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: 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] (DIFC Courts) 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: 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 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,