The ADGM Litigation Funding Rules
The Litigation Funding Rules 2019 (the "Rules") of the Abu Dhabi Global Markets Courts ("ADGM Courts") were enacted on 16 April 2019. The Rules are issued by the Chief Justice of the ADGM Courts under Article 225 of the ADGM Courts, Civil Evidence, Judgments, Enforcement and Judicial Appointments Regulations 2015 (the "Regulations"). The Rules provide a comprehensive framework for third-party litigation funding and are in response to the growing interest in third-party funding of proceedings in the Middle East and Africa region regulating both funders and litigation funding agreements concerning proceedings before the ADGM Courts. The Rules are designed to provide the parties and funders with greater certainty in relation to the enforceability of funding arrangements in proceedings for resolving disputes.
ADGM Courts are the most progressive judicial framework in the Middle East, are one of three world-class and independent authorities under the ADGM. ADGM directly applies the well-established and internationally accepted principles of English Common Law.
What does the Litigation Funding entail?
The litigation funding enables the litigants in obtaining finance to cover whole or part of their legal costs from any private commercial litigation funder who has no direct interest in the proceedings. When the litigant is successful, the Funder shall receive a pre-agreed share of the outcome of the claim, which may be a percentage of the amount recovered. When the litigant is unsuccessful, the litigant pays nothing to the Funder, and the Funder shall lose its money.
Part II of the Rules deals with the Funders.
What are the requirements for the Funders?
The following conditions must be satisfied at the time the Litigation Funding Agreement (LFA) is made and continued to be satisfied by the Funder:
- A principal business of the funding of proceedings to which the Funder is not a party must be carried on by the Funder; and
- the Funder must have qualifying assets of minimum USD 5 million or the equivalent amount in foreign currency. The qualifying assets could be cash and cash equivalents including, without limitation monies and assets contracted to the Funder under a contract for fund management; and in the case of an incorporated company, the paid-up share capital.
What are the prohibitions against financial and other interests in Funders?
The Funder must not be owned wholly or partly, directly or indirectly, by way of shares or otherwise by the lawyer or the law firm who has introduced the Funder to a client concerning the proceedings; or whose client has an LFA in force with the Funder concerning the ongoing proceedings.
Part III deals with the Litigation Funding Agreements (LFA)
Reasonable steps must be taken by the Funder to ensure that the Funded Party receives independent legal advice concerning the LFA and its terms prior to its execution. This provision is satisfied when the Funded Party has confirmed in writing to the Funder that the Funded Party has received such advice.
The LFA must include provisions setting out at a minimum; the scope of funding; the amount of funding; the timing of each tranche of funding; and the Funder's recovery under Section 225(3)(e) of the Regulations.
Rule 8 also specifies Financial liabilities. The LFA must state whether and to what extent the Funder is liable to the Funded Party to meet the liability for adverse costs and to pay any premium (including insurance premium tax) for obtaining adverse costs insurance. The LFA must state when and the manner in which the Funder will seek recovery from the Funded Party.
Rule 9 deals with Conflicts of interest. The LFA must not contain any terms that could induce the Funded Party's lawyer or law firm to breach its professional duties which are owed to the Funded Party or to ADGM Courts including under the ADGM Courts Rules of Conduct or permit the Funder to influence the lawyer or law firm so that it takes control of the dispute or assumes conduct of it. The LFAs which include more than one Funded Party must include provisions for managing conflicts of interest between the Funder, the Funded Parties and the lawyers.
The LFA must:
- Include provisions as to the Funder's role in decisions about whether to settle the proceedings and on what terms;
- State the circumstances in which the Funder may terminate the agreement and the Funder shall not be entitled to terminate it except in the specified circumstances;
- Require the Funder to observe the confidentiality and privileged nature of all information and documentation concerning the proceedings to the extent required by law;
- Not result from or involve any commission, fee or share of proceeds being paid to a lawyer or law firm concerning the introduction of a client to the Funder by that lawyer or law firm;
- Require the Funder to take reasonable steps to ensure that it has satisfied itself that there are no circumstances arising from the funding that might give rise to any reasonably foreseeable conflicts of interest, whether in connection with the Funded Party, its lawyer or law firm, the other parties to the proceedings or their lawyer or law firm, or ADGM Courts or arbitral tribunal hearing the proceedings;
- Require the Funder to notify the Funded Party expeditiously if the Funder foresees or reasonably believes that it will no longer meet any of the prescribed requirements for Funders;
- State, expressly for the benefit of the Funded Party and any other party to proceedings before ADGM Courts funded under the LFA that the Funder submits to the jurisdiction of ADGM Courts for the purposes of disputes concerning the costs as between the Funded Party and any other party to the proceedings.
The ADGM Courts are anchored by a judiciary of highly experienced and eminent judges from the world’s leading common law jurisdictions. ADGM Courts handle civil and commercial disputes. The ADGM Courts are “digital” by default and continue to engage and deliver the judicial and dispute resolution services via their e-platform. The Rules were drafted after an extensive review of the litigation funding framework adopted in other jurisdictions like Australia, Singapore, Hong Kong, England and Wales and the United States of America.
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