United Arab Emirates: The Dubai Court Of Cassation Raises Questions Over An Arbitral Tribunal's Power To Award Legal Costs

The Dubai Court of Cassation (DCC) recently upheld the Dubai Court of Appeal's partial annulment of an International Chamber of Commerce (ICC) arbitration award, quashing the arbitral tribunal's award of legal costs. One aspect of the DCC's judgment may surprise arbitration practitioners: the DCC found that the ICC Rules of Arbitration (ICC Rules) did not authorize the tribunal to award a party's legal costs incurred for the arbitration.

BACKGROUND

The award debtor (the claimant in the arbitration) sought annulment of an arbitration award issued in December 2022 in favor of the award creditor (the defendant and counterclaimant in the arbitration) under the ICC Rules. The award debtor advanced two grounds for annulment: (i) first, that the award was issued outside the prescribed time limit; and (ii) second, that the arbitrator exceeded their powers by ordering the claimant to pay the defendant's legal fees incurred for the arbitration. The Dubai Court of Appeal, which heard the annulment application, dismissed the first ground of challenge, finding that the ICC Court of Arbitration had validly extended the deadline for issuing the award and that the award had been issued within the extended deadline. The Dubai Court of Appeal upheld the second ground of challenge, and partially annulled the award, annulling the part awarding legal costs. Both parties appealed the Dubai Court of Appeal's judgment. The appeals (Commercial Cassation No. 821 of 2023, filed by the award creditor, and No. 857 of 2023, filed by the award debtor) were combined and heard together by the DCC. The DCC rendered its judgment on both appeals on 5 February 2024.

THE DCC'S JUDGMENT

The DCC's judgment does not set out the factual background of the dispute underlying the arbitration award, but it rather simply recites the parties' arguments (in Cassation No. 821 of 2023) and what the DCC saw as the applicable legal principles. The DCC stated that it is a rule of the DCC that a party to an arbitration may only be ordered to pay "fees, expenses and legal costs": (i) pursuant to "a provision derived from the law, any legislative provision, the public rules"; or (ii) if provided for in the parties' arbitration agreement by an "explicit and clear provision."

As to the legislative basis for awarding party legal costs, the DCC referred to Article 46(1) of Federal Law No. 6 of 2018 (UAE Arbitration Law). This states that "[u]nless otherwise provided by the agreement of the Parties, the Arbitral Tribunal shall assess the costs of arbitration which shall include: the fees and expenses incurred by any member of the Arbitral Tribunal in the exercise of his duties and the costs for experts appointed by the Arbitral Tribunal." The DCC stated that this provision constitutes an exclusive list of the costs of arbitration that may be awarded by an arbitral tribunal, and it consists only of the fees and expenses incurred by the arbitrators for the performance of their task and the costs of experts appointed by the arbitral tribunal. The DCC stated that the costs of arbitration (as defined by the UAE Arbitration Law) do not include legal costs paid by the parties to their legal representatives.

In connection with the second basis for awarding party legal costs, the DCC noted that arbitration is consensual and the arbitrator derives their jurisdiction from the arbitration agreement made between the parties. The DCC stated that the arbitration agreement entered into between the parties in this case did not include agreement "on holding either party liable for the legal expenses," and accordingly, the award debtor was not obligated to pay them. The DCC approved the Dubai Court of Appeal's judgment in this respect, noting that the Dubai Court of Appeal had found that: (i) the parties' arbitration agreement did not contain any wording authorizing the arbitral tribunal to determine legal fees; (ii) the power of attorney granted by the award debtor to its legal representative did not empower the representative to authorize the arbitral tribunal to determine legal fees and expenses; (iii) Article 38 of the ICC Rules (on which the arbitrator relied) did not explicitly empower the arbitral tribunal to determine the legal expenses of the arbitrating parties' legal representatives; and (iv) the "invalidity" of the award only affected the arbitrator's ruling relating to legal fees and not the other parts of the award. Accordingly, the DCC upheld the Dubai Court of Appeal's decision to annul the arbitrator's award of the award creditor's legal fees. The DCC noted that this result was not affected by the fact that the award debtor had not objected to the claim for legal fees in the arbitration, as the law guaranteed its right to object and request annulment of the award.

The award creditor had made the argument in the appeal to the DCC that the Dubai Court of Appeal was wrong to partially annul the award because the award debtor had also claimed for its own legal fees in the arbitration, had asserted its right to do so throughout the arbitration proceedings, and had argued that the arbitrator had authority to award legal fees. Indeed, both parties had requested the arbitrator to determine their legal costs in the arbitration. The award debtor had continued with the arbitration without making any objection to the other party's claim for legal fees. The award creditor argued that the award debtor had thus waived its right to seek annulment based on the award of legal fees. As noted above, however, the DCC was not persuaded that these arguments affected the Dubai Court of Appeal's judgment. It is not clear from the DCC's judgment whether the award creditor sought to rely on the incorporation by reference into the arbitration agreement of the ICC Rules.

COMMENTARY

While it is welcome that only the "offending" part of the award relating to legal costs was annulled, rather than annulling the entire award, arbitration practitioners may find the DCC's judgment surprising. The ICC Rules do in fact contain explicit and clear language defining the costs of the arbitration as including the legal and other costs incurred by the parties for the arbitration, and authorizing the arbitral tribunal to decide which party should bear those costs. It is unclear under which version of the ICC Rules the arbitration in this case took place; however, for example, these provisions are present in the 2021 ICC Rules (Article 38), the 2017 ICC Rules (Article 38), the 2012 ICC Rules (Article 37), and the 1998 ICC Rules (Article 31). Generally accepted international practice (and indeed the practice in the United Arab Emirates prior to the DCC's judgment in this case) is that, if the parties have agreed on arbitration pursuant to a specific set of arbitration rules in their arbitration agreement, then they have agreed (as part of their agreement to arbitrate) to give the arbitral tribunal the powers and authority set out in those rules. It is not clear whether the DCC's judgment was simply mistaken regarding Article 38 of the ICC Rules or whether this represents a change in position by the DCC. Going forward, parties may wish to provide explicitly in their arbitration agreement for the arbitral tribunal to have authority to award and apportion party legal costs.

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.