Long last debate has been raised during this year on Awarding Legal Costs in ICC Arbitration Awards. First of all, On 5 February 2024, the Dubai Court of Cassation ("DCC") issued a noteworthy decision, in Commercial Case No. 821-857 of 2023, where the DCC upheld the Dubai Court of Appeal ("DCoA"), which partially set aside an arbitral award issued under the Arbitration rules of the International Chamber of Commerce ("ICC Rules") regarding the awarding of legal costs.
Nine months later the DCC issued another decision, in Commercial Case No. 756 of 2024, where the DCC revoked the Dubai Court of Appeal ("DCoA"), which partially invalidate the arbitral award in regarding with awarding the legal costs. Similar to this approach Abu Dhabi Cassation Court issued several decisions that upheld the arbitral tribunal's authority to award the legal costs.
We will provide an overview of these decisions, an insight into the court's rationale, and our analysis, which will include an examination of the second decision.
I. DCC position:
DCC issued two contradicting decisions as mentioned above, we provide an overview of these decisions, an insight into the court's rationale, and our analysis, which will include an examination of the second decision.
A. DCC Case No. 821-857 of 2023
Case Summary:
The claimant initiated the annulment procedures before the DCoA to set aside an arbitration award issued pursuant to ICC rules. The claimant argues that :(1) The arbitral tribunal exceeded the specified time limit for issuing the award as agreed upon between the parties. The claimant elaborated that the arbitration proceedings commenced on 8 July 2020, while the final award was issued on 26 December 2022, after more than a year and six months beyond the agreed time bar. (2) The arbitral tribunal exceeded its powers of ordering the claimant to pay legal expenses to the respondents including attorney fees incurred during the arbitration proceedings – despite the parties never agreed to empower and/or authorize the arbitral tribunal to do so.
The DCoA upheld the claimant argument and partially set aside the arbitration award in connection with the legal costs, provided that the tribunal's authority to award costs and expenses is limited to its own costs and those incurred by tribunal-appointed experts. Therefore, unless explicitly authorized by (1) specific wording in the arbitration agreement or (2) agreement between the parties' representatives, the tribunal cannot award the parties' legal and expert fees and expenses. Respondent challenged the DCoA decision before the DCC under case No. 821 of 2023 (Commercial). The respondent provided several agreements including: 1. Both claimants and respondent requested the awarding of fees and legal costs in arbitration procedures and reiterated this request throughout the arbitration proceedings. The claimant never objected to this request and never challenged the arbitrator's authority to award these costs. The claimant's silence is considered a waiver of its right according to Article 20 of the UAE federal Arbitration Law ("FAL").
2- The respondent provided that, claiming these costs by both parties in their submissions without objection from either party until the end of the arbitration proceedings shall constitutes an agreement to empower the arbitrator to decide on attorney fees through mutual submissions regardless of what is stated in the arbitration agreement.
3- The legal representative of the claimant who signed the terms of reference was duly authorized to conclude the terms of reference that empower the arbitral tribunal to issue a decision on legal costs. After replacing claimant's counsel, the new counsel never objected and /or challenged the validity of the term of reference for any reason including the previous counsel's lack of authority in accordance with Articles 20 and 25 of the FAL.
4- It further submitted that the party responsible for the annulment cannot benefit from such an act. In addition, the arbitral tribunal's determination on awarding legal costs based on the ICC rules which empower it to make such determination.
Court Reasoning
The DCC upheld the DCoA decision emphasizing that neither the arbitration agreement, nor Article 38 of the ICC Arbitration Rules, expressly granted the arbitral tribunal the authority to decide on legal costs.
The DCC held that the scope of Article (46) of the FAL does not empower the arbitral tribunal to decide on legal costs. Article (46) of the FAL reads: "unless the parties agree otherwise, the arbitral tribunal shall determine the costs of arbitration, including: the fees and expenses incurred by any member of the arbitral tribunal in performing his duties, and the expenses of appointing experts by the arbitral tribunal."
The DCC explains that the scope of this Article is specifically limited to the fees and expenses incurred by any member of the arbitral tribunal in performing their duties, as well as the expenses of appointing experts by the arbitral tribunal. Therefore, these legal costs, which the parties pay to their legal counsel representing them in arbitration proceedings or prepare and attend the case and advise the parties before the arbitration proceedings, are not included in these expenses.
Furthermore, the arbitration clause concluded between the parties does not include any agreement regarding legal costs, which means that such a determination of legal costs is not binding on the parties.
As for the terms of reference, the DCC provided that since the authorization granted by the claimant to its legal counsels do not authorize him to agree to empower the arbitral tribunal to decide on attorneys' fees and legal costs, then the Legal counsel has no authority to grant such power to the tribunal.
Finally, the DCC stated that the Article (38) of the ICC rules, as relied upon by the arbitrator, do not explicitly authorize the arbitral tribunal to award the legal costs of the parties' consequently the Tribunal determination on the legal costs lacks its legal basis.
Analysis
Although, we are totally aligned with the DCC decision that arbitral tribunal must be specifically empowered by the relevant legislative or procedural provisions to award the cost recovery. We partially disagree with the court's determination that neither legislative nor contractual provisions were founded.
To illustrate assuming that, Article (46) of the FAL does not explicitly empower the arbitral tribunal to make such a determination, Article 38/1 of ICC Rules does. Article 38/1 of the ICC Rules reads 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. The phrase "and other costs incurred by the parties for the arbitration", is considered the contractual base which authorizes the arbitral tribunal to make such determination.
Moreover, Article 23/1 of the FAL provides: Subject to Article (10/2) of the present Law, the Parties may agree on the procedures that the Arbitral Tribunal is required to be followed to proceed in the arbitration including subjecting these procedures to applicable rules in any Arbitration Institution or organisation inside or outside the State.
