Costs and Third-Party Funding in UAE-Seated Arbitration — Who Pays, and Who Can Fund

Two cost questions decide much of the economics of an arbitration: what can the winner recover, and how can a claimant afford to bring the claim in the first place. In UAE-seated arbitration neither answer is automatic. Whether legal costs are recoverable at all turns on the applicable rules and the arbitration agreement rather than on a fixed statutory rule; allocation is a matter of tribunal discretion informed by outcome and conduct; and third-party funding, now well established in the offshore centres, comes with disclosure and privilege considerations a funded party must plan for from the outset. This guide works through both halves of the picture.

1. The rules governing allocation and recoverability

Two layers govern costs in a UAE-seated arbitration. The first is the national law of the seat — the Federal Arbitration Law onshore, or the DIFC and ADGM arbitration laws offshore — which sets the outer framework and, historically, has shaped what a tribunal may award by way of costs. The second, and often more important in practice, is the arbitration rules the parties have chosen, which typically confer express powers on the tribunal to fix and allocate costs. The two operate together: the rules cannot give a tribunal a power the mandatory law of the seat withholds, but within that space the rules and the parties' agreement do most of the work.

2. The concept of costs — what is included

“Costs” in arbitration is a composite concept. It typically comprises:

• the arbitral tribunal's fees and expenses;
• the administrative fees of the arbitral institution;
• the parties' legal representation costs;
• the costs of experts and witnesses and of the hearing itself (venue, transcription, interpretation).

The applicable rules usually define these categories, distinguishing the 'costs of the arbitration' (the tribunal's fees and the institution's charges, which the tribunal fixes) from the parties' own legal and expert costs (which the tribunal may allocate but does not itself set).

3. The parties' liability for the tribunal's fees

The parties are jointly and severally liable to the tribunal and the institution for the costs of the arbitration, regardless of how those costs are ultimately allocated between them. In institutional arbitration this is managed through advances on costs, which the parties are called on to pay (often in equal shares) and which fund the tribunal's fees and the institution's charges as the case proceeds. A party that declines to pay its share may find the other side paying on its behalf to keep the arbitration alive, with the shortfall becoming itself a matter for the costs award. The allocation of who ultimately bears these costs is decided in the award, separately from the obligation to fund them along the way.

4. How costs are allocated

There is no hard statutory rule in onshore UAE that costs must follow the event. Allocation is a matter for the tribunal's discretion, exercised within the framework of the applicable rules and the parties' agreement, and informed by the outcome, the parties' conduct and the efficiency of the proceedings. Modern institutional rules commonly direct the tribunal to have regard to the outcome of the case and to each party's contribution to an efficient and expeditious arbitration. In practice, tribunals frequently start from the outcome — the successful party recovering a proportion of its costs — and then adjust for conduct: unreasonable behaviour, exaggerated claims, procedural default and disproportionate costs claims all commonly attract an adverse adjustment.

5. Are the parties' legal fees recoverable?

This is the question that most often catches parties out. The recoverability of a party's own legal representation costs depends on whether the applicable rules or the arbitration agreement empower the tribunal to award them. The modern institutional rulesets used in the UAE do confer that power; but a party proceeding on a bare statutory footing, without such empowerment, cannot assume its legal fees will be recoverable at all. Even where the power exists, recovery is usually of reasonable and proportionate costs, not the full amount billed. The lesson is to check the position under the chosen rules — and, where it matters, to provide expressly in the clause that the tribunal may award the legal and other costs of the arbitration.

6. Security for costs

A respondent facing a claimant of doubtful means — or a funded claimant whose funder is not on the hook for an adverse costs award — may apply for security for costs: an order that the claimant put up security against the respondent's costs if the claim fails. Whether the tribunal has the power, and the threshold for its exercise, depend on the applicable rules and the law of the seat. The existence of third-party funding is one of the circumstances a tribunal may weigh, which is part of why disclosure of funding has become significant.

7. Third-party funding — the basics

Third-party funding is an arrangement under which a funder with no prior connection to the dispute finances a party's costs of pursuing (or, less commonly, defending) a claim, usually in return for a share of the proceeds if the claim succeeds and nothing beyond its outlay at risk if it fails. It has become a mainstream feature of international arbitration. Its attractions are twofold: it opens access to justice for claimants with meritorious claims but limited means, and it allows well-resourced companies to move the cost and risk of disputes off their own balance sheet. The funder is not a party to the arbitration and does not control it, though funding agreements typically give the funder information and consultation rights.

8. Where funding is permitted in the UAE

Third-party funding is available for UAE-seated arbitration, but the regimes differ across the three jurisdictions. The offshore common-law centres have gone furthest in formalising it: both the DIFC and the ADGM permit funding and require disclosure of the existence of a funding arrangement and the identity of the funder, principally so that the tribunal can check for conflicts of interest. Onshore, there is no prohibition on funding, and disclosure is increasingly expected as a matter of best practice and under the modern institutional rules. A funded party should therefore plan for disclosure from the outset rather than treat the funding as private.

9. Disclosure, privilege and recoverability of funding costs

Three further questions recur wherever funding is used:

• Disclosure. Expect to disclose at least the existence of funding and the funder's identity, so the tribunal can run conflict checks; the trend is towards earlier and fuller disclosure, not less.
• Privilege and confidentiality. Sharing case materials with a prospective or actual funder can risk privilege and confidentiality unless handled carefully — under non-disclosure agreements, and structured to preserve any available common-interest protection.
• Recoverability of the funding cost. Whether the funder's return (or the cost of obtaining funding) can itself be recovered as a cost of the arbitration is unsettled and depends on the rules, the seat and the tribunal's view; it should not be assumed.

