In-Brief:
- Each party generally bears its own costs: In employment disputes, the DIFC Court will generally apply the principle that each party bears its own costs, with adverse costs orders being the exception rather than the rule.
- A high threshold applies to adverse costs orders: In AZ v BY (CFI 119/2025), the Court confirmed that there is a high bar for obtaining an adverse costs order, particularly where a party relies on unreasonable conduct.
- The Court retains discretion: Even where one of the three gateways under paragraph 3.2 of Practice Direction No. 1 of 2025 is established, the Court must still determine whether it is appropriate to exercise its discretion and make an adverse costs order.
Practice Direction No. 1 of 2025: Access to Justice in Employment Disputes
Practice Direction No. 1 of 2025: Access to Justice in Employment Disputes (the Practice Direction) came into force on 9 October 2025. The succinct Practice Direction is intended “enhance access to justice in employment-related disputes, recognising the need for a proportionate, fair, and efficient procedural framework within the DIFC Courts.”
Among other matters, the Practice Direction provides for:
- discretion to waive or reduce filing fees in employment claims;
- the imposition of a maximum fee cap where appropriate to ensure proportionality;
- payment of court fees by instalments where a claimant evidences financial hardship;
- employment proceedings before the Court of First Instance being conducted in private by default, subject to the Court lifting confidentiality where this is in the interests of justice; and
- publication of final judgments in anonymised form, unless the Court considers that full publication is warranted.
The Practice Direction also sets out a clear approach to costs in employment disputes, reflecting the general principle that each party should bear its own costs. This approach will be familiar to practitioners with experience of employment tribunal proceedings in England and Wales.
The Three Gateways
The Court may make an adverse costs order where:
- a party has brought or conducted proceedings unreasonably;
- a party has acted vexatiously or in bad faith; or
- it is otherwise in the interests of justice to do so.
These are the three “gateways” in paragraph 3.2 of the Practice Direction. Any adverse costs order must be proportionate and supported by reasons.
AZ v BY (Court of First Instance (CFI) 119/2025)
A judgment in AZ v BY (CFI 119/2025) was published on 14 July 2026. We understand that this is the first reported DIFC decision to consider the adverse costs provisions in the Practice Direction.
The judgment arose from the Claimant’s application for the costs of an application to expedite the trial. The Court provided the following guidance when considering adverse costs applications under the Practice Direction:
- The default position remains that each party meets its own costs. The Court emphasised that adverse cost orders should be the exception rather than the rule. Where adverse costs are sought, the threshold is high. The fact that a party has succeeded in an interlocutory application, or that the other party’s position has not been accepted, will not by itself justify an adverse costs order. The provisions apply equally to employers and employees – it does not depend on which party is seeking costs.
- There is a high threshold for "unreasonable conduct". Drawing an analogy with the principles applicable to indemnity costs in the English courts, the Court held that unreasonableness under the first gateway must be demonstrated “to a high degree”. The conduct must be sufficiently "out of the norm" to justify departing from the general rule. This suggests that conduct could still be unfair, uncommercial or open to criticism without necessarily being unreasonable to the degree required to justify an adverse costs order.
- Establishing a gateway is necessary but not sufficient. The Court identified a two-stage test which should be satisfied:
- The party seeking costs must establish that one of the three gateways in paragraph 3.2 of the Practice Direction applies.
- If a gateway is established, the Court must still decide whether to exercise its discretion to make an adverse costs order.
- The Court applied common law principles. The Court considered, but did not adopt in full, the principles applicable to costs in the English Employment Tribunal. It noted that Employment Tribunals are statutory tribunals, whereas the DIFC Courts are common law courts. Instead, the Court considered general common law principles, including the English authorities concerning indemnity costs.
Overall, AZ v BY confirms that the threshold for succeeding in an adverse costs application under the Practice Direction is high. The decision nevertheless provides helpful early guidance on how the DIFC Courts may approach the new costs regime in practice.
We look forward to further decisions which we hope will further clarify how these principles apply across the wider range of employment-related claims brought before the DIFC Courts. This will help provide certainty and more predictable outcomes for litigants, as well as the practitioners in the DIFC.
Key takeaways
- Before making a costs application, assess separately whether one of the paragraph 3.2 gateways is engaged and whether the circumstances justify inviting the Court to exercise its discretion to make an order.
- Ensure that any application for an adverse costs order is supported by clear evidence of conduct that meets the high threshold for unreasonableness, bad faith or vexatious conduct.
- Do not assume that an adverse costs order will be available simply because the other party has pursued an unsuccessful application or taken a position with which the opposing party disagrees.
At Hadef & Partners, our DIFC and ADGM Litigation and Employment teams work closely together on employment disputes before the DIFC Courts. For more information on this topic, or if you have any questions, please contact Chris Bailey-Gibbs, Partner and Head of Employment at c.bailey-gibbs@hadefpartners.com, or Dharma Carlin, Associate, at d.carlin@hadefpartners.com.
This article is intended for general informational purposes only and does not constitute legal advice. Readers should seek independent legal counsel in relation to their specific circumstances.