assessment.

What makes a commercial claim fundable?

A legally arguable case is not automatically a fundable case. Litigation funders make an investment decision, not a judicial determination. They must examine the complete relationship between merits, cost, time and recoverability.

Assessment area	Questions a funder may examine
Legal merits	Is there a coherent cause of action or basis for relief? What are the strongest defences, counterclaims and procedural risks?
Evidence	Are the key contracts, correspondence, expert materials, payment records and witness sources available and reliable?
Claim value	Are the alleged losses legally recoverable and supported by a defensible damages methodology? Headline numbers without evidence carry little weight.
Budget proportionality	Is the expected recovery sufficiently larger than the total capital required, including contingencies and enforcement?
Respondent and assets	Can the respondent satisfy a judgment or award? Where are the relevant assets, and what obstacles may affect recovery?
Jurisdiction and procedure	Which court, tribunal and governing law apply? Are there disclosure, costs, security, privilege or enforceability issues?
Duration	How long may the matter take through hearings, appeals and enforcement?
Counsel and strategy	Does the legal team have relevant experience, a realistic plan and a controlled budget?
Alignment and conduct	Can the claimant, counsel and funder work within clear ethical, confidentiality and decision-making boundaries?

Why applications are declined

Rejection by a funder does not necessarily mean that a claim has no legal merit. It can mean that the opportunity does not fit the funder’s mandate, economics, risk limits or current portfolio. Common issues include:

The required budget is disproportionate to the realistic recovery.
The damages figure is speculative or insufficiently supported.
Key evidence is missing, inconsistent or controlled by an adverse party.
The respondent has no identifiable or recoverable assets.
Limitation, jurisdiction, counterclaim or enforcement risks are too high.
The legal strategy and budget are not sufficiently developed.
The matter falls outside the funder’s geography, case type or minimum investment criteria.
The expected duration and concentration risk do not fit the funder’s portfolio.

Litigation funding in the UAE: one country, distinct legal environments

Any discussion of litigation funding in the United Arab Emirates must distinguish between the onshore UAE court system and the common-law court systems operating in the Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM). Arbitration adds another layer because the applicable institutional rules, seat of arbitration and governing law may affect disclosure, costs, conflicts and enforceability.

Onshore UAE courts

The onshore UAE courts do not have a single, dedicated statutory code governing third-party litigation funding in the same manner as the ADGM funding rules. That does not justify a simplistic statement that every arrangement is automatically permitted or prohibited. The validity and structure of a proposed agreement must be considered in light of applicable UAE law, public policy, professional obligations, confidentiality, the underlying proceedings and the particular transaction terms. Independent UAE legal advice is essential.

The economics of onshore litigation may also differ from common-law jurisdictions. Recoverable legal costs may not correspond to the successful party’s actual expenditure, and enforcement strategy can materially affect the funder’s assessment. These features make realistic budgeting and recovery analysis especially important.

DIFC Courts

The DIFC Courts expressly address third-party funding through Practice Direction No. 2 of 2017. The practice direction sets requirements for funded parties and includes notice obligations concerning the existence of a funding arrangement and the identity of the funder. The DIFC framework must be read together with applicable court rules and practitioners’ professional obligations. Parties should obtain current advice on the precise timing, content and consequences of any required disclosure.

ADGM Courts

ADGM has a more detailed express framework. Section 225 of the ADGM Courts, Civil Evidence, Judgments, Enforcement and Judicial Appointments Regulations 2015, as amended, recognises litigation funding agreements that satisfy applicable conditions. The ADGM Courts Litigation Funding Rules 2019, amended in 2023, address matters including funder requirements, legal advice, funding scope, financial liabilities, conflicts, settlement involvement, termination, confidentiality, dealings with lawyers, notification and costs.

Among other protections, the ADGM rules require the agreement to state the scope and amount of funding, the timing of funding tranches and the funder’s recovery. They also restrict terms that could induce lawyers to breach professional duties or allow the funder to take control of the dispute. This illustrates why a funding agreement is not simply a capital document: it must preserve proper legal and ethical boundaries.

International arbitration

In international arbitration, third-party funding can engage questions of disclosure and arbitrator conflicts, privilege or confidentiality, security for costs and allocation of costs. The ICCA-Queen Mary Task Force report remains a major reference on these issues. Parties must also check the rules of the relevant institution and any mandatory law at the seat. Disclosure of the existence and identity of a funder is increasingly addressed by institutional and investment-arbitration frameworks, but requirements are not identical across regimes.

Confidentiality, privilege and control

A funding assessment requires information. Yet indiscriminate disclosure to a potential funder can create confidentiality or privilege risk, depending on the applicable law. Before detailed materials are shared, the claimant and its counsel should consider a confidentiality agreement, staged disclosure, secure data-room access, redaction and the legal basis for maintaining privilege or other protection.

