REUTERS | Daniel Becerril

The curse of costs under the UAE Federal Arbitration Law

Claims for costs are a key ingredient of any arbitration proceeding, in particular in circumstances where alternative recourse to the local courts does not allow the prevailing party to recover its costs on a full indemnity basis. This is, for instance, the case in the United Arab Emirates (UAE), whose courts, although awarding full court fees to the prevailing party, only provide for nominal recovery of party costs and, in particular, counsel fees. This can create some discouragement for parties with small value claims, given that legal fees can be significant even in smaller cases. In such circumstances, parties will hope to find a greater degree of flexibility in arbitration.

Whether or not counsel fees are recoverable in arbitration depends on the wording of the applicable procedural law and/or rules. Some arbitration laws make express provision for the arbitrator’s power to award costs, including legal fees. By way of example, section 61(1) of the English Arbitration Act 1996 empowers an arbitrator sitting in England and Wales to make cost awards with respect to legal or other party costs. Similarly, even if no express provision to the desired effect can be found in the applicable arbitration law, the applicable arbitration rules might confer upon the arbitrator a power to award legal fees. Such is the case with DIFC-LCIA Rules of Arbitration; Article 28.3 confers upon the arbitral tribunal the power to determine a party’s legal and other costs incurred in the arbitration.

Historically, UAE arbitration law has faced difficulties with the award of costs. The former UAE Arbitration Chapter was silent on the power to award costs other than to state that a tribunal was to determine its own fees and the costs of the arbitration (see Article 218, UAE Arbitration Chapter). This could certainly not be interpreted to mean that an arbitrator sitting under the UAE Arbitration Chapter had the power to award party costs. All that Article 218 of the UAE Arbitration Chapter envisaged was to permit an arbitrator to assess his own costs and expenses and enter an award for all or part of these against the succumbing party. In addition, in an oft-cited ruling (see Case No. 282/2012, ruling of the Dubai Court of Cassation of 3 February 2013), the Dubai Court of Cassation clarified the arbitrator’s power to award costs within the meaning of Article 2.1 of the Appendix on Costs to the Dubai International Arbitration Centre (DIAC) Rules, according to which:

“The costs of the arbitration [to be awarded by a tribunal] shall include the Centre’s administrative fees for the claim and any counterclaim and the fees and expenses of the tribunal fixed by the Centre in accordance with the Table of Fees and Costs in force at the time of the commencement of the arbitration, and […] any expenses incurred by the tribunal, as well as the fees and expenses of any experts appointed by the tribunal.”

The Court gave a restrictive interpretation of the term “arbitration costs” under Article 2.1 of the Appendix on Costs to the DIAC Rules, excluding party costs from its natural scope. The Court’s ruling met with trenchant criticism at the time, highlighting that the term “include” did not intend to limit the scope of “arbitration costs” under Article 2.1 and was only to introduce a non-exhaustive list of types of recoverable costs.

Unfortunately, the UAE legislator failed to rectify this position under the UAE Federal Arbitration Law (FAL). In actual fact, the FAL is equally restrictive in wording as Article 2.1 of the Appendix on Costs to the DIAC Rules (and Article 218 of the former UAE Arbitration Chapter for that matter). Article 46(1) of the UAE FAL, which deals with the arbitrator’s powers to award costs, provides in relevant part as follows:

“Unless 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 […] and the costs of experts appointed by the tribunal.”

Disregarding for a moment the restrictive reading given to the term “include” by the Dubai Court of Cassation in Case No. 282/2012, this wording would suggest that any costs incurred in arbitration, whether arbitration or party costs, are recoverable by order of the tribunal. The list of costs following the term “include” is only illustrative of examples of recoverable costs and as such non-exhaustive. As a result, it could be argued, other costs that are not expressly listed, such as the administrative costs of an arbitration institution and party costs, fall within the ambit of costs awardable under Article 46(1). The non-exhaustive character of this list would arguably stand confirmed by the omission of institutional costs from its scope: it cannot have been the intention of the UAE legislator to exclude the recovery of such costs (which typically fall within the cost powers of arbitration tribunals) from the list by design. This argument would by extension apply to the recoverability of party costs if it were not for Article 33(5) FAL, which allows the parties free choice of legal counsel, but expressly at their own cost:

The parties may, at their own expense, avail of experts and attorneys, whether lawyers or otherwise, to represent them before the arbitral tribunal.”

In the light of the foregoing, the bottom line appears to be that to make sure that an arbitral tribunal has the power to award party costs, including counsel fees, the disputing parties must expressly confer such power on the tribunal either in the terms of the original arbitration agreement or by means of terms of reference. To the extent that the parties might not be able to agree, it would appear good law that the parties can form an agreement to the effect by each party requesting the recovery of its respective party costs in its written statement of relief (provided that submission of these was effected by duly authorised representatives: see Article 7(2)(d) FAL, which codifies case law precedent to the desired effect). This would be no different from the formation of an agreement to arbitrate by written exchange of authorised signatories (see Case No. 174/2005, ruling of the Dubai Court of Cassation of 19 December 2005), the matter of costs being an essential component of an arbitration agreement.

On this note, there is little room left for a constructive conclusion other than that costs in UAE-seated arbitrations have, no doubt, become a curse, but of the manageable kind!

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