On 23 April 2020, H.E. Justice Shamlan Al Sawalehi delivered a definitive blow to attempts to relitigate arbitral costs, dismissing Loralia Group LLC’s application to set aside an award against Landen Saudi Company. The dispute centered on a USD 692,002.66 costs award, which included a success fee component that the applicant claimed violated UAE public policy. By upholding the tribunal’s decision, the Court affirmed the narrow scope of public policy challenges within the DIFC’s arbitration framework.
For arbitration counsel and in-house teams, this decision serves as a critical reminder that the DIFC Courts will not act as a court of appeal for the merits of a tribunal’s costs allocation. The case underscores the high threshold for invoking 'public policy' as a sword to challenge fee arrangements, particularly when those arrangements were within the scope of the tribunal’s discretion under the DIFC-LCIA rules. It signals a robust judicial commitment to the finality of awards, effectively insulating arbitral tribunals from collateral attacks on their fee-shifting mechanisms.
How Did the Dispute Between Loralia and Landen Arise?
The genesis of the dispute between Loralia Group LLC and Landen Saudi Company lies in a conventional commercial disagreement that, following a definitive arbitral defeat for the applicant, mutated into a high-stakes jurisdictional battle over the mechanics of cost allocation. What began as a standard breach of contract claim under a Distributor Agreement dated 6 May 2014 ultimately tested the boundaries of the Dubai International Financial Centre (DIFC) Courts’ willingness to entertain public policy challenges against arbitral tribunals' discretionary cost awards.
The underlying conflict was submitted to the DIFC-LCIA Arbitration Centre, reflecting the parties' intent to resolve their commercial grievances within a sophisticated, pro-arbitration framework. The procedural history of the arbitration itself was unremarkable for a dispute of its magnitude, spanning multiple jurisdictions and requiring substantial evidentiary hearings.
By way of brief background, the Award was issued as a result of DIFC-LCIA arbitral proceedings brought by the Respondent against the Applicant, commencing on 16 June 2016.
The substantive hearings were conducted over two days in Muscat, Oman in September 2017, illustrating the cross-border reality of DIFC-seated arbitrations. Following the conclusion of the evidentiary phase, the arbitral tribunal delivered a resounding victory for Landen Saudi Company on the merits of the commercial claim. The financial exposure for Loralia Group LLC was severe, establishing the foundation for the subsequent aggressive set-aside strategy.
The Award found in favour of the Respondent on liability and awarded it USD 7,356,016.22 plus costs and post-award interest at a rate of 8% per annum.
Faced with a liability exceeding USD 7.3 million, Loralia’s avenues for recourse were inherently limited. Under the DIFC Arbitration Law, DIFC Law No. 1 of 2008, arbitral awards are insulated from appeals on errors of law or fact. A dissatisfied party cannot simply ask the supervisory court to second-guess the tribunal’s evaluation of the evidence or its interpretation of the underlying contract. To disrupt the enforcement of the award, Loralia required a jurisdictional or procedural hook. They found their perceived opening not in the substantive damages calculation, but in the tribunal’s methodology for awarding costs.
The tribunal, exercising its broad discretion under the applicable DIFC-LCIA Arbitration Rules, determined that Landen was entitled to recover its costs. However, the specific mathematical approach adopted by the tribunal provided Loralia with the ammunition necessary to launch a public policy challenge.
Costs were awarded to the Respondent in the amount of USD 692,002.66, with USD 514,921.11 calculated on the basis of 7% of the amount awarded to the Respondent (excluding interest and costs).
By explicitly linking a substantial portion of the costs award—over half a million dollars—to a fixed percentage of the substantive damages, the tribunal inadvertently handed Loralia a strategic opportunity. Loralia seized upon this 7% calculation, characterizing it not as a permissible heuristic for determining proportionate costs, but as the enforcement of an illegal contingency fee arrangement. In the United Arab Emirates, contingency fees—where legal counsel takes a percentage of the recovery as their fee—are generally considered contrary to public policy, distinct from the permissible conditional fee arrangements recognized in other common law jurisdictions.
Loralia’s legal team weaponized this distinction, initiating proceedings before H.E. Justice Shamlan Al Sawalehi to annul the award. The procedural vehicle for this attack was a Part 8 Claim dated 11 October 2018, which sought to leverage the narrow public policy exception enshrined in the DIFC Arbitration Law.
The Applicant, Lorelei Group LLC (hereafter the “Applicant”) filed its Part 8 Claim (hereafter the “Set Aside Application”) on 11 October 2018 seeking to set aside the Arbitral Award (hereafter the “Award”) issued in favour of the Respondent, Landen Saudi Company (hereafter the “Respondent”), on 5 June 2018 in the matter of Landen Saudi Company v Lorelei Media Group LLC, DIFC-LCIA arbitration proceedings no. 1678.
The core of Loralia's argument rested on Article 41(2)(b)(iii) of the DIFC Arbitration Law, which permits the DIFC Courts to set aside an award if it conflicts with the public policy of the UAE. Loralia contended that by awarding costs calculated as a percentage of the damages, the tribunal was effectively endorsing and enforcing a contingency fee agreement between Landen and its legal counsel, Badr Al Jafaari Law Office.
The Applicant seeks to set aside the Award pursuant to Article 41(2)(b)(iii) of the DIFC Arbitration Law on the grounds that the Award “is in conflict with the public policy of the UAE,” specifically the public policy against contingency fees. Furthermore, the Applicant resists the Respondent’s Cross-Application for enforcement of the Award pursuant to Article 44(1)(b)(vii), claiming also that enforcement of the Award would be “contrary to the public policy of the UAE.”
Loralia’s strategy required establishing a direct nexus between the tribunal's cost calculation and the regulatory framework governing legal practice in the UAE. They argued that because Landen's counsel was operating within the DIFC's jurisdiction, any fee arrangement that violated UAE public policy tainted the resulting arbitral award.
It is clear that Badr Law falls within the scope of the above provisions by: (a) being registered with the DIFC Courts, (b) representing a party in a DIFC-LCIA arbitration which is seated in the DIFC, and (c) providing legal services for these current proceedings. Thus, it follows that the Tribunal’s award of costs is contrary to the public policy of the UAE and must therefore be set aside.
This analytical angle—attempting to invalidate an entire commercial award based on the mechanics of the successful party's fee arrangement—represents a highly aggressive interpretation of the public policy exception. If successful, such an argument would force arbitral tribunals to conduct exhaustive, line-by-line audits of successful parties' retainer agreements, fundamentally undermining the efficiency of the arbitral process and the finality of cost awards. The DIFC Courts have historically maintained a robust firewall against such collateral attacks, a posture evident in related jurisprudence such as Eava v Egan [2014] ARB 005, where the Court strictly curtailed attempts to use procedural grievances to delay enforcement.
Landen Saudi Company responded to this existential threat to their USD 7.3 million award with a dual strategy: defending the tribunal's discretion and aggressively pursuing enforcement.
The Respondent filed an Acknowledgment of Service on 13 December 2018 stating its intent to defend all of the claim and to cross-claim for recognition and enforcement of the Award.
Filing their Acknowledgment of Service on 13 December 2018, Landen dismantled Loralia's public policy narrative on multiple fronts. First, they defended the inherent authority of the arbitral tribunal to determine the most appropriate method for quantifying costs. Under the DIFC-LCIA Rules, tribunals are granted wide latitude to assess the reasonableness and proportionality of legal expenses. Landen argued that the 7% calculation was not an enforcement of an illegal contingency fee, but rather a pragmatic, evidence-based methodology adopted by the tribunal to quantify a reasonable cost recovery.
The Respondent argues that the Arbitral Tribunal acted within the scope of its powers in determining the costs award, considering plentiful evidence in the process. The decision was well within the scope of the applicable DIFC-LCIA Arbitration Rules. The costs award is therefore correct and unimpeachable.
