Isn’t it too complex and too

expensive to proceed with arbitration? What all costs can we recover in this

arbitration apart from the claim? Can we claim attorney’s fees or legal costs

from this arbitration? There are few but very frequently asked questions from

the Lawyers in UAE, and the answers to

these questions can be spotted in this article.

One of the most appealing advantages of turning to arbitration is the

tribunal’s authority to award legal costs and expenses. These would ordinarily

incorporate the arbitrator's fees and any other costs incurred in any

arbitration institution. It is a recent practice in UAE among commercial

parties to empower the tribunal to award legal costs either within the Terms of

Reference or drafting a special provision for the same. However, under certain

circumstances, the ability of the tribunal to grant legal costs is a

challenging task. Consequently, the Arbitration Lawyers of Dubai have

simplified it through this article for all the commercial parties in arbitration or desiring to file for arbitration. The concerned article will

emphasize the most prominent arbitration institute of Dubai that is Dubai

International Arbitration Centre (DIAC). The article is divided into several

categories to comprehend the status of each case

easily.

Recovering Costs

Parties in arbitration may incur different types of costs; wherein the three main costs involved the Tribunal Fees;

Administration Fees; Legal fees for experts and for legal representations. The

expenses incurred in legal fees is the main expense incurred by the parties

which distinguish arbitration from litigation in another aspect where you can

recover legal costs in arbitration as opposed to litigation in UAE.

Tribunal’s Discretion

Generally, just prior to issuing the

final award in any arbitral proceedings, both the parties will submit a

document entailing a post-hearing cost

wherein they will seek an award against the opposite unsuccessful party for

payment of legal costs incurred in initiating or defending the proceeding.

In addition, the domestic arbitration

in UAE in any given arbitration Centre specific powers are allotted to grant

legal costs, and the discretion of

tribunal under such cases are extensive. Having

said that, there are several principles which are referred to by the

arbitrators in order to determine and allocate the legal costs to the relevant

party, regardless of the rules applicable in Federal Courts of UAE where only a

certain amount of legal costs is awarded to the winning party.

In contrast with other countries where

the law governs the legal costs to be granted to the parties, UAE tribunals

have the authority and opportunity to

decide the legal cost incurred by the parties. Notwithstanding the generality

of the foregoing, tribunals authorized to award legal costs in UAE would still

have to face the difficulties in granting the legal costs and to ascertain the

sensibility and proportionality of such sum awarded.

Explicit Agreement for Legal Costs

As said above, the parties can now

make special provision for the right granted to the tribunal to award legal

costs in the concerned agreement or a special agreement for that matter. It has

been recently affirmed by Dubai Court of Cassation in case number 282 of 2012

which was earlier a grey area. The court in its case held that the tribunal

only empowered to order the party opposing to compensate for the legal fees if that power is driven from:

a.      The procedural Law

b.     Rules of

Arbitration Centre;

c.       An explicit

provision in the agreement.

DIFC and ADCCAC are the most

frequently adopted arbitration institutes in UAE, it, unfortunately, the rules issued by these arbitrations centres does not explicitly empowers the

arbitrators to award legal costs. On the contrary, not so common DIFC-LCIA

(Dubai International Financial Centre- London Court of International

Arbitration) does authorize the tribunal

to award and allocate legal costs to the parties to the dispute.

Presently, an express agreement

empowering tribunals to grant legal costs is the most commonly used method in UAE

which is usually reflected in terms of

Reference or special provisions within

the contract. An express agreement between parties indicates healthy and unbiased proceedings and let the

tribunal decide the case on merits.

Factors Assisting Tribunal to

determine Costs

Generally, tribunals award costs

relying on several principles and factors prior to determining the costs for

legal expenses and follows a simple rule of “winning

party majority costs” wherein the winning party predominantly recover major

legal costs. Yet, there are numerous factors which leads us to such

determination as follows:

a.      Conduct of

Parties

Most prepared and suitably principled

arbitrators would know that just having a

general opposing opinion on a party’s general behaviour

and conduct ought not to frame a reason

for them to decide their situation on legitimate expenses. What could, to an

expansive degree, influence a tribunal's supposition and determination on the

issue of lawful expenses in a UAE, is progressively connected to the validity

of the party’s’ activities, instead of the legitimacy of the lawful grounds

whereupon such activities or oversights are based.

Nevertheless, in UAE arbitral

practice, courts ordinarily embrace the "costs held" approach,

wherein the decision pertaining to the legal costs is decided at the last stage, in order to have a clear

estimation of the costs incurred during the whole arbitral procedure and assess

the interim issues as well as the conduct of both the parties amid the

proceedings.

b.      Partial

Success

Partial success in arbitration cases

is usually very common, and we have come

across cases where the no parties have completely receive a favourable judgment. In regards to this, it is again very crucial for tribunals

to determine the costs if the party losing the partial case spends additional costs

for the losing part. UAE tribunals have,

however, simplified the procedure by either substantial

awarding costs to the winning party or no costs to any party.

c.       Settlement

offer

Settlement offers in UAE are made at

an early or a later phase of the proceedings. Early stage offers are always

disregarded by the claimants due to a mismatch

in the desired amount. Whereas, Late offers are typically made for setting

aside the extremely critical legal expenses of the arbitration, especially in

cases where the legal representatives are internationally experienced. One

further viewpoint that renders settlement offers obligated to be generally

accepted is the domestic arbitration wherein it is usually difficult to enforce

the award through Federal Courts.

Conclusion

To summarize the treatment of legal

costs in arbitration proceedings in UAE is at par with the international

arbitration standards. Further, the disarray with regards to recovery of legal

costs in DIAC has now been settled by Dubai Courts wherein, a provision in the

law or a special arrangement to that regards will empower the tribunal to award

legal costs to either party.