Litigation funding is not expressly regulated in Bahrain, however, in principle, it is generally regarded as permissible, provided that it does not contravene the rules of law, public order or professional conduct. Accordingly, such arrangements may be structured on the basis of contractual freedom under the Bahraini Civil Code, subject to general limitations set out under the Code, such as exploitation and respect for public policy.

In practice, the litigation funding market in Bahrain remains relatively undeveloped. There are no well-established local litigation funders operating on a standalone basis, and funding is more commonly provided by foreign or regional funders, particularly in connection with high-value international arbitration or cross-border disputes seated in Bahrain or enforced before Bahraini courts. While awareness of litigation funding has increased – especially in the context of arbitration – the use of such arrangements remains limited.

Absence of a Dedicated Regime

There is no specific statutory or regulatory framework in Bahrain that directly governs third-party litigation funding, whether in court proceedings or arbitration, nor are there separate funding regimes that are particularly applicable to collective actions or particular categories of disputes.

Applicable General Laws and Principles

Litigation funding arrangements are indirectly regulated through a number of general laws and legal principles, most notably as follows.

• Bahraini Civil Code (Legislative Decree No 19 of 2001, as amended) – litigation funding agreements are subject to the general rules governing contracts, including the requirement of consideration, valid consent and compliance with public order and morals. The Civil Code also empowers courts to intervene where a contract involves exploitation, excessive imbalance, or an unlawful purpose.
• Legal Profession Law (Legislative Decree No 26 of 1980, as amended) – this law and related professional regulations impose ethical obligations on lawyers, including requirements to maintain independence, confidentiality and loyalty to the client. These rules may indirectly limit how litigation funding arrangements are structured in practice.
• Arbitration Law (Law No 9 of 2015) – although silent on third-party funding, the Arbitration Law emphasises party autonomy, due process and tribunal independence. Funding arrangements must not undermine these principles or expose the award to challenge on public policy grounds.
• Public policy principles under Bahraini Law – courts may retain broad discretion to assess whether a funding arrangement improperly interferes with the administration of justice, creates undue control over litigation, or otherwise offends public order.

In the absence of express legislation, the legality and enforceability of third-party litigation funding in Bahrain are therefore assessed on a case-by-case basis, by reference to these general laws and principles, rather than compliance with a dedicated litigation funding statute or regulatory code.

Voluntary Standards

There is no specific statutory or regulatory framework in Bahrain that directly governs third-party litigation funding. However, in the limited instances where such funding may be used – typically in the context of international arbitration or high-value cross-border disputes – foreign or regional funders are likely to voluntarily adhere to international best-practice standards developed in other jurisdictions.

These may include principles commonly reflected in overseas funding codes, such as transparency in funding arrangements, avoidance of undue control over proceedings, management of conflicts of interest, and respect for lawyer independence and confidentiality.

Practical Effect

The above standards would not be binding under the applicable Bahrain laws, as ultimately, the acceptance and effect of any non-legal rules remain a matter of contractual agreement and judicial discretion, rather than formal regulatory compliance within Bahrain.

Where third-party funding is provided to a party that qualifies as a consumer, certain general consumer protection and financial regulatory rules may become relevant, depending on the structure of the funding arrangement. In particular:

• Consumer Protection Law (Law No 35 of 2012) may apply if the funded party is a consumer and the funding arrangement is characterised as the provision of goods/services to an individual. This law imposes general obligations relating to transparency, fairness and prohibition of misleading or abusive contractual terms;
• Central Bank of Bahrain (CBB) regulatory framework could be triggered if the funding arrangement is structured in a manner akin to consumer credit or financing, rather than pure non-recourse litigation funding. In such circumstances, licensing, disclosure and consumer protection requirements under CBB rules may apply; and
• Civil Code principles on adhesion contracts and unfair terms may also apply where the funded party is in a weaker bargaining position, allowing courts to modify or strike down oppressive or excessively one-sided provisions.