Second, Landen attacked Loralia's expansive interpretation of the public policy exception. The threshold for establishing a public policy violation under Article 41(2)(b)(iii) is notoriously high, requiring a breach of the most fundamental notions of morality and justice within the UAE. Landen asserted that a dispute over the calculation methodology of a legal fee arrangement falls far short of this exacting standard.
The Respondent argues that the concept of public policy is a “very narrow one,” and that even proof of infringement of mandatory law does not automatically establish breach of public policy.
Third, Landen deployed a critical procedural defense rooted in Article 9 of the DIFC Arbitration Law, which governs the waiver of the right to object. In arbitration, a party cannot hold procedural objections in reserve, waiting to see if they lose on the merits before deploying them to attack the award. Landen argued that if Loralia genuinely believed the fee arrangement was illegal and tainted the proceedings, they were obligated to raise that objection forcefully during the arbitration itself, not exclusively in a post-award set-aside application.
Additionally, the Respondent argues that even if the fee arrangement were against public policy, the Applicant waived its right to object on this basis, as per Article 9 of the DIFC Arbitration Law.
Beyond the central public policy clash over the contingency fee allegation, Loralia also attempted to undermine the costs award by attacking the tribunal's substantive evaluation of the parties' conduct during the arbitration. Loralia complained that the tribunal failed to account for their cooperative behavior, specifically arguing that they should have received a reduction in costs for making early concessions.
The costs portion of the Award gave no credit to the Applicant for early admissions, nor did it credit the Applicant’s argument that it had agreed to pay a large portion of the arbitral claim prior to the Arbitration.
This secondary argument regarding the failure to give credit to the Applicant for early admissions further illustrates the scattergun nature of the set-aside application. By combining a high-level public policy challenge regarding contingency fees with granular complaints about the tribunal's failure to discount costs for early admissions, Loralia revealed the true nature of their application: a comprehensive attempt to relitigate the tribunal's discretionary findings. The dispute thus crystallized before H.E. Justice Shamlan Al Sawalehi not merely as a question of fee regulations, but as a fundamental test of the DIFC Courts' commitment to arbitral finality and the strict containment of the public policy exception.
What Was at Stake in the Challenge to the Costs Award?
The substantive dispute in Loralia Group LLC v Landen Saudi Company [2018] DIFC ARB 004 culminated in a decisive victory for the respondent following a two-day hearing in Muscat, Oman. The arbitral tribunal found in favour of the Respondent on the core liability issues arising from a 2014 Distributor Agreement, delivering a comprehensive defeat to the applicant.
The Award found in favour of the Respondent on liability and awarded it USD 7,356,016.22 plus costs and post-award interest at a rate of 8% per annum.
While the principal damages figure was substantial, Loralia Group LLC directed its primary legal offensive at the tribunal's allocation of costs. The financial exposure on costs was significant, with the tribunal directing the applicant to pay costs relevant to the arbitral proceedings totaling USD 692,002.66. Within this sum lay the specific target of the applicant’s set-aside application: a tranche of USD 514,921.11.
Costs were awarded to the Respondent in the amount of USD 692,002.66, with USD 514,921.11 calculated on the basis of 7% of the amount awarded to the Respondent (excluding interest and costs).
To Loralia Group LLC, this mathematical approach—calculating costs as a flat 7% of the damages—was not merely an exercise of arbitral discretion. The applicant argued it was a structural violation of mandatory UAE law, specifically the prohibition against lawyers charging contingency fees. By characterizing the 7% calculation as a disguised success fee, the applicant sought to elevate a routine dispute over cost assessment into a fundamental jurisdictional and public policy challenge.
The Applicant seeks to set aside the Award pursuant to Article 41(2)(b)(iii) of the DIFC Arbitration Law on the grounds that the Award “is in conflict with the public policy of the UAE,” specifically the public policy against contingency fees. Furthermore, the Applicant resists the Respondent’s Cross-Application for enforcement of the Award pursuant to Article 44(1)(b)(vii), claiming also that enforcement of the Award would be “contrary to the public policy of the UAE.”
The applicant’s argument hinged on the specific nature of the respondent's legal representation. Loralia Group LLC contended that the respondent's counsel, Badr Law, operated under an agreement that conditioned payment on the successful recovery of damages. Because the tribunal explicitly tied the USD 514,921.11 cost component to a percentage of the substantive recovery, the applicant insisted the tribunal was effectively laundering an illegal fee agreement through an arbitral award.
It is clear that Badr Law falls within the scope of the above provisions by: (a) being registered with the DIFC Courts, (b) representing a party in a DIFC-LCIA arbitration which is seated in the DIFC, and (c) providing legal services for these current proceedings. Thus, it follows that the Tribunal’s award of costs is contrary to the public policy of the UAE and must therefore be set aside.
Beyond the structural attack on the fee arrangement, Loralia Group LLC mounted a secondary procedural grievance regarding the tribunal's failure to recognize its pre-arbitration conduct. The applicant asserted that it had made substantial efforts to resolve the dispute before the arbitration escalated, including acknowledging liability for a significant portion of the claim. In the applicant's view, a properly functioning tribunal would have penalized the respondent for unnecessarily prolonging the proceedings or, at the very least, discounted the costs awarded against the applicant to reflect these early concessions.
The costs portion of the Award gave no credit to the Applicant for early admissions, nor did it credit the Applicant’s argument that it had agreed to pay a large portion of the arbitral claim prior to the Arbitration.
Landen Saudi Company fiercely resisted the characterization of the costs award as a vehicle for an illegal contingency fee. The respondent maintained that the tribunal’s methodology was a valid exercise of its broad discretion under the applicable DIFC-LCIA Arbitration Rules. Rather than blindly enforcing a prohibited fee agreement, the tribunal had evaluated the costs incurred and determined that a percentage-based calculation represented a reasonable and proportionate allocation of the financial burden. The respondent emphasized that the tribunal had reviewed plentiful evidence in the process of determining the appropriate quantum of costs.
The Respondent argues that the Arbitral Tribunal acted within the scope of its powers in determining the costs award, considering plentiful evidence in the process. The decision was well within the scope of the applicable DIFC-LCIA Arbitration Rules. The costs award is therefore correct and unimpeachable.
To dismantle the applicant's reliance on Article 41(2)(b)(iii), Landen Saudi Company invoked the historically restrictive interpretation of public policy within DIFC jurisprudence. The respondent argued that the threshold for a public policy violation is exceptionally high, requiring a breach of the most fundamental norms of justice or morality. Even if the underlying fee arrangement technically violated a mandatory provision of UAE law regulating the legal profession, such an infraction does not automatically elevate the issue to a violation of the state's fundamental public policy.
The Respondent argues that the concept of public policy is a “very narrow one,” and that even proof of infringement of mandatory law does not automatically establish breach of public policy.
As a final defensive perimeter, the respondent deployed a waiver argument grounded in Article 9 of the DIFC Arbitration Law. Landen Saudi Company contended that Loralia Group LLC had ample opportunity during the arbitral proceedings to challenge the legality of the fee arrangement and the tribunal's proposed method of calculating costs. By failing to raise a timely objection before the tribunal issued its final award, the applicant had effectively forfeited its right to rely on the alleged public policy violation in subsequent set-aside proceedings.
Additionally, the Respondent argues that even if the fee arrangement were against public policy, the Applicant waived its right to object on this basis, as per Article 9 of the DIFC Arbitration Law.
The clash in Loralia Group LLC v Landen Saudi Company reflects a recurring tension in international arbitration seated in the DIFC: the attempt by unsuccessful parties to re-litigate discretionary tribunal decisions by dressing them up as fundamental procedural or public policy failures. The DIFC Courts have consistently guarded against such tactics. Much like the court's refusal to entertain parallel challenges intended to derail enforcement in ARB-005-2014: Eava v Egan [2014] ARB 005, H.E. Justice Shamlan Al Sawalehi was tasked with determining whether Loralia Group LLC’s complaint was a genuine public policy grievance or merely a sophisticated attempt to appeal a costs assessment. The applicant’s strategy required the court to look behind the tribunal's reasoning and scrutinize the underlying contractual relationship between the respondent and its counsel—an interventionist approach that runs contrary to the DIFC's established pro-arbitration mandate.
