Can you claim legal costs in arbitration?

Awatif Mohammad Shoqi Advocates & Legal Consultancy | View firm profile

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.

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