Third-party litigation funders are increasingly focusing their attention on the UAE construction industry as real estate-related disputes continue to accumulate. A notable arbitration case last year involved a contractor and subcontractor in Dubai's $7 billion Expo 2020 project, highlighting one of arbitration's key advantages in the United Arab Emirates - discretion.

Unlock the Potential of UAE Construction Disputes with Litigation Funding

Burford Capital's UAE Expansion

Burford Capital, the world's largest litigation funder, is clearly eyeing opportunities in UAE construction arbitration. As of 2022, it had invested $161 million in the Middle East, Asia, and Australia. Since opening its Dubai office nearly two years ago, the focus has shifted from bank asset recovery and enforcement to pursuing high-value construction claims, especially those exceeding $100 million and with a global dimension. "We are now looking at both single claims for construction companies but also portfolios and claims construction companies have," said Burford's Dubai head, Daniel Hall in an interview with Law.com International. While their cases are confidential, it is known that they have supported a Sharjah state-owned Invest Bank in attempting to recover £21.94 million from a wealthy family.

Construction Disputes: The Big Money

Construction disputes account for a significant portion of arbitration cases at the Dubai International Arbitration Centre. According to the 2023 Annual Report published in October, they made up 60% of the cases, with 323 filed cases valued at more than $1.4 billion. The numbers are expected to rise as more residential and public infrastructure projects are constructed, such as Dubai's $500 million Ciel luxury hotel and the 131-storey Burj Azizi, the second-highest skyscraper in the world after the 828-metre (2,717 ft) tall Burj Khalifa. "These projects rarely run to plan," said Ben William, a King & Spalding Partner. "There are often delays or defects that need to be resolved, and therefore claims." Many construction companies are eager to focus on their next projects rather than funding long-running arbitration litigation. Securing a return guarantee from banks and lenders with existing financial ties can be challenging. "We are only going to fund (their cases) if we get our money back and our return first," Hall said.

Local Litigation Funds on the Rise

Local litigation funds are emerging to compete with international firms like Burford and Omni Bridgeway. Kishore Jaichandani, the managing director of Dubai's Caveat Capital, hopes to create a litigation fund of up to $200 million. He has helped arrange funding for a $500 million property development arbitration claim involving an Oman-based company and believes there is a high chance of recovery in construction arbitration due to the application of common law. The prospects are further enhanced by the express rules of third-party funding developed in the Dubai International Financial Centre and Abu Dhabi Global Market courts, which operate using the common law system. This clearly shows that litigation funding is supported and is set to grow, as stated by Herbert Smith Freehills' Dubai managing partner Stuart Paterson.

Litigation Funding Challenges

Selling legal finance options to clients in the Gulf region, which is awash with cash, remains a challenge for funders. Burford's Dubai head spends a significant amount of time educating and convincing prospective clients rather than simply funding them. Some claimants avoid third-party funding to maximize their profit, while others are discouraged by the level of scrutiny involved. "A fund is not going to take on the risk unless they've looked at the claim from every conceivable angle, and they've got as much information as they can possibly get on the merits of the claim," said Richard Bell, a partner at Al Tamimi. Some funders are hesitant due to the enforcement of awards. "The question of enforceability in Saudi Arabia, or in UAE and other Gulf countries, is more of a challenge because the legal framework around that is less certain," added King & Spalding's Williams. "If you've got an arbitration award, it's not necessarily certain that enforcement in any of these jurisdictions will be smooth." However, Bell believes that the enforcement landscape is improving with the UAE being a signatory to the New York convention, which allows the recognition and enforcement of foreign arbitral awards. This may explain why Burford is leaning towards funding arbitration rather than local court cases. Many third-party funders still view local courts as a gamble as the proceedings are in Arabic and there are no compulsory rules of disclosure. "The civil procedure (applicable in local courts) are quite a bit different to common law and so there's not the same mechanisms to properly plead a case or compel the other side to plead theirs," Bell said.