Ultimately, the stakes in this challenge extended far beyond the specific sum of USD 514,921.11. If the DIFC Courts were to accept that a tribunal's percentage-based cost calculation automatically triggers a public policy violation under UAE law, it would open the floodgates for similar challenges. Unsuccessful parties could routinely demand judicial audits of their opponents' fee arrangements, undermining the finality of arbitral awards and eroding the broad discretion traditionally afforded to tribunals in allocating costs. By seeking to set aside the Arbitral Award on these grounds, Loralia Group LLC tested the boundaries of the public policy exception. In response, Landen Saudi Company was seeking recognition and enforcement of the award, demanding that the tribunal's decision be enforced in the same manner as a judgment of the DIFC Courts, forcing the judiciary to reaffirm the high threshold required to disturb an award under the DIFC Arbitration Law.
How Did the Case Move From the Set Aside Application to Final Enforcement?
The transition from a final arbitral award to a recognized, executable judgment is frequently the most perilous phase of international commercial arbitration. Award debtors routinely deploy set-aside applications as a dilatory tactic, hoping to stall enforcement while the supervisory court wades through procedural grievances. The procedural history of Loralia Group LLC v Landen Saudi Company [2018] DIFC ARB 004 provides a masterclass in how the DIFC Courts neutralize such tactics. By consolidating the applicant’s set-aside challenge with the respondent’s cross-application for enforcement, H.E. Justice Shamlan Al Sawalehi ensured that the supervisory jurisdiction of the court functioned as a conduit for finality rather than a bottleneck.
The underlying arbitration, administered under the DIFC-LCIA rules, involved a high-stakes commercial dispute over a 2014 Distributor Agreement. The arbitral tribunal issued its final decision in the summer of 2018, following proceedings commencing on 16 June 2016. The tribunal ruled decisively in favor of Landen Saudi Company. The financial exposure for Loralia Group LLC was severe, encompassing both substantial principal damages and a heavily contested costs order.
The Award found in favour of the Respondent on liability and awarded it USD 7,356,016.22 plus costs and post-award interest at a rate of 8% per annum.
Costs were awarded to the Respondent in the amount of USD 692,002.66, with USD 514,921.11 calculated on the basis of 7% of the amount awarded to the Respondent (excluding interest and costs).
Faced with an eight-figure liability, Loralia initiated a preemptive strike. The applicant filed its Part 8 claim in October 2018, seeking to annul the award at the seat before Landen could move to execute the judgment against its assets.
The Applicant, Lorelei Group LLC (hereafter the “Applicant”) filed its Part 8 Claim (hereafter the “Set Aside Application”) on 11 October 2018 seeking to set aside the Arbitral Award (hereafter the “Award”) issued in favour of the Respondent, Landen Saudi Company (hereafter the “Respondent”), on 5 June 2018 in the matter of Landen Saudi Company v Lorelei Media Group LLC, DIFC-LCIA arbitration proceedings no. 1678.
The crux of Loralia’s challenge rested on a specific, targeted attack against the costs portion of the award. The applicant argued that the success fee arrangement between Landen and its legal counsel constituted a contingency fee. Under UAE law, contingency fees are generally prohibited, and Loralia sought to elevate this regulatory prohibition to the level of a fundamental public policy breach. The strategy was twofold: attack the award under Article 41 of the DIFC Arbitration Law (Law No. 1 of 2008) and simultaneously resist any future enforcement under Article 44.
The Applicant seeks to set aside the Award pursuant to Article 41(2)(b)(iii) of the DIFC Arbitration Law on the grounds that the Award “is in conflict with the public policy of the UAE,” specifically the public policy against contingency fees. Furthermore, the Applicant resists the Respondent’s Cross-Application for enforcement of the Award pursuant to Article 44(1)(b)(vii), claiming also that enforcement of the Award would be “contrary to the public policy of the UAE.”
Loralia’s legal theory required the court to accept a broad interpretation of public policy, one that equated domestic regulatory rules governing the legal profession with the fundamental legal and moral tenets of the state. To bolster its position, Loralia pointed to the specific jurisdictional nexus of the legal representatives involved, arguing that the local registration of the firm mandated strict adherence to UAE fee regulations.
It is clear that Badr Law falls within the scope of the above provisions by: (a) being registered with the DIFC Courts, (b) representing a party in a DIFC-LCIA arbitration which is seated in the DIFC, and (c) providing legal services for these current proceedings. Thus, it follows that the Tribunal’s award of costs is contrary to the public policy of the UAE and must therefore be set aside.
Beyond the public policy argument, Loralia also expressed deep dissatisfaction with the tribunal’s discretionary allocation of costs, arguing that the arbitrators had ignored critical pre-arbitration conduct that should have mitigated the financial penalty.
The costs portion of the Award gave no credit to the Applicant for early admissions, nor did it credit the Applicant’s argument that it had agreed to pay a large portion of the arbitral claim prior to the Arbitration.
Rather than merely filing a defensive response to the Part 8 claim and waiting for the court to dispose of the set-aside application, Landen Saudi Company utilized a highly effective procedural mechanism available under the DIFC Arbitration Law: the cross-application. On 13 December 2018, Landen filed an Acknowledgment of Service stating its intent to defend all of the claim and simultaneously cross-claimed for immediate recognition and enforcement under Articles 42 and 43.
This tactical maneuver fundamentally altered the procedural dynamic. In many jurisdictions, an active set-aside application automatically stays enforcement proceedings, leading to sequential, protracted litigation. By cross-applying, Landen forced the court to consolidate the review of the set-aside application with the enforcement cross-application. This approach aligns with the DIFC Courts' broader jurisprudential trajectory, as seen in cases like Eava v Egan [2014] ARB 005, where the judiciary has consistently refused to allow parallel challenges to derail the swift execution of arbitral awards.
Landen’s defense against the set-aside application was multi-layered, attacking both the substantive merits of the public policy claim and the procedural viability of Loralia’s objections. First, Landen defended the tribunal’s inherent authority to allocate costs based on the evidentiary record, arguing that the arbitrators had not exceeded their mandate.
The Respondent argues that the Arbitral Tribunal acted within the scope of its powers in determining the costs award, considering plentiful evidence in the process. The decision was well within the scope of the applicable DIFC-LCIA Arbitration Rules. The costs award is therefore correct and unimpeachable.
Second, Landen directly challenged Loralia’s expansive interpretation of public policy. The respondent argued that the threshold for a public policy violation under Article 41(2)(b)(iii) requires far more than a mere technical breach of a domestic regulation. To set aside an award, the breach must offend the most basic notions of morality and justice.
The Respondent argues that the concept of public policy is a “very narrow one,” and that even proof of infringement of mandatory law does not automatically establish breach of public policy.
Finally, Landen deployed a powerful procedural shield: waiver. The respondent contended that Loralia had failed to raise its objections to the fee arrangement in a timely manner during the arbitral proceedings themselves, thereby forfeiting the right to raise the issue at the enforcement stage.
Additionally, the Respondent argues that even if the fee arrangement were against public policy, the Applicant waived its right to object on this basis, as per Article 9 of the DIFC Arbitration Law.
The consolidated hearing took place on 1 May 2019 before H.E. Justice Shamlan Al Sawalehi. By hearing the Part 8 claim and the cross-application together, the court eliminated the risk of conflicting judgments and drastically reduced the timeline to finality. On 20 June 2019, the court delivered its decisive judgment. The applicant's attempt to annul the award was dismissed in full, rejecting the premise that a dispute over a success fee could unravel a validly rendered arbitral decision.
Simultaneously, the court granted Landen’s cross-application, ordering that the award be enforced in the same manner as a judgment of the DIFC Courts. The court imposed a strict compliance timeline, mandating that Loralia pay the principal damages, the contested costs, and the 8% post-award interest within 14 days. This consolidated approach not only vindicated the tribunal's authority but also reinforced the DIFC's reputation as a jurisdiction where arbitral awards are swiftly translated into actionable judicial orders, immune to procedural obstructionism.