Under general Bahraini contract law and public policy principles, certain terms commonly seen in litigation funding agreements in other jurisdictions may carry a high risk of being modified, restricted or declared unenforceable by Bahraini courts or tribunals.

High-Risk Provisions

In particular, the following types of terms may be problematic:

• excessive control rights granted to the funder over the conduct of the proceedings, including decision-making authority over legal strategy, settlement or choice of counsel, as such provisions may be viewed as interfering with a party’s right to litigate freely and with the independence of legal representation;
• disproportionate or punitive returns, including arrangements that could be characterised as exploitative, usurious or creating an excessive imbalance between the parties’ obligations, contrary to the principles of fairness and good faith under the Civil Code;
• mandatory settlement vetoes in favour of the funder, particularly where they deprive the funded party of meaningful autonomy in resolving the dispute; and
• confidentiality or disclosure restrictions that prevent compliance with court orders, arbitral tribunal directions or mandatory disclosure obligations.

While the litigation funding framework, including laws and case authority, has not yet been developed, such terms may be assessed on a case-by-case basis, by reference to general contract law principles, public policy and such relevant laws. Where necessary, courts may modify or disregard offending provisions when challenged, rather than invalidate the funding agreement in its entirety.

Courts

In court litigation, there is no existing law to date which requires parties to disclose funding arrangements, and Bahraini courts do not routinely order disclosure of the existence or terms of third-party funding. Disclosure would therefore only arise exceptionally, where a court considers it necessary for the determination of a specific procedural issue, such as standing, costs or a matter concerning public policy.

Arbitration

Under the rules of the Bahrain Chamber for Dispute Resolution (BCDR), there is a mandatory obligation to disclose third-party funding in arbitration proceedings.

Particularly, according to Article 21 bis.1 of the BCDR Arbitration Rules 2022, if any party to the arbitration enters into a third-party funding arrangement, whether before or during the arbitration, they must promptly notify the Chamber in writing. This disclosure must include:

• the existence of the funding arrangement; and
• the identity of the third-party funder.

This disclosure requirement applies automatically and does not depend on a request or application by the opposing party.

Once the Chamber receives this notice, it must promptly forward it to:

• the other parties to the arbitration;
• the arbitrators (or prospective arbitrators, if appointed later); and
• any emergency arbitrator (or prospective emergency arbitrator).

The purpose of this process is to allow arbitrators to assess any potential conflicts of interest or relationships with the third-party funder. This supports the arbitrators’ duty to remain independent and impartial.

Accordingly, the disclosure required under the BCDR Rules is limited in scope, as it only requires the disclosure of the existence of such agreement and the identity of the third-party funder. There is no express requirement to disclose the terms of the funding agreement, the amount of funding, any control or influence the funder may have over the proceedings, or the existence of success-based or conditional fee arrangements. However, if any such details are relevant to arbitrator independence or impartiality, further disclosure might be necessary in practice.

Bahrain law does not impose litigation-funding-specific statutory requirements relating to a funder’s transparency, financial capacity or mandatory due diligence. In particular, Bahrain law does not require litigation funders to be licensed, to meet minimum capital thresholds or to disclose their identity, ultimate beneficial ownership (UBO) or source of funds solely by reason of providing third-party litigation funding – with the exception of the disclosure requirements under the 2022 Rules of Arbitration (see 1.6 Disclosure Requirement).

That said, the following general legal and market considerations may be relevant.

• Anti-Money Laundering and Counter-Terrorist Financing (AML/CFT) framework – if a litigation funder operates through a regulated financial institution or engages in activities falling within the scope of Bahrain’s AML laws and Central Bank of Bahrain regulations, obligations relating to customer due diligence, identification of beneficial owners and source-of-funds verification may apply indirectly.
• Court or tribunal discretion – in exceptional circumstances, courts or arbitral tribunals may request limited disclosure of a funder’s identity or financial standing where this is relevant to conflicts of interest, security for costs or procedural fairness.
• Market practice – in practice, especially in high-value arbitration or cross-border disputes, funded parties and their counsel often conduct contractual and financial due diligence on funders (including capital adequacy and reputation) as a matter of commercial prudence, rather than legal obligation.

