Maximising Legal Fee Recovery in UAE Arbitrations: Essential Insights for Parties
Parties should be mindful of their ability (or not) to recover legal costs under institutional arbitral rules commonly used in the UAE.
Recent Dubai Court rulings have led to some uncertainty and therefore steps should be taken to minimise uncertainty with regard to the recoverability of legal costs and to protect parties’ positions to the fullest extent possible during the enforcement of awards stage, including:
- Expressly agreeing in the arbitration agreement or terms of reference (which the courts will likely uphold) that the tribunal has the power to determine and award legal costs; and
- Ensuring that legal representatives have special powers of attorney allowing them to agree to the tribunal to award legal costs.
Why should parties be mindful of the recoverability of legal costs?
The Dubai Courts have historically adopted differing approaches to awarding (or not awarding as the case may be) legal costs pursuant to different institutional rules.
DIAC Rules 2007
- When awarding arbitration costs, the Dubai Court of Cassation[1] (“DCC”) previously explicitly limited the tribunal’s powers to the award of only DIAC administrative costs, as well as the tribunal’s fees, but not legal costs, unless the parties expressly agreed that any tribunal is empowered to award them.
- This was due to the lack of any express inclusion of such legal costs as part of the costs of arbitration in the DIAC Rules 2007.
DIAC Rules 2022
- Unlike the DIAC Rules 2007, the DIAC Rules 2022 expressly provides that arbitration costs shall include “fees of the legal representatives and any expenses incurred by those representatives” (Article 36(1)).
- Recently, the Dubai Court of Appeal[2] (“DCA”) provided comfort as to how the courts may address questions of a tribunal’s power to award legal costs under the DIAC Rules 2022 and recognised this revised provision by granting the payment of legal costs.
ICC Rules 2021
- A somewhat different approach was taken by the Dubai Courts in relation to the ICC Rules 2021.
- In 2023[3], the DCA quashed an ICC award to the extent that it required the Claimant to pay the Respondent’s legal costs because “the reasonable legal and other costs” under Article 38(1) of the ICC Rules 2021 did not specifically constitute the legal representatives’ costs, despite sharing similar (although not identical) wording to Article 36(1) of the DIAC Rules 2022.
- The DCA also ruled that the tribunal was not expressly authorised to award such costs under the parties’ arbitration agreement, nor did the Respondent’s power of attorney permit its legal representatives to authorise the tribunal to determine these costs.
- The DCC[4] recently upheld the DCA’s partial annulment decision.
Takeaways
The DIAC 2022 Rules are a welcome evolution of the previous rules and provide a Tribunal with discretion to award costs to a party. The ICC case law referred to provides a helpful reminder that recovery of legal costs should not be taken for granted. Parties can significantly mitigate the risk of non-recovery by explicitly specifying the Tribunal’s authority to award legal costs in their arbitration agreements.
[1] Case No. 1514/2022
[2] Case No. 33/2023
[3] Case No. 2/2023
[4] Case No. 821/2023
Posted by: Tony Yoo
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