arbitration

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June 16, 2021

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Managing an arbitration means managing a client’s expectations, including the client’s costs in pursuing its case in arbitration. Parties in arbitration may incur different types of costs; wherein the three main costs involved are the Tribunal Fees; Administration Fees; Legal fees for experts and for legal representations. Legal cost is the main expense incurred by the party and the fees of its legal representatives in arbitration.

Allowing the recovery of legal costs in a dispute is not universal, so one of the benefits of arbitration in UAE is that some of the arbitration institutes award legal costs should you win which is not the case in local courts. The arbitral institutions have to explicitly allow the tribunal to order the losing party to pay the legal costs incurred by the winning party. Nevertheless, it requires a bright mind to present the legal costs before the arbitral tribunal and to seek a refund for the same. Arbitration Lawyers of Dubai will help you understand the ideology behind claiming legal costs and what shall you keep in mind while claiming legal costs.

How it works?

Before the final award gets issued in an arbitral proceeding, both the parties submit a document including a post-hearing cost wherein they’ll seek an award against the losing party recovering the legal expenses made in the initiation or defense of arbitrary proceedings. There are several procedures by which institutions award legal costs.

The most frequently approached arbitration institutes in the UAE are the DIAC and ADCCAC, these, however, do not explicitly empower the arbitrators to award legal costs. On the other hand, the less frequently approached, DIFC-LCIA does authorize the tribunal to award and allocate legal costs to the parties to the dispute. Article 28.3 (DIFC-LCIA Rules of Arbitration) confers upon the arbitral tribunal the power to determine a party’s legal and other costs incurred in the arbitration.

The ADCCAC rules provide a few Articles regarding costs (Art 282, 373, 384, and 39). However, only Article 39 expressly authorizes and defines which costs the arbitrator is allowed to reallocate- arbitrator’s fees and ADCCAC fees.

The DIAC Rules

The power of tribunals to award legal costs in DIAC arbitrations is an issue which has often been hotly contested before the UAE Courts. Revised DIAC 2007 rules vaguely interpret the tribunal‘s final award as ‘expenses incurred by the tribunal’ which leads to confusion as to whether legal fees can be claimed under the DIAC Rules. Article 4.2 of the Appendix to the DIAC Rules permits tribunals to fix the costs of the arbitration and to apportion these between the parties however the arbitration cost does not include legal cost.

Court's Stance

The Dubai Courts have given contradictory judgements on the issue of legal cost. In one case, the Dubai Court of Appeal (and subsequently the Dubai Court of Cassation) held that in DIAC arbitrations, the tribunal is empowered to award the costs associated with the arbitration but not legal costs unless this power is explicitly provided for. Since the parties’ had expressly signed the terms of reference, the tribunal was therefore entitled to determine and apportion legal costs. In another case the court held, that the contractual relationship between a lawyer and a client is different than the arbitration dispute and both need to be separated. The former can’t become a premise for legal cost to be awarded.

What should you be doing?

Accordingly, where the chosen institutional rules do not contain a power for the tribunal to award legal costs (e.g. the DIAC Rules), parties will be best advised either to: include the right for tribunals to award legal costs in the initial arbitration agreement; or include the required powers in the terms of reference. An express agreement between parties indicates healthy and unbiased proceedings and let the tribunal decide the case on merits. In either case (and to protect the parties positions to the fullest extent possible), the signatories used should have special powers of attorney permitting them to agree to the tribunal awarding legal costs.

In order to avoid discouragement for parties with small value claims, it is important to carefully consider the reallocation of arbitration costs before executing an arbitration deed with the help of arbitration lawyers in Dubai.


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