Overall, funder transparency and due diligence in Bahrain are governed by general financial regulation and procedural discretion, rather than a dedicated litigation funding regime. Any disclosure or verification requirements arise on a case-by-case basis, depending on the nature of the funder, the structure of the funding arrangement and the forum in which the dispute is being resolved.

The law does not expressly regulate or define portfolio funding, facility funding or claim monetisation arrangements, nor does it distinguish them from single-claim third-party litigation funding. As a result, such structures are generally capable of recognition in principle, provided they are validly constituted under general contract law and do not contravene public order, mandatory legal rules or professional ethics.

In practice, portfolio and facility funding arrangements are uncommon in purely domestic litigation, but may in very limited circumstances be encountered in the context of large commercial disputes, arbitration or cross-border matters involving Bahraini parties. These arrangements may be assessed as contractual financing mechanisms or regulated financial products.

From a legal perspective, portfolio or facility funding does not, in itself, trigger specific procedural consequences. However, as with single-case funding, courts or arbitral tribunals may scrutinise such arrangements if they raise issues of control over proceedings, conflicts of interest, disclosure or public policy.

From a tax perspective, Bahrain currently imposes no corporate income tax (other than on oil and gas activities) and no capital gains tax. However, VAT (10%) may be applicable on funding returns depending on the structure of the transaction. That said, tax treatment may be relevant in other jurisdictions where the funder, funded party or underlying proceeds are located or received.

Overall, portfolio and facility funding arrangements are recognised indirectly through general contractual principles, with their legal and tax implications determined on a case-by-case basis, rather than by reference to a dedicated litigation funding or financial regulation regime in Bahrain.

Under Bahraini law, adverse costs are generally borne by the losing party, in accordance with the Civil and Commercial Procedures Law. There is no express statutory basis for holding a third-party litigation funder directly liable for adverse costs solely by virtue of having funded the proceedings. As a general rule, cost orders are made against the parties to the dispute, not against non-parties.

As regards calculation of adverse costs, Bahraini courts typically award costs on a statutory and discretionary basis, rather than full indemnity. Court-awarded costs generally consist of fixed or tariff-based judicial fees and limited legal expenses, and do not usually reflect a percentage of the claim value or the full actual costs incurred by the successful party. In arbitration, cost allocation is subject to the tribunal’s discretion, and while tribunals may take a broader approach, any adverse costs order would ordinarily be directed at the funded party, not the funder, absent exceptional circumstances.

Courts and arbitral tribunals have the discretionary power to order security for costs, although such orders are not automatic and are made only where justified by the circumstances of the case.

In court proceedings, the Civil and Commercial Procedures Law permits the court to order security for costs where there is a real risk that a defendant will be unable to recover costs if successful. This may arise, for example, where the claimant is insolvent, has no assets in Bahrain, is resident abroad, or where there is credible evidence of an abuse of the litigation process. The mere existence of third-party funding is not, by itself, sufficient to justify an order for security for costs, although it may be considered as one factor in the court’s overall assessment.

In arbitration, tribunals seated in Bahrain likewise have discretion to order security for costs as part of their procedural powers. In funded cases, tribunals may take into account the presence of third-party funding where it is relevant to the claimant’s ability to satisfy an adverse costs award. However, consistent with international practice, the existence of funding alone would not normally justify an order for security; there must be additional factors indicating a genuine risk of non-payment or procedural unfairness.

The form and amount of security are determined on a case-by-case basis and may include bank guarantees, cash deposits, or other forms of acceptable security, assessed by reference to the likely recoverable costs rather than the full value of the claim.