What Is the 'Public Policy' Threshold in DIFC Arbitration Law?
The statutory architecture of the Dubai International Financial Centre (DIFC) Arbitration Law, specifically DIFC Law No. 1 of 2008, provides a deliberately narrow gateway for judicial intervention in arbitral awards. At the heart of Loralia Group LLC’s challenge against Landen Saudi Company was an attempt to widen that gateway by equating a breach of domestic regulatory rules with a violation of fundamental public policy. The dispute required the DIFC Court of First Instance to delineate the precise boundaries of the public policy exception, ultimately reinforcing a restrictive interpretation that prevents the doctrine from being weaponised by unsuccessful parties seeking a backdoor merits review.
The procedural history of the underlying dispute sets the stage for the jurisdictional clash. The conflict arose from a Distributor Agreement, leading to DIFC-LCIA arbitral proceedings commencing on 16 June 2016. Following a substantive hearing in Muscat, Oman in September 2017, the tribunal issued its final award on 5 June 2018. The tribunal found decisively for Landen Saudi Company, ordering Loralia Group LLC to pay substantial damages. The financial exposure for the applicant was severe, with the tribunal awarding damages in the amount of USD 7,356,016.22, exclusive of interest and costs.
However, it was the tribunal’s allocation and calculation of costs that triggered the Part 8 Claim filed on 11 October 2018. The applicant sought to annul the award by invoking the public policy exception under two distinct provisions of the DIFC Arbitration Law. The dual-pronged attack targeted both the survival of the award and its executability within the jurisdiction:
The Applicant seeks to set aside the Award pursuant to Article 41(2)(b)(iii) of the DIFC Arbitration Law on the grounds that the Award “is in conflict with the public policy of the UAE,” specifically the public policy against contingency fees. Furthermore, the Applicant resists the Respondent’s Cross-Application for enforcement of the Award pursuant to Article 44(1)(b)(vii), claiming also that enforcement of the Award would be “contrary to the public policy of the UAE.”
The factual basis for this challenge rested on the specific mechanics of the respondent's fee arrangement with its legal counsel, Badr Al Jafaari Law Office. The tribunal had ordered Loralia to pay costs relevant to the arbitral proceedings in the amount of USD 692,002.66. The controversy stemmed from how the majority of that figure was derived:
Costs were awarded to the Respondent in the amount of USD 692,002.66, with USD 514,921.11 calculated on the basis of 7% of the amount awarded to the Respondent (excluding interest and costs).
Loralia Group LLC argued that this 7% calculation constituted a contingency fee—a success-based remuneration structure that is generally prohibited under United Arab Emirates federal advocacy regulations. The applicant’s legal theory posited that because UAE law forbids such fee arrangements for local advocates, any arbitral award enforcing an obligation to pay costs derived from such an arrangement inherently violates the public policy of the UAE. The applicant aggressively tied the respondent's counsel to the regulatory framework of the seat to justify the application of domestic public policy standards:
It is clear that Badr Law falls within the scope of the above provisions by: (a) being registered with the DIFC Courts, (b) representing a party in a DIFC-LCIA arbitration which is seated in the DIFC, and (c) providing legal services for these current proceedings. Thus, it follows that the Tribunal’s award of costs is contrary to the public policy of the UAE and must therefore be set aside.
This argument forces a critical doctrinal distinction: the difference between a mandatory rule of law and fundamental public policy. In international commercial arbitration, the concept of public policy (ordre public) is traditionally reserved for the most fundamental moral, economic, and social tenets of a state. It is a high threshold, designed to protect the forum state from enforcing awards that would shock the conscience or severely undermine the integrity of its legal system. It is not intended to police every regulatory infraction or breach of domestic professional conduct rules.
Landen Saudi Company’s defence, which ultimately prevailed, hinged precisely on this distinction. The respondent systematically dismantled the applicant’s attempt to elevate a regulatory prohibition into a fundamental tenet of UAE public policy:
The Respondent argues that the concept of public policy is a “very narrow one,” and that even proof of infringement of mandatory law does not automatically establish breach of public policy.
By accepting this restrictive interpretation, H.E. Justice Shamlan Al Sawalehi affirmed that the DIFC Courts will not permit the public policy exception to be diluted. Even if one assumes, arguendo, that the 7% fee arrangement violated UAE regulations governing the remuneration of advocates, such a violation does not automatically cross the threshold into a breach of public policy sufficient to annul an international arbitral award. The court requires a significantly higher degree of proof to establish that an award is fundamentally repugnant to the legal order of the UAE.
This approach aligns with the broader trajectory of DIFC jurisprudence, which consistently prioritises arbitral autonomy and the finality of awards. Much like the court's refusal to entertain parallel procedural challenges as a delay tactic—a principle firmly established in Eava v Egan [2014] ARB 005—the ruling in Loralia v Landen demonstrates a judicial intolerance for creative attempts to relitigate tribunal decisions under the guise of statutory exceptions. The court recognises that expanding the definition of public policy to encompass all mandatory laws would effectively subject arbitral awards to a comprehensive merits review regarding their compliance with domestic regulations, thereby destroying the efficiency and finality that make arbitration an attractive dispute resolution mechanism in the DIFC.
Furthermore, the challenge to the costs award implicated the tribunal's inherent discretion. Arbitral tribunals operating under institutional rules, such as the DIFC-LCIA Arbitration Rules applicable in this dispute, are vested with broad authority to allocate costs as they see fit, taking into account the conduct of the parties and the outcome of the case. Loralia expressed deep dissatisfaction with the tribunal's exercise of this discretion, complaining that the costs portion of the award gave no credit to the Applicant for early admissions and ignored arguments that it had offered to settle a large portion of the claim prior to the arbitration.
These complaints, however, are quintessential merits-based grievances. They address the tribunal's evaluation of the evidence and its procedural judgment, not the fundamental legality of the award. The respondent correctly identified that the tribunal's allocation of costs, regardless of the underlying fee arrangement between the successful party and its counsel, was an exercise of its legitimate mandate:
The Respondent argues that the Arbitral Tribunal acted within the scope of its powers in determining the costs award, considering plentiful evidence in the process. The decision was well within the scope of the applicable DIFC-LCIA Arbitration Rules. The costs award is therefore correct and unimpeachable.
The DIFC Court's dismissal of the set-aside application protects this arbitral discretion. By refusing to second-guess the tribunal's cost calculations, the court ensures that tribunals remain empowered to penalise obstructive conduct and fully compensate successful parties without fear that their cost awards will be unpicked by domestic courts applying local regulatory standards.
An additional, highly significant layer to the court's restrictive approach to public policy challenges is the application of the waiver doctrine. Article 9 of the DIFC Arbitration Law provides that a party who knows that any provision of the law or any requirement under the arbitration agreement has not been complied with, and yet proceeds with the arbitration without stating its objection without undue delay, shall be deemed to have waived its right to object.
In the context of Loralia v Landen, the respondent deployed Article 9 as an alternative shield against the public policy attack:
Additionally, the Respondent argues that even if the fee arrangement were against public policy, the Applicant waived its right to object on this basis, as per Article 9 of the DIFC Arbitration Law.
The potency of the waiver argument in a public policy context is profound. If a party can waive an objection to a procedural or substantive defect by failing to raise it during the arbitral proceedings, it logically follows that the defect in question cannot be a matter of fundamental, non-derogable public policy. True public policy violations—such as awards procured by fraud, corruption, or those enforcing illegal contracts (e.g., drug trafficking)—cannot be waived by the parties' conduct, as the court has an independent duty to protect the integrity of the forum. By entertaining the possibility that Loralia could waive its objection to the contingency fee arrangement, the legal framework implicitly confirms that such fee arrangements, even if regulatory breaches, do not rise to the level of fundamental public policy.
Ultimately, H.E. Justice Shamlan Al Sawalehi’s judgment delivered a comprehensive defeat to the applicant's strategy. The court dismissed the set-aside application in full and granted the cross-application for recognition and enforcement, ordering Loralia to pay the damages, the contested costs, and post-award interest. The court further mandated that if the applicant fails to pay the above sums within 14 days, the respondent could immediately seek execution of the order.
