In a precedent-setting judgment issued on 23 July 2025, the Dubai Court of Cassation in Cassation Appeal 503 of 2025 Commercial established a critical legal principle affirming the supremacy of contractual terms—particularly those governing attorney fee obligations. This decision reinforces the maxim pacta sunt servanda ("agreements must be kept") and marks a significant evolution in the UAE's jurisprudence on fee recovery in commercial disputes.
Case Background: A Turning Point in Enforcing Legal Fee Clauses
The case arose from Commercial Claim No. 1132/2024, in which a lender initiated proceedings against a limited liability company and its manager, seeking joint and several repayment of an outstanding commercial loan. In addition to the principal debt, the claimant sought recovery of legal fees pursuant to a contractual clause embedded in the loan agreement.
This clause expressly obligated the borrower to reimburse the lender for all costs incurred in connection with enforcement, including attorneys' fees. The lender submitted clear, formal documentation evidencing payment of legal costs—namely, a signed engagement letter and corresponding invoices.
Despite this, the Court of First Instance denied the claim for legal fees, reasoning that an agreement between a party and its counsel could not bind the opposing party. This position was affirmed on appeal, and the claimant was awarded a nominal AED 300 in legal costs.
Court of Cassation: Contractual Fee Obligations Are Binding
The claimant challenged the ruling before the Court of Cassation, which overturned the lower courts' decisions, finding that:
- The refusal to award legal fees constituted a failure in reasoning and violated the claimant's right of defense.
- The contractual provision on legal costs was clear, enforceable, and binding, provided that actual legal fees were demonstrably incurred.
The Court emphasized that such clauses—when unambiguous and supported by credible evidence—must be upheld unless they conflict with public policy. The Court ordered the case remanded to a new appellate panel for reconsideration.
Key Takeaways and Legal Significance
This judgment establishes a powerful precedent with far-reaching implications for commercial litigation and contractual enforcement in the UAE:
1. Attorney Fees as Enforceable Obligations
The ruling clarifies that once a litigant engages a lawyer and provides proof of incurred fees, courts are obliged to enforce contractual fee clauses in accordance with Article 246 of the UAE Civil Transactions Code.
2. Strengthening the Sanctity of Contracts
The judgment affirms that contractual stipulations—particularly fee and indemnity provisions—are not subject to judicial discretion when they are clear and lawful.
3. Enhanced Protection for Creditors
The decision empowers creditors by ensuring that the costs of enforcing their rights—especially in default scenarios—can be recovered when expressly agreed in contract.
4. Literal Interpretation Prevails
Courts must rely on the plain meaning of contractual language, without resorting to strained interpretations. The parties' intent, as reflected in unequivocal terms, governs.
Conclusion: A Procedural and Substantive Victory for Contractual Clarity
The Court of Cassation's decision marks a watershed moment in UAE contractual jurisprudence, restoring balance in fee disputes and ensuring that creditors are not penalized for enforcing lawful rights. It sends a clear message: contractual attorney fee clauses are not symbolic—they are binding legal commitments.
This ruling elevates legal certainty, reinforces judicial respect for private agreements, and aligns the UAE's practice with global commercial standards.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
