On January 29th, LFJ hosted a virtual town hall titled "Spotlight on the Middle East." The event featured a panel of key stakeholders in the region, including Obaid Bin Mes'har (OBM), Dispute Resolution Specialist at WinJustice. Nick Rowles-Davies (NRD), Chief Executive Officer of Lexolent, Kishore Jaichandani (KJ), Managing Director of Caveat Capital, and Ahmed Hammadi (AH), Legal Director at DLA Piper. The event was moderated by Jonathon Davidson, dispute resolution lawyer and Founding Partner at Davidson & Co.
Below are key takeaways from the event:
Historically, there's been very large scale construction and engineering cases here. Do you find those predominantly to be the fundable cases, or are we looking at general commercial litigation and shareholder disputes? Is there more of an even spread?
AH: There are two comfort zones as we see them now. And the two comfort zones are generally banking and construction. The banking goes back a while, back to 2014 when you had the DIFC case of Saracen, which I think even prompted the DIC to seriously consider putting litigation funding into his practice directions in 2017. But I'd say those are the comfort zones for a few reasons. And the principal ones are their core industries and sectors, in this region and not just in the UAE. Even as it disputes, though, I think you might agree, Jonathan, that construction touches all of our lives in one way or another even if you try to avoid it.
Secondly, these industries have customary documents. Right? So with construction, you have FIDEC. Obviously, there are some employers that will have a little bit of a bespoke contract, but they are kind of coming out of the internationally accepted standards or norms. And similarly with banking, you have a lot of LMA documents. So you have concepts that are understood internationally, albeit you'll have some local flavor in your interpretation, application, interest, concurrent delay, how they deal with guarantees, and that sort.
In terms of budgets, what's your experience on whether funders have to adopt the same level of budgeting here as elsewhere in the world, or where there's a different approach? Are certain type of proceedings, maybe the onshore proceedings, are they leaner in terms of fees?
KJ: In terms of budgets, legal budgets in the Middle East are increasingly aligned with global markets now, especially after the ATGM and the ISC and, especially for the complex litigation arbitration. So that is still based on factors like jurisdiction, legal framework, market maturity. It depends where is the claim, like a Saudi, UAE, Qatar, Oman.
So onshore litigation in Middle East jurisdictions like Saudi, Oman, Qatar, they often have a lower cost in comparison to the western jurisdictions like the UK, US and Europe. This is due to this due to the simplified court process, lower attorney fees here, and fewer procedural stages. For example, we have seen a case which is having $5,000,000 claim size in Riyadh. And the budget for that case was $250,000 as legal fees. In contrast, you see similar cases in the US Federal Court System that could exceed $1,000,000.
How do the economics work from a funder's perspective? So we have cases here, funder's must have a minimum ticket to make the economics work. Does that change if you're in common law jurisdictions when you factor in cost that you might have to pay as as the defendant's cost if you lose as the claimant, vis a vis the civil proceedings where that that might not factor in?
NRD: The basic principles of funding don't change whether you're in the GCC or whether you're in Europe. So if you're in the local court, the exposure from most international funders in local court funding is in relation to enforcement of arbitral awards rather than funding disputes, because the budgets, as we've discussed, tend to be a bit lower, and there isn't a massive appetite for international funders to fund in local courts. And also, of course, they're in Arabic, which tends to limit the number of funders that can actually operate there. So, funders will be operating in the offshore jurisdictions, the IFC, ADGM, where there are cost shifting rules and there is adverse costs. Now one of the challenges with that is there aren't a lot of ATE or insurance carriers that can write ATE insurance in the DIFC or ADGM. So you have to use indemnities from a funder backed off maybe in London or by an insurer that's happy to ensure the funder in a different UK jurisdiction.
So it can be done, and it's something that we have to take account of. So it's there, and it's no different from any other cost shifting jurisdiction.
In the local civil jurisdictions, we call them the onshore courts in the UAE, has any progress been made in having those courts formally recognize funding? How would you fund a local case, and who who funds it? Is it international funders or is it local investors?
OBM: I would like to make a distinction here between the onshore court and offshore courts, on the ground that each court has its own rules and regulations. For onshore, they don't have to regulate third party, as of today. So they don't actually contain any provisions which prohibit the funding by third parties. I used to do it for the last 15 years, and the contract regulates the parties' relationship. So if you are funding in the local market in the onshore courts, the contract regulates the relationship.
So we didn't face any problems since there's no regulation on that issue. However, in offshore, yes. ATGM and DIFC, they have their own regulations, and they have certain conditions you have to disclose in the agreement. You have to disclose that you inform the second parties, the opponent parties. Otherwise, you might no execute that contract. So if a funding contract in the local Arabic courts was to be challenged, then our analysis is the court would uphold the terms of the contract.
To watch the full recording of the event, please click here.