The legacy of the decision lies in its clear demarcation of the public policy threshold. It serves as a stark warning to practitioners litigating in the DIFC: dissatisfaction with a tribunal's costs award, even when that award incorporates fee structures that might offend local regulatory rules, will not survive judicial scrutiny if packaged as a public policy challenge. The DIFC Courts will rigorously defend the narrowness of the public policy exception, ensuring it remains a safeguard against fundamental injustices rather than a tool for appellate review.
How Did Justice Al Sawalehi Reach the Decision?
H.E. Justice Shamlan Al Sawalehi was tasked with resolving a fundamental tension in international commercial arbitration: the friction between domestic regulatory norms governing legal practitioners and the finality of arbitral awards. The procedural vehicle for this clash was a set-aside application that sought to invalidate a multi-million dollar award based entirely on the mechanics of how the prevailing party compensated its legal counsel. By dismissing the application, the Court prioritized the tribunal's autonomy and the procedural integrity of the DIFC-LCIA rules over the applicant's policy-based objections.
The genesis of the dispute before the DIFC Courts lay in a procedural challenge initiated months after the arbitral tribunal had rendered its final decision. The applicant sought to invoke the supervisory jurisdiction of the DIFC Courts to unravel the outcome of a lengthy arbitration process.
The Applicant, Lorelei Group LLC (hereafter the “Applicant”) filed its Part 8 Claim (hereafter the “Set Aside Application”) on 11 October 2018 seeking to set aside the Arbitral Award (hereafter the “Award”) issued in favour of the Respondent, Landen Saudi Company (hereafter the “Respondent”), on 5 June 2018 in the matter of Landen Saudi Company v Lorelei Media Group LLC, DIFC-LCIA arbitration proceedings no. 1678.
The underlying commercial conflict, which stemmed from a 2014 Distributor Agreement, had been heavily litigated. The Part 8 Claim dated 11 October 2018 followed a rigorous arbitral process where the substantive hearing took place over two days in Muscat, Oman, in September 2017. The tribunal ultimately found the applicant liable for substantial breaches of contract.
The Award found in favour of the Respondent on liability and awarded it USD 7,356,016.22 plus costs and post-award interest at a rate of 8% per annum.
While the primary damages in the amount of USD 7,356,016.22 formed the bulk of the financial liability, the applicant’s legal strategy before the DIFC Courts did not attack the substantive findings of breach or the quantum of damages directly. Instead, Lorelei Group LLC targeted the ancillary costs order, attempting to use it as a wedge to bring down the entire award. The tribunal had awarded costs that included a specific, mathematically derived success fee.
Costs were awarded to the Respondent in the amount of USD 692,002.66, with USD 514,921.11 calculated on the basis of 7% of the amount awarded to the Respondent (excluding interest and costs).
This 7% calculation became the focal point of the litigation. The applicant framed this arrangement not merely as an unreasonable cost, but as an illegal contingency fee that fundamentally offended the legal order of the United Arab Emirates. By elevating a dispute over legal fees to a matter of public policy, the applicant sought to trigger the narrow statutory grounds for setting aside an award under DIFC Law No. 1 of 2008.
The Applicant seeks to set aside the Award pursuant to Article 41(2)(b)(iii) of the DIFC Arbitration Law on the grounds that the Award “is in conflict with the public policy of the UAE,” specifically the public policy against contingency fees. Furthermore, the Applicant resists the Respondent’s Cross-Application for enforcement of the Award pursuant to Article 44(1)(b)(vii), claiming also that enforcement of the Award would be “contrary to the public policy of the UAE.”
It is this portion of the costs award that the Applicant contests as being a contingency fee, which the Applicant alleges is against the public policy of the UAE.
The applicant’s argument relied on a strict interpretation of domestic UAE regulations governing the legal profession, which traditionally prohibit advocates from entering into pure contingency fee agreements. The applicant attempted to bridge the gap between domestic regulatory law and international arbitration by pointing to the specific registration status of the respondent's counsel.
It is clear that Badr Law falls within the scope of the above provisions by: (a) being registered with the DIFC Courts, (b) representing a party in a DIFC-LCIA arbitration which is seated in the DIFC, and (c) providing legal services for these current proceedings. Thus, it follows that the Tribunal’s award of costs is contrary to the public policy of the UAE and must therefore be set aside.
Justice Al Sawalehi, however, approached the matter through the lens of arbitral autonomy and institutional rules. The DIFC-LCIA Rules grant tribunals broad discretion to apportion costs based on the relative success of the parties and their conduct during the proceedings. The Court found no basis to second-guess the tribunal's exercise of that discretion. The respondent successfully argued that the tribunal's mandate was derived from the parties' agreement to arbitrate under those specific institutional rules, not from domestic regulations governing advocate-client retainers.
The Respondent argues that the Arbitral Tribunal acted within the scope of its powers in determining the costs award, considering plentiful evidence in the process. The decision was well within the scope of the applicable DIFC-LCIA Arbitration Rules. The costs award is therefore correct and unimpeachable.
The Court's reasoning hinged on a critical distinction between a breach of a mandatory regulatory rule and a violation of public policy sufficient to set aside an arbitral award. In international commercial arbitration, the public policy exception is universally recognized as a safety valve of last resort, designed to protect the forum state's most fundamental notions of morality and justice. It is not a mechanism for enforcing every domestic statute. Justice Al Sawalehi accepted the respondent's framing of this high threshold.
The Respondent argues that the concept of public policy is a “very narrow one,” and that even proof of infringement of mandatory law does not automatically establish breach of public policy.
This narrow construction of public policy aligns seamlessly with the DIFC Courts' established pro-enforcement trajectory. Much like the foundational principles established in ARB-003-2013: Banyan Tree Corporate PTE Ltd v Meydan Group LLC, which insulated arbitral awards from expansive jurisdictional attacks, the ruling in Loralia v Landen insulates awards from creative policy attacks based on collateral contracts. The Court effectively ruled that even if a fee arrangement between a party and its counsel violates a local regulatory statute, that violation does not automatically taint the arbitral award itself, nor does it render the enforcement of the award repugnant to the fundamental legal order of the UAE.
Furthermore, the Court entertained the procedural doctrine of waiver. The respondent argued that the applicant had participated in the arbitration, fully aware of the proceedings, and had failed to raise the contingency fee objection in a timely manner before the tribunal. Article 9 of the DIFC Arbitration Law strictly limits the ability of a party to hold procedural objections in reserve to deploy only if they lose the substantive case.
Additionally, the Respondent argues that even if the fee arrangement were against public policy, the Applicant waived its right to object on this basis, as per Article 9 of the DIFC Arbitration Law.
The applicant’s broader dissatisfaction with the costs award appeared to stem from a belief that the tribunal had ignored its cooperative conduct prior to the formal arbitration. The applicant felt that its early concessions should have mitigated its cost liability.
The costs portion of the Award gave no credit to the Applicant for early admissions, nor did it credit the Applicant’s argument that it had agreed to pay a large portion of the arbitral claim prior to the Arbitration.
However, the Court recognized that evaluating the weight of early admissions and pre-arbitration conduct falls squarely within the tribunal's fact-finding mandate. The DIFC Courts will not act as an appellate body to recalculate costs or reassess the tribunal's qualitative judgments regarding party conduct. The tribunal evaluated the evidence and issued a binding decision under DIFC-LCIA Case No. 123.
By rejecting the applicant's expansive interpretation of public policy, Justice Al Sawalehi affirmed that the DIFC Courts will not allow set-aside applications to be weaponized as disciplinary mechanisms for counsel fee arrangements. The primary contract—the agreement to arbitrate—and the resulting award remain paramount. Consequently, the Court dismissed the set-aside application in full and turned to the respondent's affirmative request for relief.
The Respondent filed an Acknowledgment of Service on 13 December 2018 stating its intent to defend all of the claim and to cross-claim for recognition and enforcement of the Award.
