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29 March 2024

Court says no 'damages' if competition is legal

The court based this principle on the text of Articles 104 and 282 of the Civil Transactions Law. (FILE)

Published
By Mohammed Al Sadafy

No person or company will be accountable for damages caused as a result of any competition, be it at work or in business, so long as the competition is within the legal parameters. However, a person or body will be held responsible for the damages caused if he or she or the body crosses the legitimate limits, the Court of Cassation has ruled.

The court based this principle on the text of Articles 104 and 282 of the Civil Transactions Law.

In the event of a principle entrusting its services to one or more agents in the UAE, or re-registering the agency in the commercial register of agents under the name of another agent, the new agent has the right to enter his client's products and deal with it. According to the court, this is not unfair competition. And, therefore, the new agent cannot be held responsible for any damage caused to the former agent in the process.

The court reasoned that it was up to the client to use his discretion when it comes to choosing agents to promote his products. The court based this principle on articles (1- 5) of the Federal Law No18 of 1989 as amended by Law No14 of 1988 on commercial agencies.

The Court of Cassation said chairmen or members of the board of directors of corporations and directors in limited liability companies cannot be involved in any action that would compete with the company that they worked for. And that the company can ask for compensation, if found out.

In other words, they would be responsible and held accountable for any damages in the event of an illegal competition. The court based its third principle to the text of Articles 108 and 237 of the Commercial Companies Law. According to Article 120 of the Labour Code, the director is the person who is appointed by a company's contract and shall have the authority to manage the company, prepare its annual budget and represent the company at all events.

The three principles were issued following a case that came up for hearing. The plaintiff (a company) filed a case against the partner of the same company and against another company that he ran, demanding both of them to jointly pay Dh10 million as compensation for the damage he caused.

The plaintiff, according to the lawsuit, was a commercial agent for a number of foreign brands and companies in the UAE and it was making large profits. The plaintiff company said it was "surprised its director who is also a partner (also the first defendant in the case) established a rival company (the company the second respondent)".

According to the plaintiff, the first defendant withdrew from the commercial agent and transferred services to his company (second respondent), which led to reduction in the former's sales. The plaintiff, therefore, suffered losses. The first defendant, according to the plaintiff, is dishonest and, therefore, is responsible to pay for the damages caused.

The Court of First Instance, in its verdict, refused to accept the case, so the plaintiff appealed before the Court of Appeal, which upheld the same verdict. The plaitiff moved the Court of Cassation, which rejected the appeal, based on the above principles.

Explaining its verdict, the Court of Cassation said it was clear that the first defendant was only a partner in the plaintiff company and not the manager. It said, “there is nothing wrong to be a partner in the company wherein the second respondent becomes agent according to the will of the clients instead of the plaintiff company."

Therefore, the first defendant is not considered responsible for the withdrawal of the agency from the plaintiff company.

The court confirmed that the first defendant and the second respondent have the right to trade in the same field as that of the plaintiff company. The Court of Cassation confirmed “it is not unfair competition as long as they derive their right to this trade from the original clients.

The court added that the plaintiff company claims its loss from the original clients.

The court also added that the first defendant could not have disclosed the secrets of the company, which he was a partner of, because the names of clients with respect to trading and the types of goods that were subject of the agency business are no secrets. These are matters that need to be declared at the time of registering a company.