Litigation Funding vs Contingency Fees: Why the Distinction Matters in the UAE

Litigation funding and contingency fees are frequently grouped together because both may link payment to the outcome of a legal claim. Legally and commercially, however, they are fundamentally different arrangements.

Under a litigation funding agreement, an independent third-party funder provides capital to a claimant, usually on a non-recourse basis, in exchange for an agreed return if the claim succeeds. Under a contingency or success-fee arrangement, the claimant’s lawyer agrees that some or all of the lawyer’s remuneration will depend on the result of the case.

The distinction is not merely terminological. It determines who supplies the capital, who owes professional duties to the claimant, how conflicts are managed, what must be disclosed, who bears the risk of an unsuccessful claim, and which regulatory framework applies.

In the UAE, these questions cannot be answered by treating all courts and arbitral proceedings as part of a single funding regime. UAE onshore courts, the DIFC Courts, the ADGM Courts, and institutional arbitration each operate under distinct legal and procedural frameworks. The applicable forum, professional rules, governing law, and terms of the particular arrangement must therefore be examined separately.

What Is Litigation Funding?

Litigation funding, also known as third-party funding or legal finance, is an arrangement under which a person who is not a party to the dispute finances some or all of the costs associated with pursuing the claim.

The funded costs may include:

• Lawyers’ fees.
• Court or arbitration fees.
• Expert and technical evidence.
• Document management and translation.
• Security for costs.
• Enforcement and asset-recovery expenses.

Commercial litigation funding is commonly structured on a non-recourse basis. This means that the funder’s entitlement to repayment and return generally depends on a successful judgment, award, settlement, or recovery. If the claim fails, the funder ordinarily loses the deployed capital, subject to the precise terms of the funding agreement.

The funder is not the claimant’s lawyer. It does not plead the case, provide legal representation, or assume counsel’s professional obligations. Its role is primarily financial, although a sophisticated funder will normally conduct detailed legal, financial, quantum, and enforcement due diligence before committing capital.

The DIFC Courts’ Practice Direction No. 2 of 2017 illustrates this structure. It defines a funder as a person or entity independent from both the funded party and the associated law firm, and defines funding as financial assistance that may confer an economic benefit linked to the outcome of the proceedings.[1]

What Is a Contingency Fee?

A contingency fee is a remuneration arrangement between a client and the client’s lawyer.

Under a conventional contingency-fee model, the lawyer receives an agreed percentage of the client’s recovery if the claim succeeds and may receive no professional fee, or a reduced fee, if it fails. Related models include conditional fees, success fees, uplift fees, and hybrid arrangements combining discounted hourly rates with an outcome-dependent premium.

The essential feature is that the lawyer’s remuneration, rather than an external funder’s investment return, depends on the outcome.

This distinction matters because lawyers are subject to professional, fiduciary, ethical, confidentiality, and independence obligations that do not ordinarily apply to a commercial funder in the same form. A lawyer cannot treat the claim simply as an investment asset. Counsel must continue to act in the client’s interests, exercise independent professional judgment, comply with applicable conduct rules, and avoid conflicts between the lawyer’s financial interest and the client’s legal interests.

The expression “contingency fee” should also be used cautiously in the UAE. The legality and permitted structure of outcome-related legal fees depend on the jurisdiction, the lawyer’s licensing status, the applicable professional regime, and the precise drafting of the fee agreement. A model permitted in one forum should not be assumed to be valid in another.

Litigation Funding vs Contingency Fees: The Core Legal Differences

The contracting parties are different

A litigation funding agreement is generally entered into between the claimant and an independent funder. The claimant will normally have a separate engagement agreement with its lawyers.

A contingency-fee agreement is entered into between the claimant and the lawyer or law firm providing legal services.

This produces two distinct contractual relationships in funded litigation:

1. The legal-services relationship between the client and counsel.
2. The financing relationship between the client and the funder.

Maintaining this separation is central to preserving counsel’s independence and ensuring that the claimant, rather than the funder, remains the client.

The economic function is different

Litigation funding provides external capital. It can finance not only legal fees but also experts, tribunal fees, adverse-cost protection, enforcement, and other dispute-related expenses.

A contingency fee changes how the lawyer is paid. It does not necessarily provide the claimant with working capital or meet third-party expenses. A law firm may defer or place its own fees at risk, but it may not be willing or financially able to fund the wider costs of a complex commercial dispute.

Litigation funding can therefore address a broader financing requirement than a lawyer’s fee arrangement.

The risk assumed is different

A litigation funder assumes investment risk. Its capital may be lost if the claim fails or produces an inadequate recovery.

A lawyer acting under a contingency or conditional arrangement assumes remuneration risk. The lawyer may invest substantial professional time without receiving the expected fee, but that does not automatically mean the lawyer is funding expert costs, institutional fees, enforcement expenses, or an adverse-cost exposure.