After-the-event (ATE) insurance or similar insurance products designed specifically to cover the risk of adverse costs are not commonly used or developed in Bahrain, and there is no litigation- or arbitration-specific statutory regime governing such insurance.

From a legal perspective, the following laws and framework are relevant.

• Civil and Commercial Procedures Law (Legislative Decree No 12 of 1971, as amended) – the law regulates court costs and cost awards but does not recognise or require ATE insurance, nor does it provide any mechanism by which the existence of insurance affects cost allocation or security for costs. Courts assess adverse costs independently of whether or not a party has insurance coverage.
• Arbitration Law (Law No 9 of 2015) – the Arbitration Law grants arbitral tribunals broad discretion over costs, but it does not address insurance arrangements. While tribunals may take into account the financial position of the parties when considering costs or security for costs, there is no obligation to obtain or disclose ATE insurance.
• Insurance Law and CBB Regulatory Framework – insurance activities in Bahrain are regulated under the Central Bank of Bahrain and Financial Institutions Law (Law No 64 of 2006) and the CBB Rulebook. While these laws govern licensed insurers and insurance products generally, they do not specifically regulate or promote ATE insurance, and such products are not commonly offered in the Bahraini market.

In practice, where adverse costs risk is a concern, ATE insurance may be obtained from foreign insurers outside Bahrain. Such insurance is treated as a private contractual risk-management tool and does not affect the court’s or tribunal’s statutory powers on costs or security.

Accordingly, ATE insurance is neither mandatory nor common in Bahrain, and its use does not trigger any specific procedural consequences under Bahraini law beyond the general application of insurance and contract principles.

Bahraini law allows a measure of flexibility in lawyers’ fee arrangements, subject to statutory limits and professional ethics under the Legal Profession Law (Legislative Decree No 26 of 1980, as amended) and the general principles of the Civil Code (Legislative Decree No 19 of 2001).

Permissible Models

Fixed fees and capped fees are permitted and commonly used. Fee agreements are treated as contractual arrangements governed by the Civil Code, provided they have a lawful cause and do not contravene public order (Articles 129–130 of the Civil Code).

Deferred or staged payment arrangements are permissible. Lawyers may agree with clients on instalment-based or partially deferred fees.

Any other arrangement which does not contravene the provisions of the Legal Profession Law. Limited success-based components may be taken into account when determining fees. Under Article 30 of the Legal Profession Law, lawyers’ fees may reflect the nature of the work, effort exerted, and circumstances of the case.

Prohibited or Restricted Models

Lawyers are prohibited from purchasing any right in dispute, receiving as fees any part of the disputed right or of the judgment, or making any arrangement that would create a personal interest for the lawyer in the case or task. This would include success fees. Accordingly, pure contingency fees or “no win, no fee” arrangements, where the lawyer’s entitlement to any remuneration is entirely dependent on the outcome of the case, are prohibited. This is derived from Article 31 the Legal Profession Law, read together with established professional ethics, as such arrangements are viewed as inconsistent with the lawyer’s independence and the dignity of the profession.

Finally, pursuant to Article 31 of the Legal Profession Law, Bahraini courts retain the authority to review, assess and reduce legal fees awarded if they are found to be excessive, unreasonable or disproportionate, regardless of the fee structure agreed between lawyer and client. This does not affect the validity or enforceability of the fee agreement between the lawyer and their client, who remains contractually obligated to pay the agreed fees in full, even if the recoverable amount from the counterparty is lower.

Accordingly, while alternative fee structures are permissible in Bahrain, they must stop short of full contingency arrangements and remain subject to statutory oversight and judicial control.

