Recoverability of lawyer's fees in DIAC arbitrations

In this article we discuss the perennial issue relating to the recoverability of lawyer's fees in arbitrations administered by the Dubai International Arbitration Centre (the DIAC). We will look at yet another cautionary tale of where the Dubai Court of Cassation held that providing the Tribunal with the express authority to award “Legal Costs” in a terms of reference did not mean that the parties had provided the Tribunal with the authority to award lawyer’s fees.

Dubai Court of Cassation Case 427/2018

This case concerned an annulment application brought by an unsuccessful respondent in arbitration proceedings that had been administered by the DIAC pursuant to the 2007 DIAC Rules (the Rules) (the Arbitral Proceedings). The seat of the Arbitral Proceedings was Dubai and the Arbitral Proceedings were to be conducted in the English language.

During the Arbitral Proceedings, the parties’ legal representatives had executed terms of reference which provided the Tribunal with the express authority to award “Legal Costs”.

The Claimant was successful in the Arbitral Proceedings and as a result was awarded its legal fees in the amount of AED 837,716.

A few months prior to Federal Law No.6 of 2018 (the UAE Arbitration Law) coming into force, the Respondent filed an application to the Dubai Court of First Instance seeking annulment of the final award (i.e. under the provisions Federal Law No. 11 of 1992 (as amended) (the Civil Procedure Code).

The Respondent asserted that the Tribunal did not have authority to award lawyer’s fees because:

1. clauses 2.1, 2.3 and 37.10 of the Rules do not provide the Tribunal with the authority to do so. Under these provisions, the Tribunal is only permitted to award the DIAC’s administrative fees, the Tribunal’s fees, the Tribunal’s expenses and the fees and expenses of any experts appointed by the Tribunal during the proceedings. Therefore, the Tribunal determined a matter outside of its authority; and
2. the parties did not expressly provide the Tribunal with the authority to determine lawyer’s fees in the arbitration agreement. The term “Legal Costs” referred to in the terms of reference did not mean lawyer’s fees. The Respondent sought to rely on an email in support that its legal representatives had sent to the Tribunal (in Arabic) after executing the terms of reference in which it stated that it did not authorise the arbitrator to determine lawyer’s fees because such assertion is superfluous and unnecessary.

The Claimant contested this stating that: (1) the terms of reference clearly provide the Tribunal with the authority to award lawyer’s fees with reference to the term “Legal Costs” and the email sent by the Respondent’s legal representatives was contrary to the signed agreement reached in the terms of reference and should be ignored because it was sent in Arabic and not English; and (2) Article 19 of the new UAE Arbitration Law (which by now had been enacted) provides the Tribunal with the discretion and authority to award lawyer’s fees.

The Dubai Court of First Instance agreed with the Claimant's arguments and dismissed the case.

However, the Respondent appealed the decision to the Dubai Court of Appeal which found in its favour and annulled the part of the award ordering lawyer’s fees.  The Claimant appealed this decision to the Dubai Court of Cassation.

In summary, the Dubai Court of Cassation upheld the Court of Appeal’s decision and concluded that:

• the final award incorrectly awarded the Claimant its lawyer’s fees. The Rules do not provide the Tribunal with authority to award lawyer’s fees and various Dubai Court judgments have been issued which support this position. Therefore, the Tribunal determined a matter outside of its authority;
• in the absence of a clear provision in the arbitration clause, lawyer’s fees should not be awarded;
• the term “Legal Costs” does not clearly authorise the Tribunal to determine lawyer’s fees; and
• the Claimant could not rely on Article 19 of the UAE Arbitration Law because the final award was issued before the UAE Arbitration Law came into force.

Potential mitigating measures

In light of the above decision, and a more recent decision issued by the Dubai Court of Cassation[1] whereby an award concerning lawyer’s fees was partially annulled because the Claimant’s legal representatives were not authorised by their power of attorney to grant the Tribunal the authority to award legal costs, legal practitioners should consider adopting the following mitigating measures in DIAC arbitrations:

• if the parties choose for their arbitration to be administered subject to the Rules, during the drafting process of the arbitration agreement, ensuring that the arbitration agreement expressly provides the Tribunal with the authority to award lawyer’s fees and is described in a matter which is absolutely clear;
• if the arbitration agreement is silent on the Tribunal’s authority to award lawyer’s fees, ensuring that in the terms of reference, the Tribunal’s authority to award lawyer’s fees is clearly described and not limited to “Legal Costs”; and
• amend or draft lawyer's powers of attorney to expressly state that they have the authority to agree on behalf of their client that the Tribunal has the authority to award lawyer’s fees.  

In consideration

We should also highlight that there are court cases which also go the other way. In particular, there is a Dubai Court of Cassation decision in which it was found to be reasonable, and in accordance with the law, that awarding legal costs by the Tribunal on the basis that the relevant terms of reference set out the parties’ agreement to empower the Tribunal to do so. Nevertheless, despite the UAE Arbitration Law, parties still need to be cautious when dealing with lawyer's fees in DIAC arbitrations as they are often significant.

For more information, please contact Nikita Patel and Susie Abdel-Nabi

[1]Dubai Court of Cassation No.990 of 2019