Dubai Court of Cassation Issues a Landmark Judgment Regarding the Concept of Legal Fees Recovery

In a landmark judgment issued on 25 July 2025, the Dubai Court of Cassation has delivered a decisive ruling that fundamentally reshapes how legal fees are treated in commercial disputes.

This decision marks a clear shift in judicial thinking and is expected to have a significant and lasting impact on B2B contracts governed by UAE law.

Factual Background

1. The dispute arose from a commercial loan agreement that contained an express clause obligating the defaulting party to bear all legal costs incurred in recovering the debt, including legal fees (i.e., counsels’ professional fees).
2. While the claimant successfully obtained judgment for the principal amount before the Dubai Court of First Instance, both the Court of First Instance and the Dubai Court of Appeal rejected the claim for recovery of legal fees, citing an alleged lack of evidence proving that such fees had been paid by the claimant.
3. The claimant appealed the Court of Appeal judgment before the Dubai – Court of Cassation, arguing that:

• The loan agreement explicitly contained a legal-fees recovery clause, placing the burden on the losing party; and
• Documentary evidence had been duly submitted, including engagement letters, fee agreements, and pro forma invoices evidencing the incurred legal costs.

The Court of Cassation’s Position in the Appeal

The Court of Cassation overturned the judgment and reaffirmed certain critical principles with far-reaching commercial implications:

1. A contract must be enforced as agreed as long as it does not contradict with public policy or order. Reaffirming the principle that contracts are the law of the parties, the Court held that where a contract validly obliges one party to reimburse legal fees, courts must give effect to that obligation.
2. Legal fees are recoverable when proven. If a party demonstrates that it has actually incurred lawyer’s fees, either through an engagement letter, invoices, or proof of payment, the court cannot dismiss such claims on general or abstract grounds.

Accordingly, the Court partially set aside the judgment and remitted the case to the Court of Appeal to reconsider the claims for legal fees, accrued interest, and contractual penalties.

Why Is This Judgment a Game Changer?

This ruling signals a clear departure from the traditionally conservative approach toward recovery of legal fees in UAE courts. For the first time in a decisive manner, the Court of Cassation has confirmed that contractual legal-fee provisions in commercial agreements are judicially enforceable, provided that proper evidence is produced and submitted before the court.

Impact on B2B Contracts

This development will have a substantial impact on the future of business in the UAE, particularly in the way businesses draft and negotiate in B2B relationships:

• Lawyer’s fee clauses will become commercially meaningful, not merely boilerplate language.
• Parties will increasingly factor litigation risk and cost recovery into contract negotiations.
• Defaulting parties may face significantly higher exposure beyond principal amounts and interest.
• Well-drafted recovery clauses may serve as a strong deterrent against contractual breach or non-payment.

Practical Guidance

In light of this judgment, businesses should:

• Review and strengthen lawyer’s fees and cost-recovery clauses in their contracts.
• Ensure such clauses are clearly drafted and unambiguous.
• Maintain proper documentations (including invoices and engagement letters) evidencing incurred legal fees in the event of a dispute.

For further information on this judgment and its implications on contractual risk allocation, recovery of legal fees, and dispute resolution strategies under UAE law, please feel free to reach out to Hourani & Partners.

This article reflects research and drafting support provided by Youssef Diab, Legal Consultant – Dispute Resolution