With the public policy challenge dismantled, there were no remaining impediments to enforcement. The Court granted the cross-application, ordering the applicant to pay the principal damages, the contested costs, and post-award interest at the rate of 8% per annum. The decision reinforces the high barrier to entry for public policy challenges in the DIFC, ensuring that the finality of arbitration is not easily circumvented by collateral regulatory disputes.
Which Earlier DIFC Cases Frame This Decision?
The DIFC Courts have consistently guarded the perimeter of arbitral autonomy, treating the public policy exception under Article 41(2)(b)(iii) of the DIFC Arbitration Law not as a broad appellate gateway, but as a tightly sealed emergency hatch. The jurisprudence leading up to Loralia Group LLC v Landen Saudi Company [2018] DIFC ARB 004 established a formidable pro-enforcement architecture designed to insulate arbitral tribunals from backdoor merits reviews. H.E. Justice Shamlan Al Sawalehi’s judgment aligns seamlessly with this established doctrine, reinforcing the autonomy of the DIFC seat and strictly limiting the scope of judicial intervention in arbitral outcomes.
When examining the trajectory of DIFC arbitration enforcement, the foundational pillars were set by early jurisdictional battles. In ARB-003-2013: Banyan Tree Corporate PTE Ltd v Meydan Group LLC [2013] DIFC ARB 003, the court confirmed its jurisdiction to recognize and enforce awards irrespective of the award debtor's assets within the financial centre. While Banyan Tree resolved the geographic and jurisdictional reach of the court's enforcement powers, subsequent cases had to address substantive attacks on the awards themselves. In ARB-002-2013: (1) Fletcher I LLC (2) Fletcher Ill LLC v (1) Florance Logistic Solutions (Fabien) LLC (2) Frayer, the court severely restricted the ability of losing parties to invoke public policy as a mechanism to relitigate the merits of an arbitral decision. The Loralia judgment builds directly upon the Fletcher framework, confronting a sophisticated attempt to import onshore UAE prohibitions into the offshore DIFC seat.
The procedural genesis of the dispute reveals a standard commercial conflict that escalated into a complex debate over legal fee structures. The underlying arbitration was seated in the DIFC and administered under the DIFC-LCIA rules.
By way of brief background, the Award was issued as a result of DIFC-LCIA arbitral proceedings brought by the Respondent against the Applicant, commencing on 16 June 2016.
Following a substantive hearing in Muscat, Oman, the tribunal ruled decisively against Loralia Group LLC. Rather than accepting the outcome, the applicant initiated proceedings before the DIFC Courts to nullify the result.
The Applicant, Lorelei Group LLC (hereafter the “Applicant”) filed its Part 8 Claim (hereafter the “Set Aside Application”) on 11 October 2018 seeking to set aside the Arbitral Award (hereafter the “Award”) issued in favour of the Respondent, Landen Saudi Company (hereafter the “Respondent”), on 5 June 2018 in the matter of Landen Saudi Company v Lorelei Media Group LLC, DIFC-LCIA arbitration proceedings no. 1678.
The applicant’s strategy hinged on a specific vulnerability perceived in the tribunal's costs assessment. Onshore UAE law has historically maintained a strict prohibition against contingency fee arrangements (pactum de quota litis), viewing them as contrary to the ethical obligations of the legal profession and, by extension, public policy. Loralia Group LLC sought to weaponize this onshore prohibition within the DIFC, arguing that the tribunal's inclusion of a success fee in the costs award tainted the entire arbitral decision.
The Applicant seeks to set aside the Award pursuant to Article 41(2)(b)(iii) of the DIFC Arbitration Law on the grounds that the Award “is in conflict with the public policy of the UAE,” specifically the public policy against contingency fees. Furthermore, the Applicant resists the Respondent’s Cross-Application for enforcement of the Award pursuant to Article 44(1)(b)(vii), claiming also that enforcement of the Award would be “contrary to the public policy of the UAE.”
The financial mechanics of the tribunal's decision provided the factual basis for the applicant's challenge. The tribunal did not merely award a flat fee for legal representation; it explicitly tied a portion of the recoverable costs to the damages awarded to Landen Saudi Company.
Costs were awarded to the Respondent in the amount of USD 692,002.66, with USD 514,921.11 calculated on the basis of 7% of the amount awarded to the Respondent (excluding interest and costs).
By isolating this specific calculation, Loralia Group LLC attempted to recharacterize the tribunal's discretionary cost allocation as an illegal contingency fee.
It is this portion of the costs award that the Applicant contests as being a contingency fee, which the Applicant alleges is against the public policy of the UAE.
The applicant further argued that the tribunal failed to account for pre-arbitration conduct, asserting that the costs award was fundamentally disproportionate.
The costs portion of the Award gave no credit to the Applicant for early admissions, nor did it credit the Applicant’s argument that it had agreed to pay a large portion of the arbitral claim prior to the Arbitration.
In response, Landen Saudi Company mounted a robust defense anchored in the DIFC's established pro-enforcement jurisprudence. The respondent recognized that allowing a public policy challenge to succeed on the basis of a disputed fee structure would create a dangerous precedent, effectively inviting losing parties to dissect cost awards in search of onshore regulatory violations.
The Respondent filed an Acknowledgment of Service on 13 December 2018 stating its intent to defend all of the claim and to cross-claim for recognition and enforcement of the Award.
The respondent's legal strategy relied heavily on the narrow interpretation of public policy articulated in earlier DIFC judgments. The defense argued that even if the fee arrangement technically violated a mandatory provision of UAE law, such a violation does not automatically rise to the level of a public policy breach sufficient to nullify an arbitral award under the New York Convention framework adopted by the DIFC.
The Respondent argues that the concept of public policy is a “very narrow one,” and that even proof of infringement of mandatory law does not automatically establish breach of public policy.
This distinction between mandatory law and public policy is a critical doctrinal boundary in international arbitration. By maintaining this boundary, the DIFC Courts protect the finality of awards. The respondent further emphasized that the tribunal possessed broad discretion under the DIFC-LCIA rules to allocate costs as it saw fit, based on the evidentiary record before it.
The Respondent argues that the Arbitral Tribunal acted within the scope of its powers in determining the costs award, considering plentiful evidence in the process. The decision was well within the scope of the applicable DIFC-LCIA Arbitration Rules. The costs award is therefore correct and unimpeachable.
Loralia Group LLC's attack was not limited to the abstract concept of contingency fees; it specifically targeted the respondent's legal counsel, attempting to leverage their registration with the DIFC Courts to enforce the onshore prohibition.
It is clear that Badr Law falls within the scope of the above provisions by: (a) being registered with the DIFC Courts, (b) representing a party in a DIFC-LCIA arbitration which is seated in the DIFC, and (c) providing legal services for these current proceedings. Thus, it follows that the Tribunal’s award of costs is contrary to the public policy of the UAE and must therefore be set aside.
To counter this, the respondent introduced a procedural safeguard embedded within the DIFC Arbitration Law: the doctrine of waiver. Under Article 9, a party that proceeds with an arbitration without stating its objection to a known non-compliance without undue delay is deemed to have waived its right to object.
Additionally, the Respondent argues that even if the fee arrangement were against public policy, the Applicant waived its right to object on this basis, as per Article 9 of the DIFC Arbitration Law.
H.E. Justice Shamlan Al Sawalehi’s ultimate disposition of the case reaffirmed the high threshold required to successfully invoke the public policy exception. By dismissing the set-aside application and granting the cross-application for recognition and enforcement, the court signaled to the international legal community that the DIFC remains a hostile environment for creative attempts to undermine arbitral finality. The court refused to allow an onshore regulatory prohibition regarding legal billing to override the substantive findings of a properly constituted arbitral tribunal.
The Award found in favour of the Respondent on liability and awarded it USD 7,356,016.22 plus costs and post-award interest at a rate of 8% per annum.
