On 22 January 2024, the Dubai Court of Appeal (“DCA”) issued a judgment[i] (the “Judgment”) that will be welcomed as a step in the right direction on the issue of legal costs in UAE-seated arbitrations conducted under the DIAC Rules. With that said, and what may be seen as a step backward, the Dubai Courts are still reluctant to find that the ICC Rules give a tribunal the power to award reasonable legal costs to successful parties in ICC-governed arbitrations.
Underlying facts and the Court’s decision
The plaintiff, the unsuccessful party in a DIAC arbitration, filed an application with the DCA in which it sought a declaration from the Court that the Award be set aside on three main grounds.
First, that the formation of the tribunal was not done in accordance with the parties’ agreement, in that the DIAC wrongfully appointed a sole arbitrator in circumstances where the parties could not agree on a nomination. Second, that the tribunal failed to apply the provisions of English law to the dispute when it was required to do so pursuant to the parties’ underlying agreement. According to the plaintiff, the tribunal applied “the rules of justice and fairness” instead of English law.
The third and final ground put forward by the plaintiff was that the tribunal’s Award dealt with matters that were not within the scope of the arbitration agreement. In that connection, the plaintiff submitted that the Award ordered legal costs to the defendant (claimant in the arbitration) in spite of the fact that the parties had not expressly agreed to give the tribunal the power to award such costs.
The DCA rejected the plaintiff’s argument under ground 1, noting that the parties had expressly agreed to the DIAC being the institution with the authority to administer the arbitration, and as a result, it must follow that the DIAC had the authority to appoint an arbitrator in circumstances where the parties could not come to an agreement on the issue. Ground 2 was similarly rejected. The Court noted that it is not a requirement for tribunals to support their awards by referring to (or quoting) articles of law, and any failure by an arbitrator to do so, does not, on its own, show that the tribunal has failed to apply the governing law. The DCA went on to find that, in any event, the Award did in fact refer to jurisprudence of the English courts and on that basis, the Court held that the tribunal adopted the agreed governing law.
On ground 3, the DCA found the plaintiff’s position to be equally without merit. In coming to that finding, the Court referred to Article 36(1) of the DIAC Rules which provides that the costs of arbitration include “the fees of the legal representatives and any expenses incurred by those representatives”. The Court determined that since the parties had agreed to the application of the DIAC Rules, and since those Rules entitle the tribunal to award legal costs to a successful party, the tribunal had correctly applied the DIAC Rules when it awarded legal costs to the claimant in the arbitration. To conclude, the Court found that the Award was “devoid of any cases of invalidity stipulated under the provisions of Article 53” of the UAE Arbitration Law.
The Court’s position in relation to the ICC Rules
Unfortunately, the Dubai Courts still appear to be adopting the position that the ICC Rules do not, on their own, give a tribunal the authority to award legal costs. This position is quite evident from two very recent judgments; one from the DCA and another from the Dubai Court of Cassation (“DCC”).
In the earlier of the two decisions, issued on 27 April 2023, the DCA set aside part of an ICC arbitral award in which the tribunal had awarded legal costs to the successful party based on Article 38 of the ICC Rules.[ii] Article 38(1) of the ICC Rules provides that “[t]he costs of the arbitration shall include the fees and expenses of the arbitrators and the ICC administrative expenses fixed by the Court, in accordance with the scale in force at the time of the commencement of the arbitration, as well as the fees and expenses of any experts appointed by the arbitral tribunal and the reasonable legal and other costs incurred by the parties for the arbitration”.
In that case, the DCA took an unconventional view that Article 38 does not “expressly empower” a tribunal to award legal costs in an ICC arbitration.
In the more recent judgment, issued on 5 February 2024, the DCC upheld a decision handed down by the DCA in which the DCA had set aside an arbitral award on similar terms.[iii] Consistent with the DCA’s 27 April 2023 judgment, the DCC held that Article 38 of the ICC Rules, which was relied upon by the arbitrator in awarding legal costs, does not explicitly grant a tribunal the authority to award, to the successful party, the costs of its legal representatives in the arbitration. As a result, the DCC went on to find that the tribunal’s decision to award legal costs was not in accordance with any legal provision and therefore lacked legal basis.
For a number of legal experts (including ourselves), the Court’s reasoning in both cases is puzzling to say the least. This is because, in our view, like Article 36(1) of the DIAC Rules, Article 38(1) of the ICC Rules clearly and unambiguously gives a tribunal the power to award legal costs to a successful party. That being said, this is probably a case where the devil is in the detail. The wording of Article 36(1) of the DIAC Rules expressly includes “the fees of the legal representatives and any expenses incurred by those representatives” in its definition of the “costs of the arbitration”. In contrast, Article 38(1) of the ICC Rules simply refers to “the reasonable legal and other costs” in its definition of the same term.
Although it is difficult to see how “reasonable legal and other costs” could refer to anything other than legal representatives’ fees, the DIAC Rules are certainly much clearer on the issue. The drafters of the ICC Rules could have been sharper in defining “costs of the arbitration” (as the DIAC Rules have done) so that it is unequivocally clear that tribunals have the power to award legal representatives’ costs.
Closing Remarks
As this article explains, the Dubai Courts are still not persuaded that Article 38 of the ICC Rules gives the same power to tribunals that Article 36 of the DIAC Rules does. Nevertheless, the Judgment should be seen as a positive development in the UAE arbitration landscape, and it gives parties a bit more certainty that their legal costs can now be recovered, at least insofar as DIAC arbitrations are concerned.
There is also a long line of decisions from the UAE courts confirming that an express agreement is required, specifically giving an arbitral tribunal the power to fix and award legal costs; this “express agreement” would usually be catered for in the parties’ actual arbitration agreement or a subsequent terms of reference document. The Judgment appears to have now revised that stance: if a particular set of institutional rules gives the tribunal the power to award legal costs, it is enough for the parties to simply agree to the application of those rules to their arbitration.
[i] Dubai Court of Appeal (Case No. 33/2023)
[ii] Dubai Court of Appeal (Case No. 2/2023)
[iii] Dubai Court of Cassation (Case No. 821/2023)
Disclaimer
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Author: Nathan Baikie & Yousef Seihavi
