Third-party funding (“TPF”) – where an external financier bankrolls a claim in exchange for a share of the proceeds – has become a fixture in major arbitrations worldwide, with a notable presence in the real estate and construction sectors. Historically niche, TPF has surged as a common feature of high-stakes disputes in these capital-intensive and complex industries.
As TPF grows, regulators and institutions increase scrutiny on its effects, particularly regarding transparency and fairness.
Experts predict this trend will continue to expand globally, with TPF usage rising in big construction. The construction sector, which has seen a rise in disputes due to factors like insolvency of contractors, supply chain disruptions, and the financial impacts of Covid-19, is particularly well-suited for TPF.
TPF in construction helps parties by providing financing to cover the extensive legal and expert costs associated with high-stakes disputes. These disputes tend to be long, complex, and expensive, involving multiple parties and substantial evidence.
Between 2019 and 2023, there was approximately an average of 200 third-party funded arbitrations per year globally.
This article examines the rise of TPF and the evolving regulatory landscape, with a focus on developments in the Middle East and North Africa (“MENA”) region where booming real estate development and large construction projects underpin significant disputes in Egypt, Saudi Arabia, the UAE, and other Gulf jurisdictions.
Transparency and Regulation: a Global Trend in Construction and Real Estate Arbitration
Around the world, arbitration frameworks are adapting to the new reality of third-party funding. In Europe, regulators have been proactive in establishing stronger oversights and regulations that seek to strike a balance between access to justice and procedural fairness for all parties.
In 2024, the European Law Institute (“ELI”) published 12 principles addressing core issues such as disclosure, security for costs, control, and conflict prevention. Leading arbitral institutions, such as the ICC, HKIAC, and VIAC already require disclosure of the existence and identity of funders, which is especially prevalent in high-value construction and real estate disputes.
However, the financial terms of funding agreements typically remain confidential. While this protects commercial sensitivities, the overall objective is to strive towards procedural fairness through transparency, ensuring tribunals can appropriately allocate costs and address potential conflicts of interest early on.
At ICSID, the world’s largest investor-state arbitration institution, approximately 16% of recent cases—19 of the 119 newly opened cases between mid-2022 and April 2025—disclosed third-party funding, many involving major infrastructure or real estate investments. This marks a notable increase in transparency and institutional acceptance of TPF in large-scale public-private disputes.
Some jurisdictions are considering stronger oversight mechanisms, such as licensing funders or capping returns, to protect parties, especially in construction arbitration—from excessive funder compensation that might dilute recovery.
Third-Party Funding in the MENA Region: from Uncertainty to Acceptance in Construction and Real Estate
In the MENA region, where sprawling cities, mega real estate developments, and vast infrastructure projects continue apace, third-party funding is growing rapidly, providing vital financial lifelines for construction and real estate disputes often characterized by high upfront costs, technical complexity, and drawn-out timelines.
Historically, many Middle Eastern countries lacked explicit laws on funding, with Sharia-based concerns over speculative financing and usurious returns adding layers of uncertainty. However, the past five years have witnessed a shift towards acceptance and formal regulations in commercial arbitration spheres.
- United Arab Emirates (UAE): The DIFC and ADGM free zones permit TPF. Their regulatory frameworks mandate disclosure and allow tribunals to consider funding when making cost orders, fostering confidence among funders and claimants in high-value real estate and complex construction disputes. Onshore UAE laws remain less codified but generally permit funding under civil law principles, making the country a regional hub for funded property and construction arbitrations. The Dubai International Arbitration Centre updated its 2022 rules to allow TPF with mandatory disclosure, reflecting this openness.
- Saudi Arabia: Saudi Arabia’s 2023 Arbitration Rules require disclosure of funded cases, aligning the Kingdom with international standards and encouraging TPF in commercial construction and real estate arbitrations.
- Egypt: While lacking explicit TPF statutes, Egyptian arbitration centers like CRCICA now mandate disclosure in their updated rules, acknowledging funding’s role in enabling investors and contractors to pursue claims in the sizable real estate and construction sectors.
- Other MENA jurisdictions like Bahrain and Qatar are following suit, modernizing arbitration rules to accommodate TPF, responding to growing dispute volumes in regional real estate development and construction.
The construction industry specifically benefits from TPF as contractors and suppliers facing payment delays or high legal costs gain access to justice and financial risk management. Similarly, real estate investors use TPF to enforce or defend complex commercial claims concerning land, zoning, and contractual relationships.
Risks and Cautionary Concerns for Third-Party Funding in Construction and Real Estate
Despite the benefits of TPF, risks accompany its rise in construction and real estate disputes. A key issue is adverse costs. If a funded claimant loses, responsibility for paying the other party’s legal fees may fall on the claimant or funder. Funders are typically shielded unless a tribunal explicitly orders otherwise, but respondents increasingly seek security for costs upon learning of funding.
This uncertainty adds complexity to funding decisions in margin-sensitive construction projects.
A leading example is the Lopez-Goyne v. Nicaragua ICSID enforcement case, where multiple funded claimants were held jointly and severally liable for $1.5 million in costs, demonstrating the importance of clear cost apportionment in group-funded proceedings, which is crucial in multifaceted construction and real estate claims involving multiple layered parties.
Funding agreements must also clearly delineate control rights to avoid conflicts or delays, as construction disputes are often technically intricate and involve many stakeholders.
Looking Ahead: Opportunities and Oversight in Construction and Real Estate Disputes
Third-party funding is increasingly recognized as a powerful tool to unlock claims and manage financial risks in real estate and construction sectors globally. With rising regulatory scrutiny emphasizing disclosure, transparency, and ethical standards, parties and legal teams must diligently comply with evolving rules to safeguard credibility and the enforceability of awards.
Proposed reforms such as licensing funders and limiting returns may further refine the TPF market, ensuring that claimants in real estate and construction disputes receive fair shares of recoveries. Highly nuanced frameworks, especially in the MENA region, indicate a maturing TPF landscape responsive to industry needs.
For stakeholders in real estate and construction arbitration, whether contractors, developers, funders or legal advisors, understanding and adapting to these trends is essential. Navigated carefully, TPF can bridge the financial gap inherent in complex disputes, empowering parties to enforce rights, negotiate settlements from strength, and operate with greater confidence.