Under Bahraini law, fee sharing between lawyers and non-lawyers (including third-party litigation funders) is not expressly regulated under the Legal Profession Law. That said, lawyers remain bound by the Legal Profession Law, which bars any arrangement that would create a lawyer’s interest in the lawsuit or its outcome and forbids agreeing to receive a part of the litigated right or the decision as fees. In practice, lawyers should not enter into agreements under which a non‑lawyer funder receives a portion of the lawyer’s fees or exerts control that compromises the lawyer’s independence, since that would risk creating a prohibited interest or otherwise conflicting with professional obligations.

Non-lawyers are not permitted to own or co-own law firms in Bahrain. The right to practise law is reserved for licensed Bahraini advocates who meet specific requirements relating to nationality, legal qualifications and good standing. Lawyers are also required to maintain professional independence in all aspects of their legal practice.

Additionally, foreign law firms may operate in Bahrain, but only if they obtain a license under Decision No 16 of 2007. Key conditions include:

• the firm must possess specialised international legal expertise that is needed in Bahrain;
• the branch must be managed by a legally qualified individual who is actively practising law or providing legal consultancy, is a resident in Bahrain, and is authorised by the parent firm to manage the local office; and
• the firm must pay the applicable licensing fees as set out in the relevant regulations.

In such cases, the appointed manager must also have sufficient expertise and experience, and typically must be a senior member of the firm’s primary (foreign) office.

There is no specific statutory framework in Bahrain that directly regulates law firm financing by third-party funders. However, restrictions can be derived from the Legal Profession Law (Legislative Decree No 26 of 1980, as amended) and the general principles governing the legal profession.

Accordingly, third-party financing of law firms by non-lawyers, including litigation funders, is unlikely to be permissible, as profit-sharing, or any form of control over the firm or its legal work, or any arrangement that allows a third party to share in legal fees, influence legal strategy, or interfere with the lawyer-client relationship may be considered incompatible with these professional obligations and contrary to public policy.

Accordingly, while litigation funding at the client or claim level may be permissible in Bahrain, law firm financing by third-party funders is not permitted where it compromises lawyer independence or circumvents the prohibition on non-lawyer ownership or fee sharing.

At the time of writing, Bahrain does not impose corporate income tax on most businesses. The exception is for companies engaged in the oil and gas sector, which are subject to taxation.

From a general perspective, third-party funders operating in Bahrain or receiving returns from Bahraini entities are not currently subject to corporate income tax on their recoveries, whether structured as multiples of invested capital, percentages of proceeds or similar returns. These recoveries would not be taxed as income or capital gains under the current regime.

However, this landscape will change with the introduction of the Domestic Minimum Top-Up Tax (DMTT), effective from 1 January 2025, which applies to large multinational enterprise (MNE) groups with consolidated global revenues exceeding EUR750 million. If a funder is part of such an MNE group and has a Bahrain-based entity or permanent establishment, it may become subject to a 15% minimum tax on its profits under the DMTT rules.

Taxability under the DMTT would depend on whether the funder:

• has a Bahraini constituent entity or a permanent establishment in Bahrain, such as a fixed office or agent acting on its behalf; and
• meets the revenue threshold for the MNE group.

As such, funder recoveries may become taxable under the DMTT if these conditions are met, but for now, they are generally not taxed in Bahrain.

VAT is charged on legal fees in Bahrain, subject to the general VAT framework.

Value Added Tax Law (Law No 48 of 2018) imposes VAT at the standard rate of 10% on taxable supplies of goods and services made in Bahrain. Legal services constitute a taxable supply of services under Article 2 of the VAT Law.

VAT is chargeable where the supply is made in Bahrain by a VAT-registered person. Law firms providing legal services in Bahrain are therefore generally required to charge VAT on legal fees to their clients.

Bahrain does not impose withholding tax on returns paid to offshore litigation funders, including those incorporated in Cayman, Delaware, Guernsey, Ireland or Luxembourg. Under Legislative Decree No 22 of 1979, taxation is limited to oil and gas activities, and there is no general withholding regime. Accordingly, any tax exposure in this respect would arise in the funder’s home jurisdiction.