In that sense, the DCC has frequently reiterated that when the parties to an arbitration agreement agree to apply institutional rules to govern the procedural aspects of the disputes, such rules shall be an integral part of the arbitration agreement.
On the other hand, the DCC disregarded the Claimant's argument regarding the application of Articles 20/1 and 25 of the FAL. Although, it is a prerequisite to raise any plea concerning the arbitral tribunal's jurisdiction during the arbitration procedures, so the concerned party can raise it before the court.
Article 20/1 of the FAL reads A plea that the Arbitral Tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence by the Respondent, referred to in Article 30 of the Law. A plea that the Arbitration Agreement does not cover the matters raised by the other party during the examination of the dispute, shall be raised not later than the next hearing following that in which the plea that the tribunal does not have jurisdiction was submitted, or otherwise the right to raise such plea shall be forfeited. In all cases, the Arbitral Tribunal may admit a later plea if it considers the delay justified.
The decision, while lacking the force of binding precedent, has introduced a significant level of uncertainty regarding the enforcement of cost awards in ICC arbitrations. The Court's ruling, somewhat unexpected, underscores the need for parties to arbitration agreements under ICC Rules to adopt more precautionary measures in enforcing their agreements on legal costs. Specifically, parties must include explicit provisions regarding legal costs in the arbitration agreement to ensure enforceability and mitigate any risk of annulment.
It's worth mentioning that the DCC had made similar determinations on different arbitration procedures under Dubai International Arbitration Center Rules of 2007 (DIAC Rules 2007) by virtue of its decision on the case No. 205/2v019 (commercial) dated 23 June 2019, however, DIAC Rules 2007 was not include a similar provision to Article 38/1 of ICC Rules on that time. However, the revised DIAC Rules of 2022 expressly grant the tribunal the authority to award legal fees, akin to Article 38/1 of the ICC Rules, similar uncertainties arise regarding the enforceability of DIAC arbitral awards concerning legal costs.
B. Case No. 756 of 2024
On 19 November 2024, the DCC issued a landmark ruling on the same matter, in which it reversed its previous position and adopted an entirely opposite approach.
In Case No. 756/2024 (Commercial), the DCC partially overturned the appealed judgment, specifically the part that had annulled an arbitral award issued under the ICC Arbitration Rules 2021, in relation to legal costs incurred by the appellant's legal representative.
The DCC justified its ruling by stating that Article 38 of the ICC Arbitration Rules, indicates that the listed arbitration costs are illustrative and not exhaustive, unlike Article 46 of Federal Law No. 6 of 2018 on Arbitration, which provides an exhaustive list of arbitration expenses — a list that does not include legal fees.
The DCC further held that arbitration costs include legal costs , and these are considered reasonable costs incurred by the parties in arbitration.
In response to the counterargument upheld by the previous ruling, the DCC stated that Article 38 of the ICC Rules differs from the corresponding provisions under the DIAC Rules, and therefore, they should not be treated as having the same effect, as that would render the distinction meaningless.
The DCC also inferred its position from the evolution of the ICC Arbitration Rules, starting with the 2012 version and subsequent updates, as well as from the ICC Guidance Note on the interpretation of these rules, which confirms that the purpose of the revised rules is to affirm the arbitral tribunal's authority to award legal fees unambiguously.
Finally, the DCC referred to established international arbitration practice under the ICC Rules, which consistently treats Legal Costs as reasonable costs incurred by the parties and allows arbitral tribunals to assess and award them.
II. Abu Dhabi Cassation Court position:
On the other hand, Abu Dhabi Cassation Court (ADCC) issued two decisions in cases No 1051 of 2020 dated 24 August 2020 and case no. 244 of 2022 dated 4 April 2022, where the ADCC made totally opposite determinations to these provided by DCC regarding the interpretation of Article (46) and (25) of the FAL.
It is important to note that these decisions pertained to the set-aside procedures of ICC arbitration cases, where the Respondent reiterated arguments similar to those presented in the DCC case.
The ADCC held that the arbitral tribunal possesses discretionary power to obligate one or both parties to pay legal costs. This is in line with Article 46 of the FAL, which stipulates that unless the parties agree otherwise, the arbitral tribunal shall determine the costs of arbitration, including the fees and expenses incurred by any member of the arbitral tribunal in performing their duties, as well as the expenses of appointing experts by the arbitral tribunal.
The ADCC also confirmed that under Article 23 of the FAL, a party's failure to raise any arguments or violations concerning the tribunal's jurisdiction within the prescribed time frame is considered a waiver of its right to raise such arguments or violations before the court.
III. Is there is a room for unification?
The apparent contradiction between the DCC's and ADCC's understanding of the powers of arbitral tribunal according to article (46) and (23) of the FAL triggersThe Union Supreme Court (USC) jurisdiction to unify the application of law in UAE.
According to the Law No.10 of 2019, regarding the Regulation of the Relations Between Federal and Emirates Courts, USC is the competent authority to unify the interpretation and application of law and settle the contradicting principal between the High Courts.
The USC has resolved several critical debates that could jeopardize the UAE's position as a leading business hub in the GCC. A recent example includes the court's interpretation of a provision in the UAE Code of Commercial Transactions regarding bounced checks due to bank closures, which had been debated for over two years between the Abu Dhabi Cassation Court and the Dubai Cassation Court, with both courts adopting contradictory positions.
Now, the USC is invited to unify the application of Article However, (46) and (25) of FAL taking into consideration the legitimate expectation of parties to arbitration agreements and effectiveness of the arbitration of arbitration procedures.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
