Qatari Court of Cassation judgment:
Exclusive Distribution Agreements
Commercial Agency and Trademarks Law / Qatar
Roy GeorgiadesPartner, Dispute Resolution
Diana Al AdelSenior Associate,Intellectual Property
In Judgments No. 754/2021 and 132/2023, a case that concerned the termination of a distribution arrangement, the Qatar Court of Cassation Court clarified the requirements necessary to establish the existence of an exclusive distribution agreement. In this article, we review the legislative and factual background to the case, the Court’s findings and the underlying reasoning.
In Qatar, exclusive distribution agreements are generally governed by the same rules applicable to commercial agency agreements in accordance with Law No. 27 of 2006 (the “Commercial Code”), and Law no. 8 of 2002 (the “Commercial Agency Law”).
Article 304 of the Commercial Code (no. 27 of 2006) provides: “A distributorship contract where a trader undertakes to market and distribute products of an industrial or commercial establishment in a particular territory shall be considered to be a contract agency subject to Articles 294, 300, 301, 302, 303 of this Law, provided that he is the sole distributor of such products.”
Article 16 of the Commercial Agency Law (no. 8 of 2002) provides:
“Upon application of the provisions of this Law, no commercial agency shall be effective unless entered in the commercial agents register. No claim in connection with such agency may be heard without such registration.”
There is a legal debate that the Commercial Agency Law would only apply to registered commercial agencies, based on the interpretation of Article 16 of the Commercial Agency Law. This interpretation was supported by previous judgments issued by the Court of Cassation, including judgment No. 60 of 2016 dated 17 May 2016, and judgment no. 40 of 2010 dated 27 April 2010. This case provides a different view which may be adopted by the Qatari courts in future cases.
For 18 years, a local Qatari company had an agreement (based on correspondence and purchase orders) with a foreign company to act as a distributor for the latter’s watch products in Qatar. The relationship ended in 2017, following the service of a termination by the foreign company on the local company.
Following the termination of the agreement, the local company filed a case before the Qatari Court of First Instance seeking compensation of more than QAR 10 million (approx. USD 2.7 million). The quantum was based on the value of the remaining stock, decoration and advertisement costs, and loss of profit on the alleged basis that the relationship should have continued for a further 15 years.
The local company argued that it was appointed as an exclusive distributor of the products in Qatar, and accordingly should be compensated pursuant to the provisions of the Commercial Code. In this case, Al Tamimi & Co argued on behalf of the foreign company, confirming that the relationship was based on purchase orders, and that the local company was not an exclusive distributor.
After considering the case, and having appointed an expert to look into the facts of the case, the Court of First Instance ruled in favour of the foreign company, finding that the local company had failed to prove the existence of an exclusive distribution agreement and therefore dismissed the local company’s case.
The Court of Appeal upheld the decision of the Court of First Instance.
The local company appealed the appellate judgment to the Court of Cassation.
In its Judgment no. 754/2021, the Court of Cassation considered than in enacting Article 304 of the Commercial Code (see above), the legislator intentionally waived, for distributorship contracts, the requirement in Article 291 of same law that a contract agency must be established in writing. In other words, a distributorship contract and all its terms may be proved by all legal means of proof and does not have to be registered as registration, obviously, requires that the contract be in writing.
The Court of Cassation thus accepted the Court of Appeal overlooked the local company’s request to prove the alleged exclusivity of its distribution agreement by all means including witnesses and experts and referred the case back to the Court of Appeal.
Further, the Court of Cassation found that the requirement under the Commercial Agency Law to register distributorship contracts was superseded by Article 304 of the Commercial Code, pursuant to 2(1) of the Civil Code, which provides that:
“A provision of a law can only be repealed by a subsequent law expressly providing for such repeal, or containing a provision in conflict with a provision of the former law.”
Notwithstanding the appointment of another expert by the Court of Appeal, the local company failed to provide any acceptable evidence confirming its claim in relation to exclusivity as they repeated the same arguments and submitted the same evidence that had been already submitted.
Accordingly, the Court of Appeal accepted our defence on behalf of the foreign company and rejected the local company’s case.
The local company appealed before the Court of Cassation. The Court of Cassation in its Judgment no. 132/2023 rejected the appeal and confirmed the Court of Appeal Judgment.
The Court of Cassation’s decision in judgment 754/2021 thus confirms that:
a written agreement is not required to establish the existence of an exclusive distribution agreement.
the registration of an exclusive distribution agreement in the Commercial Agents Register is not required for the Commercial Agency Law to apply.
Accordingly, it is permissible to prove the existence of an exclusive distribution agreement and all its conditions by all means of legal proof, including witness testimony, and registration of the agreement is not required. However, leaving aside the necessity or otherwise to register exclusive distribution agreements it is crucial that the distributor establishes exclusivity in order to claim any rights thereunder.
The conclusion reached by the court regarding the registration requirement was based on the view that the provisions of the Commercial Code supersede the provisions of the Commercial Agency Law being a subsequent legislation. We are of the view that the Court of Cassation’s judgment overlooked two points:
this judgment contradicts the established rule that the 'lex specialis derogat legi generali'; meaning that the more specific rules (being the provisions of the Commercial Agency Law) should prevail over more general rules such as the provision of the Commercial Code; and
paragraph 2 of Article 2 of the Commercial Agency Law, which states that the rules of this law should apply to exclusive distribution agreements, was added by the amending law No. 2 of 2016 (being subsequent to the Commercial Code). The 2016 amendment did not exclude exclusive distribution agreements from the registration requirements provided by Articles 3 and 16.
This Judgment makes a distinction between the commercial agency agreement and the commercial distribution agreement. Whilst the former needs to be registered, the registration requirement is not required for the latter. We believe that this distinction was not intended by the legislator when issuing Law No. 2 of 2016. It remains to be seen how the 2016 amendment will be interpreted by the courts in future cases.Al Tamimi & Company’s litigation and Intellectual Property team regularly advise on commercial agency and trademark related disputes.
For further information,please contact Roy Georgiades andDiana Al Adel.
Published in January 2024