The judgment in Loralia Group LLC v Landen Saudi Company serves as a definitive doctrinal marker. It confirms that the pro-enforcement principles established in early cases like Banyan Tree and Fletcher remain the governing philosophy of the DIFC Courts. The autonomy of the DIFC seat is preserved not merely through jurisdictional declarations, but through a consistent, rigorous refusal to expand the public policy exception beyond its narrow, internationally recognized boundaries. Litigants seeking to challenge arbitral awards in the DIFC must clear an exceptionally high bar, as the court continues to prioritize the finality and enforceability of arbitral outcomes over localized regulatory disputes.
What Does This Mean for Practitioners and Future Enforcement?
The dismissal of Loralia Group LLC’s set-aside application in Loralia Group LLC v Landen Saudi Company [2018] DIFC ARB 004 sends a definitive message to the arbitration bar regarding the finality of arbitral cost allocations. Practitioners must recognize that challenging an award on public policy grounds requires more than just a disagreement with the tribunal's cost-shifting logic. The Dubai International Financial Centre (DIFC) Courts have consistently demonstrated a profound reluctance to interfere with the substantive findings of arbitral tribunals, and H.E. Justice Shamlan Al Sawalehi’s judgment extends this protective perimeter firmly around the tribunal's discretion over costs.
The dispute crystallized around a specific financial grievance stemming from the underlying DIFC-LCIA arbitration. The tribunal had issued a substantial merits award, but the secondary battleground emerged over the mechanics of how the successful party's legal fees were calculated and subsequently awarded.
Costs were awarded to the Respondent in the amount of USD 692,002.66, with USD 514,921.11 calculated on the basis of 7% of the amount awarded to the Respondent (excluding interest and costs).
The applicant attempted to frame this 7% calculation not merely as an arithmetic error or an unreasonable apportionment, but as an illegal contingency fee that fundamentally violated the legal order of the United Arab Emirates. The strategy relied on elevating a regulatory or ethical prohibition into a jurisdictional defect capable of annulling an international arbitral award.
The Applicant seeks to set aside the Award pursuant to Article 41(2)(b)(iii) of the DIFC Arbitration Law on the grounds that the Award “is in conflict with the public policy of the UAE,” specifically the public policy against contingency fees. Furthermore, the Applicant resists the Respondent’s Cross-Application for enforcement of the Award pursuant to Article 44(1)(b)(vii), claiming also that enforcement of the Award would be “contrary to the public policy of the UAE.”
Counsel should be wary of raising public policy arguments that lack a clear, fundamental breach of UAE law. The applicant's argument hinged on the assertion that because the respondent's counsel, Badr Al Jafaari Law Office, was operating within the DIFC's jurisdictional orbit, any fee arrangement that offended domestic UAE norms regarding contingency fees must necessarily render the resulting award unenforceable. The applicant articulated this jurisdictional nexus explicitly during the proceedings.
It is clear that Badr Law falls within the scope of the above provisions by: (a) being registered with the DIFC Courts, (b) representing a party in a DIFC-LCIA arbitration which is seated in the DIFC, and (c) providing legal services for these current proceedings. Thus, it follows that the Tribunal’s award of costs is contrary to the public policy of the UAE and must therefore be set aside.
However, this approach fundamentally misapprehends the architecture of the DIFC Arbitration Law (DIFC Law No. 1 of 2008) and the New York Convention principles it embodies. The respondent, Landen Saudi Company, correctly identified the fatal flaw in the applicant's reasoning by emphasizing the exceptionally high threshold required to successfully invoke the public policy exception.
The Respondent argues that the concept of public policy is a “very narrow one,” and that even proof of infringement of mandatory law does not automatically establish breach of public policy.
This distinction between mandatory law and public policy is critical for future enforcement actions. Even if a fee arrangement were to technically breach a local regulatory rule governing legal practice, such a breach does not automatically equate to a violation of the state's most basic notions of morality and justice. The DIFC Courts have consistently aligned with a pro-enforcement bias, a stance cemented in foundational cases like ARB-003-2013: Banyan Tree Corporate PTE Ltd v Meydan Group LLC [2013] DIFC ARB 003. In Loralia, the court refused to let a dispute over the mechanics of a success fee derail the enforcement of a substantial substantive award, where the tribunal had awarded the respondent USD 7,356,016.22 in damages.
The applicant's frustration extended beyond the mere existence of the success fee; it was rooted in a deeper dissatisfaction with how the tribunal weighed the parties' pre-arbitration conduct. The applicant felt that its cooperative behavior prior to the formal commencement of proceedings was unfairly ignored when the final bill was tallied.
The costs portion of the Award gave no credit to the Applicant for early admissions, nor did it credit the Applicant’s argument that it had agreed to pay a large portion of the arbitral claim prior to the Arbitration.
Yet, the decision confirms the importance of the tribunal’s discretion in managing costs. The DIFC-LCIA Arbitration Rules grant arbitrators broad latitude to apportion costs as they see fit, taking into account the parties' conduct, the complexity of the dispute, and the overall outcome. The respondent robustly defended this inherent arbitral authority, arguing that the tribunal had engaged thoroughly with the factual matrix before rendering its decision on costs.
The Respondent argues that the Arbitral Tribunal acted within the scope of its powers in determining the costs award, considering plentiful evidence in the process. The decision was well within the scope of the applicable DIFC-LCIA Arbitration Rules. The costs award is therefore correct and unimpeachable.
Beyond the substantive debate over contingency fees and cost apportionment, the Loralia decision exposes a critical procedural vulnerability for parties seeking to challenge awards: the doctrine of waiver. The waiver provisions in the DIFC Arbitration Law are a significant hurdle for parties who failed to object during the arbitration. Article 9 of the DIFC Arbitration Law acts as a strict procedural filter, preventing parties from keeping jurisdictional or procedural objections in reserve to deploy only if they lose on the merits.
Additionally, the Respondent argues that even if the fee arrangement were against public policy, the Applicant waived its right to object on this basis, as per Article 9 of the DIFC Arbitration Law.
If Loralia Group genuinely believed that the fee arrangement of opposing counsel fundamentally tainted the proceedings, the time to raise that objection was during the arbitration itself—perhaps during the substantive hearings in Muscat in September 2017—not in a post-award set-aside application filed months after the final award was rendered. The DIFC Courts will not entertain attempts to re-litigate procedural grievances that a party silently tolerated while the arbitration was ongoing. This aligns with the court's broader intolerance for procedural obstruction, a theme echoed in recent jurisprudence such as ARB-027-2024: ARB 027/2024 Nalani v Netty.
The timeline of the Loralia dispute further illustrates the protracted nature of such enforcement challenges and the court's ultimate commitment to finality. The applicant filed its Part 8 Claim in October 2018, seeking to annul an award that had been issued in June of that year. The respondent, refusing to be drawn into a prolonged defensive posture, filed an Acknowledgment of Service in December 2018, aggressively cross-claiming for immediate recognition and enforcement.
By dismissing the set-aside application in full, H.E. Justice Shamlan Al Sawalehi decisively ended the delay tactics. The court not only upheld the substantive damages and the disputed costs but also enforced the tribunal's order for post-award interest at the rate of 8% per annum, ensuring that the prevailing party was compensated for the time lost during the annulment proceedings. Furthermore, the court ordered the applicant to pay the respondent's costs for the DIFC Court proceedings themselves, to be determined by the Registrar if the parties could not agree.
Ultimately, the Loralia judgment serves as a stark warning that the DIFC Courts will rigorously defend the finality of arbitral awards against creative but fundamentally flawed public policy attacks. The public policy exception remains exactly that—an exception, reserved for the most egregious violations of fundamental legal principles. It is not a safety net for parties dissatisfied with the financial consequences of their arbitral defeat, nor is it a mechanism to bypass the strict waiver provisions of Article 9. Practitioners advising clients on potential set-aside applications must rigorously assess whether their grievances rise to the level of a true public policy violation, or whether they are merely attempting to appeal an unappealable exercise of arbitral discretion.
What Issues Remain Unresolved Regarding Contingency Fees?