'Costs follow the event' — principle and limits

The phrase 'costs follow the event' captures a starting point common in international arbitration: that the losing party should, in principle, bear the reasonable costs of the winner. But it is a starting point, not a rule, and its application in a UAE-seated arbitration is filtered through the tribunal's discretion and the applicable rules rather than imposed by statute. Two refinements matter. First, 'the event' is rarely all-or-nothing: where a party wins overall but loses discrete issues, tribunals frequently make an issues-based or proportionate award rather than shifting all costs. Second, conduct qualifies the principle throughout — a successful party that ran its case inefficiently, pursued bad points, or inflated its costs may recover markedly less than the headline outcome would suggest. Parties should therefore resist the assumption that winning secures full recovery.

Interest and currency on costs awards

Two mechanical points are easy to overlook. A costs award may carry interest, and the tribunal's power to award interest — and the rate and period — depends on the applicable rules, the law of the seat and the parties' agreement; it should be claimed and substantiated rather than assumed. And where costs are incurred in more than one currency — local-currency fees and foreign-currency counsel, say — the currency of the award and the treatment of exchange-rate movements need to be addressed, or a nominally full recovery can be eroded by conversion.

Funding structures, insurance and insolvency

Third-party funding rarely stands alone, and a funded party should understand the adjacent tools and risks. After-the-event insurance can cover a funded claimant's exposure to an adverse costs award, which in turn affects a respondent's prospects on a security-for-costs application. The assignment of a claim, or of its proceeds, raises distinct questions of validity and disclosure. And the insolvency of a party — increasingly a driver of funded claims, where an insolvency practitioner monetises litigation assets — brings its own rules on who may pursue the claim and how recoveries are distributed. Each of these interacts with the costs and funding analysis, and each should be mapped before, not after, the funding is put in place.

The tribunal's power to award legal costs — background

The recoverability of legal costs has a particular history in the UAE that explains why the point needs checking rather than assuming. For a long period, a real question hung over whether a tribunal seated onshore had power to award the parties' legal representation costs at all, absent express agreement, given the way the governing provisions were framed. Parties were sometimes surprised to win the arbitration but recover none of their legal spend. The modern institutional rules were drafted to put the matter beyond doubt by empowering the tribunal expressly to fix and award the legal and other costs of the arbitration. The practical consequence today is straightforward but important: where the parties have adopted such rules, the tribunal can award legal costs; where they have not, the position is less certain, and the arbitration agreement should confer the power expressly.

Costs of the arbitration and costs of the parties

It aids clarity to keep two things apart. The costs of the arbitration are the tribunal's fees and expenses and the institution's administrative charges; these the tribunal fixes, and the parties fund them through advances. The parties' own costs are their legal, expert and related expenses; these the tribunal does not set but may allocate between the parties in the award, if it has the power to do so. Confusing the two leads to mistakes — for instance, assuming that a power to fix the costs of the arbitration necessarily carries a power to shift the parties' legal costs. They are distinct questions, and both should be confirmed under the applicable rules.

Settlement offers and their effect on costs

A powerful but under-used tool is the protected settlement offer — an offer made on terms that it may be shown to the tribunal on the question of costs, but not before, so that a party which beats its own offer at the award stage can seek an enhanced costs recovery from the point the offer should have been accepted. Whether, and how, a tribunal will give effect to such offers depends on the applicable rules, the law of the seat and the tribunal's approach, and the mechanics must be handled correctly for the offer to have its intended costs effect. Used well, a well-judged offer reshapes the costs risk of the whole proceeding and can bring a reluctant opponent to settlement.

Regulation of funders and codes of conduct

As third-party funding has matured, so has its governance. Reputable funders operate under codes of conduct and, in the offshore centres, within rules that address disclosure and, in some respects, the funder's role. For a funded party this matters in two ways: the choice of a well-capitalised, reputable funder reduces the risk of the funder failing to meet its commitments mid-case; and the applicable disclosure and conduct rules shape what must be revealed and how the relationship is structured. Diligence on the funder, and on the funding agreement's terms — control, termination, and the priorities on any recovery — is as important as the headline commercial terms.

The funding process in practice

Obtaining funding follows a recognisable path, and understanding it helps a party prepare:

• an initial approach under a non-disclosure agreement, to protect privilege and confidentiality;
• the funder's due diligence on the merits, quantum, recoverability and the counterparty's ability to pay;
• a term sheet, then a funding agreement dealing with the funder's commitment, its return, control and information rights, and termination;
• disclosure of the funder as required by the applicable rules and the seat, for conflict checks;
• ongoing management, including how any adverse-costs exposure (for instance through after-the-event insurance) is handled.

10. Practical points

• Confirm the applicable rules empower the tribunal to award legal costs — and provide for it expressly in the clause if there is any doubt.
• Keep costs proportionate and conduct reasonable: exaggerated claims and procedural default invite adverse allocation.
• Budget for advances on costs and understand the joint-and-several liability for the tribunal's fees.
• If funded, expect to disclose the funder's identity for conflict purposes, and do so early; protect privilege in all dealings with the funder.
• Take advice on security for costs (as respondent) and on whether funding costs are recoverable (as funded claimant).

Frequently asked questions

Related guides

• arbitrateAD costs and fees (2024)
• Third-party funding in SIAC arbitration
• Arbitration vs litigation in the UAE — when to choose which

This guide is general information on the law as we understand it and is not legal advice. For advice on a specific arbitration matter, please contact us. Last updated: 30 July 2026.