Dubai Court of Cassation restores ability to recover legal costs in ICC arbitration

In Case No. 756 of 2024 (Commercial), the Dubai Court of Cassation overturned its previous stance on the recoverability of legal costs following ICC arbitration, which it had previously deemed contrary to UAE law unless expressly permitted in the underlying arbitration agreement. Importantly, the Court recognised that Article 38(1) of the ICC Rules contains an "express and clear" stipulation for the recovery of legal costs by a successful party, meaning that any party agreeing to arbitrate under the ICC Rules has, therefore, expressly agreed to the recoverability of legal costs.

The Court's new position should provide comfort to parties engaged in or subject to onshore UAE seated ICC arbitration and reflects the jurisdiction's increasing support for international arbitration.

Previous reluctance by the Dubai Courts to allow the recovery of legal costs following ICC arbitration

Prior to the Court's judgment in Case No. 756 of 2024, the Dubai Court of Cassation had previously refused to allow the recovery of legal costs following ICC arbitration. Even as recently as February 2024, the Court in Case No. 821 of 2023 (Commercial), upheld the decision of a lower court to partially annul an ICC award in order to quash the tribunal's award of legal costs.

In Case No. 821 of 2023, the Court said that its jurisdiction to award legal costs is restricted to circumstances where such costs are expressly allowed by legislation, applicable rules, or in an underlying arbitration agreement through "explicit clear text". As the text of the Federal Arbitration Law (Law No. 6 of 2018) only expressly allows a tribunal to award costs in respect of the fees and expenses of the tribunal and any experts, the Court considered that, in absence of an express agreement to the contrary in the arbitration agreement between the parties, it would be unable to award legal costs.

This judgment attracted a degree of controversy when it was first published, as the parties in question had agreed to arbitrate under the ICC Rules, which are widely understood to include provision for the award of legal costs and, indeed, the party who sought to quash the award of legal costs had itself argued for legal costs in submissions made to the tribunal before its award.  

The Court's reversal in Case No. 756 of 2024 (Commercial)

In Case No. 756 of 2024, the Dubai Court of Cassation adopted a new approach to the question of recoverability of legal costs. Critically, the Court considered that the mutual consent of parties to resolve a dispute under a particular set of arbitral rules (such as those of the ICC) binds those parties to those rules, save for in respect of any rule that would be contrary to public order.

The Court found that Article 38(1) of the ICC Rules, which describes arbitration costs as including "the reasonable legal and other costs incurred by the parties", unambiguously allows tribunals to make awards in respect of legal costs, despite there being no overt mention of legal fee recovery in the Rules. In reaching this conclusion, the Court explained that the phrase "and other reasonable costs incurred by the parties …" is broad and encompasses all reasonable costs, including legal costs such as lawyers' fees. The Court noted that a contrary interpretation of the ICC Rules would be inconsistent with the usual application of the ICC Rules, wherein ICC guidance explains that Article 37(1) permits the recovery of fees and expenses for the parties' lawyers.

Implication of Case No. 756 of 2024 (Commercial) on international parties

While Case No. 756 of 2024 ought to provide comfort to parties with existing agreements to arbitrate under the ICC Rules with a UAE seat, it is important to bear in mind that the onshore UAE is a civil law jurisdiction and therefore the courts do not operate on a system of binding precedent. As such, while parties may get some relief in knowing that legal costs are not wholly irrecoverable, it remains possible that the UAE courts could quash awards for legal costs that are not expressly agreed. To mitigate this risk, parties should continue to include explicit provisions for the recoverability of legal costs in their arbitration agreements.