The dismissal of Loralia Group LLC’s set-aside application by H.E. Justice Shamlan Al Sawalehi provides immediate relief to Landen Saudi Company, yet it deliberately avoids settling the substantive debate over contingency fees in UAE-seated arbitrations. The judgment enforces the costs relevant to the arbitral proceedings in the amount of USD 692,002.66, but the underlying tension between onshore UAE regulations governing the legal profession and the pro-enforcement regime of the Dubai International Financial Centre (DIFC) remains a dynamic area for future litigation. The court did not definitively rule on the legality of contingency fees in all contexts; rather, it insulated the arbitral award by relying on the exceptionally narrow scope of the public policy exception and the procedural doctrine of waiver.
The core of the dispute rested on the specific mechanics of the fee arrangement between Landen Saudi Company and its counsel. The tribunal had awarded a substantial sum, a significant portion of which was directly tied to the financial outcome of the case rather than hourly billing.
Costs were awarded to the Respondent in the amount of USD 692,002.66, with USD 514,921.11 calculated on the basis of 7% of the amount awarded to the Respondent (excluding interest and costs).
Loralia Group LLC seized upon this specific calculation, arguing that it constituted a pure contingency fee—a structure historically viewed with deep suspicion, if not outright prohibition, under onshore UAE law. The applicant contended that enforcing an award containing such a fee structure would fundamentally offend the legal norms of the jurisdiction.
It is this portion of the costs award that the Applicant contests as being a contingency fee, which the Applicant alleges is against the public policy of the UAE.
The challenge was formally mounted under the DIFC Arbitration Law, DIFC Law No. 1 of 2008. Loralia Group LLC sought to leverage the public policy exception, a notoriously high hurdle in international arbitration, to invalidate the tribunal's costs determination. The applicant's strategy was to frame a regulatory dispute over lawyers' remuneration as a fundamental breach of the UAE's legal order.
The Applicant seeks to set aside the Award pursuant to Article 41(2)(b)(iii) of the DIFC Arbitration Law on the grounds that the Award “is in conflict with the public policy of the UAE,” specifically the public policy against contingency fees. Furthermore, the Applicant resists the Respondent’s Cross-Application for enforcement of the Award pursuant to Article 44(1)(b)(vii), claiming also that enforcement of the Award would be “contrary to the public policy of the UAE.”
By framing the 7% of the amount awarded as a violation of public policy, Loralia Group LLC attempted to force the DIFC Courts to police the ethical boundaries of legal representation. The applicant's position was that the representation provided by Badr Law Office fell squarely within the regulatory perimeter of the DIFC Courts, and therefore, the fee arrangement had to comply strictly with local prohibitions against contingency billing.
It is clear that Badr Law falls within the scope of the above provisions by: (a) being registered with the DIFC Courts, (b) representing a party in a DIFC-LCIA arbitration which is seated in the DIFC, and (c) providing legal services for these current proceedings. Thus, it follows that the Tribunal’s award of costs is contrary to the public policy of the UAE and must therefore be set aside.
Landen Saudi Company’s defense, which ultimately prevailed, did not necessarily require the court to declare contingency fees lawful in all contexts. Instead, the respondent focused on the exceptionally narrow scope of the public policy exception under the DIFC Arbitration Law. The argument was not that the fee arrangement was definitively permissible under onshore regulatory frameworks, but rather that even if it were not, such an infraction does not justify tearing up an international arbitral award.
The Respondent argues that the concept of public policy is a “very narrow one,” and that even proof of infringement of mandatory law does not automatically establish breach of public policy.
This distinction is crucial for practitioners navigating the DIFC's arbitral landscape. The court's acceptance of the respondent's position reinforces the high threshold required to trigger Article 41(2)(b)(iii). A mere violation of a mandatory law—such as regulations governing the conduct and remuneration of advocates—does not automatically equate to a breach of public policy. The public policy exception is reserved for fundamental violations of justice, morality, or the state's most essential economic and social foundations. By refusing to equate a regulatory breach with a public policy violation, H.E. Justice Shamlan Al Sawalehi preserved the integrity of the arbitral process.
The judgment leaves room for future debate on where the precise line between a permissible 'success fee' and a 'prohibited contingency fee' lies. In many jurisdictions, a success fee (where a base fee is charged, with an uplift upon success) is treated differently from a pure contingency fee (where the lawyer takes a percentage of the damages and receives nothing if the case is lost). The tribunal's calculation of USD 514,921.11 calculated on the basis of 7% strongly resembles a pure contingency arrangement, yet the court declined to use this case as a vehicle to strike down such structures universally.
Furthermore, the respondent deployed a powerful procedural shield: waiver. Under Article 9 of the DIFC Arbitration Law, a party who knows that a provision of the law or a requirement under the arbitration agreement has not been complied with, and yet proceeds with the arbitration without stating its objection without undue delay, is deemed to have waived its right to object.
Additionally, the Respondent argues that even if the fee arrangement were against public policy, the Applicant waived its right to object on this basis, as per Article 9 of the DIFC Arbitration Law.
The presence of the waiver argument often allows courts to dispose of set-aside applications without having to make definitive, sweeping pronouncements on substantive public policy issues. If a party fails to raise the illegality of a fee arrangement during the arbitral proceedings, they cannot ambush the prevailing party with a public policy challenge at the enforcement stage. This procedural strictness aligns with the DIFC's broader pro-arbitration stance, as seen in foundational cases like ARB-003-2013: Banyan Tree Corporate PTE Ltd v Meydan Group LLC [2013] DIFC ARB 003, where the courts have consistently protected the finality of arbitral awards against collateral attacks.
Loralia Group LLC's frustration with the costs award extended beyond the contingency fee issue, reflecting a broader dissatisfaction with the tribunal's exercise of discretion. The applicant felt that the tribunal had ignored its cooperative conduct during the proceedings.
The costs portion of the Award gave no credit to the Applicant for early admissions, nor did it credit the Applicant’s argument that it had agreed to pay a large portion of the arbitral claim prior to the Arbitration.
However, the DIFC Courts are notoriously reluctant to second-guess a tribunal's factual findings or its allocation of costs, provided the tribunal acted within its mandate. Landen Saudi Company successfully argued that the tribunal's discretion under the institutional rules was broad and had been exercised properly.
The Respondent argues that the Arbitral Tribunal acted within the scope of its powers in determining the costs award, considering plentiful evidence in the process. The decision was well within the scope of the applicable DIFC-LCIA Arbitration Rules. The costs award is therefore correct and unimpeachable.
The interplay between DIFC-seated arbitrations and onshore UAE public policy remains a dynamic area for future litigation. While the DIFC operates as an offshore common law jurisdiction with its own arbitration law based on the UNCITRAL Model Law, it is still geographically and constitutionally part of the UAE. The question of whether an onshore public policy prohibition (such as the strict rules against contingency fees found in the UAE Federal Law on the Regulation of the Legal Profession) can be imported into the DIFC to invalidate an award is a recurring friction point.
In Loralia Group LLC v Landen Saudi Company, the applicant sought to bridge this gap by arguing that the Award “is in conflict with the public policy of the UAE”. However, the court's refusal to set aside the award suggests a reluctance to allow onshore regulatory infractions to easily penetrate the DIFC's arbitral shield. The tribunal had considered plentiful evidence in the process and determined the costs within the scope of the DIFC-LCIA Arbitration Rules, ultimately awarding the principal sum alongside post-award interest at the rate of 8% per annum.
The unresolved nature of this issue means that practitioners must exercise caution when structuring fee agreements for DIFC-seated arbitrations. While Loralia demonstrates that a costs award containing a percentage-based fee can survive a set-aside challenge, it does not provide a blanket endorsement of contingency fees. A future challenge, perhaps one where the waiver argument under Article 9 is unavailable, or where the fee arrangement is even more aggressively structured, might force the DIFC Courts to confront the substantive legality of contingency fees head-on. Until such a case arises, the boundary between a robust, enforceable costs award and a public policy violation remains blurred, leaving the interaction between onshore regulatory norms and offshore arbitral autonomy a fertile ground for future disputes.