The claimant’s independent legal advisers should also review the funding agreement. Particular attention should be given to settlement, termination, conflicts, reporting, budget changes, control, priority of proceeds and dispute-resolution provisions. The funder’s legitimate interest in monitoring its investment must not displace counsel’s professional duties or the client’s proper control of the claim.

A hypothetical example

Illustrative scenario only
A UAE-based contractor claims AED 22 million for certified but unpaid work, variations and delay-related amounts. Specialist counsel considers the core payment claim strong, but the arbitration budget, expert evidence and possible enforcement could require substantial expenditure over several years. The respondent remains operational and appears to hold assets, but liability and quantum are contested.

A funder would not decide based only on the AED 22 million headline. It would test the contract, notices, certification, causation, defences, counterclaims, damages model, counsel’s budget, procedural route, respondent’s solvency and likely enforcement jurisdictions. Funding could be considered only after the combined legal and commercial risk is assessed.

How to prepare a funding submission

A focused submission is more effective than sending an unstructured archive. A claimant or referring law firm should ordinarily prepare:

A concise case summary identifying the parties, claim, jurisdiction and procedural stage.
A chronology of material events.
The principal agreements, notices, decisions and evidence.
Counsel’s preliminary merits assessment, including weaknesses and likely defences.
A realistic damages analysis and explanation of how loss will be proved.
A phased legal budget and expected timetable.
Information about the respondent’s solvency, assets and likely enforcement locations.
Disclosure of any counterclaims, settlement discussions, prior funding approaches and urgent deadlines.
Confirmation that appropriate confidentiality arrangements are in place before privileged or sensitive materials are shared.

Questions businesses should ask a prospective funder

What types, jurisdictions and stages of disputes does the funder finance?
How is the return calculated, and how does it change over time?
What costs are included, excluded or subject to further approval?
What capital resources are available for the expected duration of the matter?
What reporting and budget-control obligations will apply?
How are settlement disagreements and conflicts handled?
When may either party terminate the agreement?
What happens if additional capital is required?
How will confidential and privileged information be protected?
What experience does the team have with enforcement and the relevant jurisdiction?

Frequently asked questions

Is litigation funding a loan?

Not necessarily. Commercial litigation funding is often structured as a non-recourse investment tied to recovery rather than a conventional loan with repayment due regardless of outcome. The legal character of any arrangement depends on its terms and applicable law.

Does the funder control the case?

The funded party normally retains ownership of the claim and instructs its lawyers. The agreement may provide monitoring, information and consultation rights, but it should respect applicable professional duties and rules governing control and settlement.

Will the other party know about the funding?

Possibly. Disclosure obligations vary by court, arbitral institution, seat and governing framework. DIFC and ADGM proceedings include specific notice requirements. Current legal advice should be obtained.

Can funding be obtained after proceedings have started?

Yes, in some cases. The funder will assess the remaining budget, procedural position, evidence, timetable, adverse developments and recovery prospects.

Does a successful judgment guarantee recovery?

No. A judgment or award may still require recognition, asset tracing and enforcement. The respondent’s solvency and asset position are therefore central to funding assessment.

How long does an assessment take?

There is no universal timetable. It depends on the complexity of the dispute, readiness of documents, responsiveness of the parties and whether legal, damages or enforcement diligence requires external expertise.

Does WinJustice finance every meritorious claim?

No. Funding is selective and subject to legal, financial, procedural and recovery assessment, internal approval, satisfactory documentation and agreement of terms.

The strategic question

For many businesses, the first question is: “Can we afford to pursue this claim?” A more complete question is: “Should the company carry all of the cost and risk itself?”

Litigation funding cannot turn a weak claim into a strong one. It does not guarantee success, eliminate legal risk or replace independent legal advice. What it can do, in suitable cases, is provide a disciplined framework for evaluating a claim and allocating the capital required to pursue it.

A potentially valuable claim should therefore be examined not only as a legal dispute, but also as a question of evidence, finance, time, strategy and recoverability. The strongest outcome is not merely a favourable decision. It is a legally sound and commercially recoverable result.

Discuss a potential funding opportunity with WinJustice WinJustice assesses selected high-value commercial disputes in the UAE and, selectively, other appropriate jurisdictions. If your business or client has a substantial claim and requires capital for litigation, arbitration or recovery, you may submit a confidential preliminary enquiry through www.winjustice.com.

Important notice

This article is provided for general informational purposes only. It does not constitute legal, financial, accounting, tax or investment advice; an offer or commitment to provide funding; or a prediction of the outcome of any dispute. Laws, court rules and institutional rules may change, and their application depends on the facts. Parties should obtain independent professional advice before entering into or disclosing information in connection with a funding arrangement. Any funding by WinJustice is subject to due diligence, internal approval, satisfactory documentation and execution of definitive agreements.

Sources and further reading