The risks can overlap, but they are not identical.

The return is calculated differently

A funder’s return may be calculated as:

• A multiple of deployed capital.
• A percentage of recoveries.
• A combination of a multiple and a percentage.
• A stepped return that changes according to duration or procedural stage.

A lawyer’s outcome-related fee is governed by the legal-services agreement and the professional rules applicable to the lawyer. It may involve a success premium, an uplift, or another permitted result-dependent formula.

The fact that both structures may refer to a percentage of recovery does not make them legally equivalent.

Professional duties attach differently

The lawyer owes professional duties directly to the client. These include duties concerning competence, confidentiality, loyalty, conflicts, independence, and the proper conduct of proceedings.

A litigation funder’s obligations arise principally from the funding agreement and any applicable court, arbitration, regulatory, or industry rules. A funder should not direct legal strategy in a manner that compromises counsel’s independence or displaces the claimant’s authority over the claim.

Well-drafted funding agreements normally address decision-making, settlement consultation, termination, conflicts, confidentiality, information sharing, and dispute-resolution mechanisms between the claimant and funder.

Can Litigation Funding and a Contingency Fee Be Used Together?

The two arrangements are not mutually exclusive.

A claimant may use litigation funding while its lawyers work under conventional hourly rates. It may also combine external funding with a discounted fee, deferred fee, or permissible success-based element.

A hybrid structure can align the economic interests of the claimant, counsel, and funder. It may also reduce the amount of external capital required because the law firm is placing part of its fees at risk.

That alignment should not be confused with identical legal interests. The claimant may prefer an early settlement, the funder may focus on the commercial return, and counsel may have an economic interest in the fee outcome. The governing agreements must therefore provide a clear process for managing disagreements without undermining the claimant’s control or counsel’s professional judgment.

The UAE Onshore Position

There is no single federal statute that comprehensively regulates every form of third-party litigation funding across all UAE onshore courts.

An onshore funding arrangement must instead be assessed through several bodies of law, potentially including:

• General contractual principles.
• Public-policy rules.
• Federal legislation governing the legal profession.
• Civil-procedure requirements.
• Professional confidentiality and legal-secrecy duties.
• The law governing the funding and legal-services agreements.
• Rules relating to costs, enforcement, and assignment of rights.

Federal Decree-Law No. 34 of 2022 regulates the legal profession and legal consultancy profession and provides the principal federal framework for lawyers’ professional activities and legal fees.[2]

The critical point is that commercial litigation funding should not be treated as another label for a lawyer’s contingency fee. A funder is not being remunerated for advocacy or legal consultancy. It is providing finance under a separate commercial contract.

Equally, describing an arrangement as “funding” will not protect it if, in substance, it circumvents mandatory professional rules or gives an unlicensed party control over legal representation. Substance, not terminology alone, will be important.

Parties should obtain forum-specific advice on the enforceability of the proposed return, the allocation of control, confidentiality, public policy, and the interaction with counsel’s fee arrangements.

DIFC Courts

The DIFC Courts expressly recognise third-party funding through Practice Direction No. 2 of 2017.

A funded party must disclose the existence of the funding arrangement and the identity of the funder. The party is not automatically required to disclose the funding agreement itself, although the Court may order disclosure.[1]

The Practice Direction also provides that:

• Funding may include financial assistance linked to the outcome.
• Funding alone is not determinative of an application for security for costs.
• The Court may make an appropriate costs order against a third party, including a funder.

A 2025 DIFC Court of Appeal judgment confirmed that the Practice Direction requires disclosure of the existence of third-party funding and the funder’s identity, while the agreement’s terms need not ordinarily be disclosed unless ordered.[3]

The DIFC framework addresses external financing. It does not collapse litigation funding into counsel’s remuneration arrangements. Lawyers remain subject to the DIFC Courts’ practitioner conduct requirements, including duties concerning independence and dealings with funders.

ADGM Courts

ADGM has developed a more detailed statutory framework for litigation funding.

The ADGM Litigation Funding Rules 2019 regulate qualifying funders and require funding agreements to contain specified protections. The framework addresses matters including capital adequacy, conflicts of interest, settlement involvement, the funder’s dealings with lawyers, and the minimum content of funding agreements.[4]

ADGM’s official legislation page records both the Litigation Funding Rules 2019 and an amendment issued in 2023.[5]

The ADGM regime demonstrates why litigation funding should not be analysed as a legal-fee device. Its focus is the conduct and financial standing of the funder, the enforceability and content of the funding agreement, and the protection of funded parties.

Lawyers acting in ADGM remain governed by the applicable professional and court-conduct framework. Their remuneration arrangements require a separate legal analysis from the claimant’s agreement with an external funder.

