The Dubai International Arbitration Centre (“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 definition of the
costs of the arbitration (set out at Article 2.1 of the Appendix to the DIAC Rules) does
not include lawyers’ fees. As a result, the power of tribunals to award legal costs in
DIAC arbitrations is an issue which has often been hotly contested before the UAE
Courts.
The arbitration provisions of the Civil Procedure Code[1] (which applied to UAE seated
arbitrations prior to the enactment of the Arbitration Law) were silent on whether legal costs
could be awarded by tribunals as a matter of UAE law.

The traditionally held view was that tribunals in DIAC arbitrations could be empowered to award
legal costs if the parties agreed to this, for instance in the terms of reference.  However, the
Dubai Courts ultimately rejected this assumption and determined that DIAC tribunals could not
award legal costs in DIAC arbitrations even if the parties had empowered them to do so by
mutual agreement.

Article 46(1) of the Arbitration Law permitted tribunals to determine the arbitration expenses and
apportion these between the parties; without reference to legal costs.

The recent approach of the Dubai Courts

The Dubai Courts considered this issue in two recent cases, where in both:

 the DIAC Rules had been selected by the parties;

 the parties’ lawyers had signed terms of reference expressly allowing the tribunal
to award legal costs;
 the tribunal had acted under this agreed authority and had included legal costs in
its award; and
 the award debtor attempted to nullify the award on the basis that the tribunal had
exceeded its powers.

In the first 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.
 Arbitration relates to a contract between the parties who may agree on any
condition that they deem appropriate, provided that it does not violate public order or
morals.
 The terms of reference set out the parties’ agreement empowering the tribunal to
award legal costs.
 The tribunal was therefore entitled to determine and apportion legal costs.
 Accordingly, the conclusion reached by the tribunal (to award legal costs) was
reasonable and in accordance with the law.

Conversely, in the second case, the Dubai Court of Appeal (which was again followed
by the Dubai Court of Cassation) handed down a judgment that:

 A lawyer’s authority to act in a dispute arising from a contractual relationship, is

limited to that contractual relationship.
 Legal costs arise from the lawyer’s contract with their client. This is separate to
the contract forming the basis of the dispute.
 When a lawyer is authorised to act in an arbitration, the authority cannot be
extended to cover agreements for the awarding of legal fees (even if these relate to the
arbitration).
 For a lawyer to agree that tribunals can award legal costs, they must hold a
power of attorney expressly permitting this.
 The lawyers for the challenging party were not so authorised under their power of
attorney and the part of the award dealing with legal costs was nullified.

due to the limited post-Arbitration Law judgments on this point, it is difficult to assess with
certainty how the issue will be dealt with on a general basis.

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.

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.
Unfortunately, there will always be the possibility that uncooperative award debtors will
seek to avoid the enforcement of award in respect of legal fees, regardless of whether
they initially agreed to them being awarded. As such, until this issue is assessed further
in the Courts, parties must ensure that all steps possible are taken to protect their
agreements from the outset.