Dubai court orders law firm to return Dh1.1 million withheld from client

A Dubai court has ordered a law firm to return Dh1.118 million it collected on behalf of a client but withheld for more than a year, ruling that lawyers cannot retain clients' money to recover unpaid legal fees without following the proper legal procedures.

The Dubai Court of First Instance directed the firm to refund Dh1,118,871.51 and pay Dh50,000 in compensation for the financial losses caused by withholding the funds. It also ordered the firm to pay 5% annual interest from the date the lawsuit was filed until the full amount is settled.

The law firm must additionally cover court fees and expenses, along with Dh1,000 in legal costs.

How the Dispute Over Dh1.118 Million Began

The dispute started when a company appointed the law firm to handle cheque execution proceedings involving a claim of Dh5.49 million.

During the proceedings, the debtor deposited Dh1.118 million into the court's execution account.

In August 2025, the law firm transferred the amount into its own bank account but failed to hand it over to the client despite repeated requests.

The company subsequently revoked the firm's power of attorney and formally demanded the return of the money in June 2026 before approaching the execution judge.

In July 2026, the execution judge directed the lawyer to return the entire Dh1,118,871.51, either to the court treasury or directly to the company's bank account.

However, the law firm sought permission to deposit only Dh803,702.24. The judge rejected the request and instructed the firm to return the full amount.

The firm challenged the decision before the Court of Appeal, but its appeal was dismissed in September 2026.

Dispute Over Dh30,000 in Legal Fees

The law firm subsequently requested an assessment of its legal fees. In October 2026, the court determined that the firm was entitled to Dh30,000 in legal fees but rejected its request to freeze the execution proceeds as security.

During the company's lawsuit, the firm challenged the validity of its legal representation and sought dismissal of the case.

It also argued that it had the right to deduct its outstanding legal fees from the collected amount. The firm requested a judicial set-off and precautionary attachment while disputing the compensation and interest claims.

The court rejected these objections, finding that valid powers of attorney authorised the company's representatives to appoint lawyers and pursue legal proceedings.

It also clarified that the expiry of the company's trade licence did not automatically mean the company had ceased to exist, entered liquidation or lost its legal representation.

The court emphasised that money collected by a lawyer on behalf of a client must be treated as a deposit and returned when requested.

Under the UAE Civil Transactions Law, agents are required to keep clients informed about their work, account for their actions and return money or documents held on their behalf.

Referring to previous judicial decisions, the court stated that once a client establishes that an agent received money on its behalf, the agent must demonstrate that the funds were used for the client's benefit or returned.

The law firm failed to provide evidence that it had returned the Dh1.118 million or deposited the amount with the court.

Unpaid Legal Fees Do Not Allow Automatic Deductions

The court rejected the firm's argument that unpaid legal fees gave it the right to retain part of the client's money.

It clarified that a lawyer's entitlement to professional fees does not override the obligation to return funds belonging to a client.

Even where a lawyer has a preferential claim for fees, this does not make the client's money the lawyer's property or permit automatic deductions.

The separate assessment of Dh30,000 in legal fees also did not authorise the firm to deduct that amount from the execution proceeds.

The court noted that the firm's applications for judicial set-off and precautionary attachment had not followed the required legal procedures or included the necessary court fees.

However, it confirmed that the law firm remained entitled to recover its legal fees through the appropriate legal channels.

The court found that withholding the money despite repeated demands had caused financial harm to the company.

The client was deprived of the opportunity to use or invest the funds for more than a year and was forced to initiate additional legal proceedings to recover its money.

Considering the amount withheld, the delay and the circumstances of the dispute, the court awarded Dh50,000 in compensation against the company's original claim of Dh100,000.

Final Compensation and Interest Ordered by the Court

In its final ruling, the Dubai Court of First Instance ordered the law firm to:

Refund Dh1,118,871.51 to the client.

Pay Dh50,000 in compensation for financial losses.

Pay 5% annual interest on the withheld amount from October 1, 2026, until full settlement.

Cover court fees and expenses.

Pay Dh1,000 in legal costs.

The court clarified that the debt was fixed and did not require further assessment.

The ruling reinforces the obligation of legal representatives in the UAE to safeguard clients' funds and follow proper legal procedures when seeking payment of outstanding professional fees.