DIAC Arbitration

Article 22 of the DIAC Arbitration Rules 2022 expressly regulates third-party funding.

Before constitution of the tribunal, a funded party must promptly disclose:

• The existence of the funding arrangement.
• The identity of the funder.
• Whether the funder has committed to an adverse-cost liability.

After the tribunal has been constituted, a party must not enter into an arrangement that will or may create a conflict of interest between the funder and a tribunal member. The required disclosure must also be made to the tribunal.[6]

These requirements concern procedural transparency, arbitrator independence, and costs. They do not regulate the claimant’s lawyer merely because counsel may have agreed to defer fees or accept a success-related component.

In a DIAC arbitration, three separate questions may therefore arise:

1. Is the external funding arrangement enforceable under its governing law?
2. Does Article 22 require disclosure of the funder and adverse-cost commitment?
3. Is the lawyer’s fee arrangement permissible under the professional rules governing counsel?

Each question requires independent analysis.

Disclosure Does Not Usually Mean Disclosure of Every Commercial Term

Funding disclosure is often misunderstood.

A rule requiring disclosure of third-party funding does not necessarily require production of the full funding agreement. The legal issues are distinct:

• Disclosure of the existence of funding.
• Disclosure of the funder’s identity.
• Disclosure of adverse-cost coverage.
• Disclosure of particular terms relevant to conflicts, control, security for costs, or costs applications.
• Production of the complete agreement.

For example, the DIFC Practice Direction requires disclosure of funding and the funder’s identity but does not automatically require disclosure of the agreement itself.[1]

DIAC Article 22 requires disclosure of the arrangement, funder identity, and adverse-cost commitment, but does not state that the complete agreement must invariably be produced.[6]

A tribunal or court may nevertheless order targeted or wider disclosure where the agreement’s terms are relevant to a live procedural issue. Confidentiality provisions should therefore be drafted with the possibility of compelled disclosure in mind.

Commercial Merits Are Not the Same as Legal Merits

A claimant may have a legally strong case that is not commercially suitable for litigation funding.

A funder will typically consider:

• Legal merits and evidential strength.
• The amount realistically recoverable.
• The expected budget and duration.
• Defences, counterclaims, and jurisdictional objections.
• The respondent’s assets and solvency.
• Enforcement jurisdictions.
• The ratio between expected recovery and funding exposure.
• Settlement prospects.
• Regulatory, sanctions, and reputational considerations.

A law firm deciding whether to accept an outcome-based fee may apply different criteria. It may place particular weight on the anticipated professional workload, internal capacity, client relationship, and the proportion of fees it is prepared to defer.

A refusal of funding therefore does not establish that the claim lacks legal merit. It may simply mean that the anticipated recovery, enforcement profile, cost, timing, or risk allocation does not satisfy the funder’s commercial criteria.

Risks and Ethical Considerations

Control of proceedings

The funded party should retain appropriate authority over the claim. The funder may have consultation and information rights, but the arrangement should not allow it to exercise control that compromises counsel’s independence or the integrity of the proceedings.

Settlement disagreements

The funding agreement should state how settlement proposals will be assessed and how disagreements will be resolved. A claimant should not discover late in the proceedings that settlement requires an unclear or commercially unworkable approval process.

Conflicts of interest

The funder may have relationships with law firms, experts, arbitrators, or related companies. Timely disclosure allows courts, tribunals, and practitioners to identify and manage potential conflicts.

Confidentiality and privilege

Due diligence requires the claimant to provide substantial information. Disclosure should be organised through appropriate confidentiality arrangements, with careful consideration of privilege, data protection, professional secrecy, and the governing law.

Termination rights

A funding agreement may permit termination if the merits deteriorate, the claimant breaches its obligations, or the economics change materially. The agreement should clearly define the consequences of termination and avoid leaving the claimant unable to continue at a critical procedural stage.

Lawyer incentives

Contingency and success-fee arrangements can create incentives linked to settlement timing and case value. Professional duties and transparent engagement terms are essential to prevent the lawyer’s remuneration interest from displacing the client’s objectives.

Practical Questions for Claimants and Counsel

Before choosing litigation funding, a contingency-fee arrangement, or a hybrid structure, the parties should establish:

• Which court, tribunal, and professional regime apply?
• Is external funding expressly regulated?
• Is an outcome-related lawyer fee legally permissible?
• Who will pay experts, tribunal fees, and enforcement expenses?
• Who bears adverse-cost or security-for-costs exposure?
• What information must be disclosed, and to whom?
• Who controls strategy and settlement decisions?
• How is the funder’s return calculated?
• What happens if the claim settles early?
• When may the funder or lawyer terminate the arrangement?
• How will confidentiality and privilege be protected?

The answers should appear clearly in the legal-services agreement and, where applicable, the separate litigation funding agreement.

Forward-Looking Assessment

The distinction between litigation funding and contingency fees is likely to become increasingly important as UAE dispute-resolution institutions develop more detailed rules concerning disclosure, conflicts, costs, and funding arrangements.

The DIFC and ADGM already demonstrate different regulatory approaches. DIAC addresses third-party funding through its procedural rules, while UAE onshore arrangements require analysis across contract law, professional regulation, procedure, and public policy.

Future development may produce greater clarity, but uniformity should not be assumed. The UAE’s legal architecture permits distinct approaches across onshore courts, financial free-zone courts, and arbitration.

For claimants, lawyers, funders, and tribunals, the most reliable starting point remains to identify the true legal character of each agreement rather than relying on broad labels such as “no win, no fee” or “claims funding”.

Conclusion

Litigation funding and contingency fees can both make claims financially viable, but they operate through different legal relationships.

Litigation funding is external, risk-based finance provided by an independent third party. A contingency fee is a method of remunerating the lawyer. The funder assumes investment risk; the lawyer assumes some degree of fee risk. The funder’s rights derive from the funding agreement; counsel remains bound by professional duties to the client.

In the UAE, the distinction must be assessed against the applicable forum. DIFC Courts proceedings, ADGM Courts proceedings, DIAC arbitration, and UAE onshore litigation are governed by different rules and should not be presented as a single uniform regime.

A properly structured arrangement may involve litigation funding, a permissible success-based legal fee, or both. The legality and commercial suitability of each structure depend on its substance, governing law, forum, disclosure obligations, allocation of control, and case-specific economics.

Frequently Asked Questions

Is litigation funding the same as “no win, no fee”?

No. “No win, no fee” usually describes a lawyer’s remuneration arrangement. Litigation funding involves an independent third party financing some or all of the claim in return for an agreed entitlement if the case succeeds.

Does a litigation funder act as the claimant’s lawyer?

No. The claimant’s lawyer provides legal advice and representation. The funder provides capital and assesses the claim as a financial investment. Funding does not create a lawyer-client relationship between the funder and claimant.

Must the full litigation funding agreement be disclosed?

Not necessarily. The DIFC Courts require disclosure of the existence of funding and the funder’s identity, but not automatic disclosure of the complete agreement. DIAC requires specified disclosures under Article 22. A court or tribunal may order further disclosure where particular terms are relevant.

Can a company use funding even if it can afford litigation?

Yes. A solvent company may use funding to preserve cash, transfer litigation risk, manage legal budgets, pursue several claims, or avoid allocating operating capital to a long-duration dispute. Fundability will still depend on merits, economics, and enforceability.

Can litigation funding and a success fee be combined?

Potentially. A hybrid arrangement may involve external funding together with deferred, discounted, or outcome-related legal fees. Its validity depends on the applicable professional rules, governing law, forum, and contractual structure.

Does a strong claim automatically qualify for funding?

No. Funders assess both legal merits and commercial viability. The likely recovery, budget, duration, enforcement prospects, counterparty risk, and return structure are usually material.

References

[1] DIFC Courts, Practice Direction No. 2 of 2017 on Third Party Funding in the DIFC Courts, 14 March 2017.

[2] United Arab Emirates, Federal Decree-Law No. 34 of 2022 Regulating the Legal Profession and Legal Consultation Profession.

[3] DIFC Court of Appeal, LXT Real Estate Broker L.L.C v SIR Real Estate L.L.C, CA 005/2025, discussion of disclosure under Practice Direction No. 2 of 2017.

[4] Abu Dhabi Global Market Courts, Litigation Funding Rules 2019, official announcement, 16 April 2019.

[5] Abu Dhabi Global Market, ADGM Courts Legislation and Procedures, including the Litigation Funding Rules 2019 and Amendment No. 1 of 2023.

[6] Dubai International Arbitration Centre, DIAC Arbitration Rules 2022, Article 22, effective 21 March 2022.

The structure and terminology of this article follow WinJustice’s approved analytical, jurisdiction-specific, no-table editorial framework. The separation between UAE onshore courts, DIFC, ADGM, and DIAC reflects the approved institutional research approach.

About WinJustice

WinJustice is a UAE-based litigation funding company providing funding solutions for eligible commercial disputes, litigation, and arbitration claims.

Through legal, financial, and enforcement assessment, WinJustice seeks to support meritorious claims while helping claimants manage the cost and financial risk of pursuing legal proceedings.

For more information about litigation funding or to submit a claim for preliminary assessment, visit WinJustice.

This article is provided for general informational purposes only and does not constitute legal, financial, tax, Sharia, or investment advice. The legality, availability, and terms of litigation funding depend on the applicable jurisdiction, forum, governing law, and circumstances of each dispute. Funding remains subject to legal, financial, and enforcement assessment.