This case, in which Al Tamimi successfully represented the
Defendant at all stages of the proceedings, is significant because
the Court of Cassation established a new legal precedent with
respect to Contracts of Adhesion.
Although broadcasting organizations provide public services, these
services cannot be classified as being performed under contracts of
adhesion because there exist many competing organizations providing
similar services.
Summary
The Court of Cassation established that for a contract to be characterized as a contract of adhesion it should satisfy three distinctive conditions. Failure to meet these three conditions will see the contract characterized as a normal contract.
Claim
A commercial action was filed by a local company (the
"Claimant") against two broadcasting companies - one
operating locally ("The First Defendant") and the other
operating outside the United Arab Emirates ("The Second
Defendant") (jointly, "the Defendants"). The
Claimant sought an order from the Court that the Defendants jointly
and severally pay the amount of AED 10 million in compensation for
breach of contract plus 12% legal interest from the date of filing
the case until full payment.
Facts of the claim
The Claimant submitted that it was the owner of a number of
hotel apartments which it rented out to tourists. The Claimant
pleaded that that it had sought to equip all the rooms with a
complete package of popular international television channels.
Accordingly, the Claimant entered into a one year broadcasting
contract ("The Contract") with both Defendants. The
duration of the Contract was from 22 September 2008 until 31
September 2008, and required the Claimant to pay the amount of AED
397,392.
The Claimant contended that on 29 December 2008 (during the
contractual period) both Defendants failed to meet their
contractual obligations and ceased the broadcast of certain
channels from the package paid for by the Claimant. The Claimant
submitted that the damage suffered by it by virtue of the broadcast
cessation was AED 10 million, which was comprised of the amount
paid by the Claimant for the broadcasting package in addition to
lost income. The Claimant argued that lost income had been suffered
due to guests leaving the hotel apartments for lack of viewing
options.
Court of First Instance
The Court of First Instance ruled in favor of both Defendants
and dismissed the case. Consequently, the Claimant appealed the
decision.
Court of Appeal
The Claimant appealed to the Court of Appeal, which upheld the
decision of the Court of First Instance.
Court of Cassation
The Claimant consequently appealed to the Court of Cassation.
The Defendants refrained from submitting any defence or pleading in
the Court of Cassation action.
The Claimant argued that the Court of Appeal had erred in upholding
the decision of the Court of First Instance. The main grounds for
the Claimant's appeal were as follows:
- That the Contract entered into by the Claimant and the Defendants satisfied all the mandatory elements required for a binding contract.
- That in breach of the principles of good faith, the Defendants had arbitrarily withdrawn the broadcast of certain channels and submitted an alternative negotiable proposal which was declined by the Claimant (the Claimant had produced a document which clearly reflected its rejection if the Defendants' offer to select alternative channels for publication). The Claimant also produced a letter of apology from the Defendants in which they apologized for withdrawing the subject channels from broadcast.
The Claimant also pleaded that satellite broadcasting services,
whether for individuals or collective use or for commercial or
investment purposes are essential for modern life, and that
investors in the tourism industry cannot fully operate their
businesses without such services. The Claimant argued that the
provision of international channels containing high quality and
popular programming was essential for attracting tourism.
Finally, the Claimant argued that as the Defendants enjoyed
exclusive broadcasting rights, the Contract entered into by the
parties' could mean that the contract is an adhesion contract
and the court had erred in its decision.
The Defence
The defence submitted by Al Tamimi was as follows:
- The Defendants and the Claimant had agreed that the First Defendant would have the right to replace any service in its sole discretion without incurring any fines;
- Sufficient notice was provided to the Claimant and the Claimant was offered the choice of another channel at no additional cost;
- Even though the Defendants did enjoy exclusive broadcasting rights, this did not mean the Contract was one of adhesion, especially as the Claimant argued that its procurement of the services was essential for their commercial and investment interests.
The Court of Cassation noted the requirements of Article 246 of
the UAE Civil Code (which deals with good faith) and dismissed the
Claimant's argument that the Defendants' conduct
constituted a breach of the principles of good faith.
Moreover, the Court of Cassation held that it was empowered with
the full discretion to interpret the terms of contracts in
accordance with the parties' intentions.
The Court noted that Clause 6 of the Contract contained an
acknowledgement by the Claimant that only the First Defendant would
be held liable for determining the level of service, the number of
hours, the language and the technical aspects of the broadcast such
as encryption of data, and that any change to the method of
broadcasting or replacement of any service was within the sole
discretion of the First Discretion without penalty and without
incurring any fines.
In recognition of Clause 6, the Court of Cassation noted that on 25
December 2008 the First Defendant had sent a notice to the Claimant
informing it that one selected channel would be withdrawn to be
replaced by another at no additional cost.
The Court of Cassation interpreted the wording of Clause 6 to mean
that the First Defendant was entitled to replace any service at its
sole discretion without incurring any fines. Furthermore, the Court
also found that the sending by the First Defendant to the Claimant
of a notice in recognition of Clause 6 of the Contract was evidence
of both compliance of the contractual obligations and the
performance of those obligations in good faith.
The Claimant's argument that the Contract could be
characterized as one of adhesion was dismissed by the Court of
Cassation. The Court of Cassation established that a contract of
adhesion exists only when the weaker party acquiesces and submits
to the arbitrary terms imposed on it by the other dominant party.
The Court of Cassation found that three distinctive features had to
be present in order for a contract to be defined as one of
adhesion:
- The contract relates to an essential product or service indispensable to consumers who cannot obtain the essential product or service except by acquiescing to the terms of the contract; and
- One of the parties retains a monopoly over the product or service or faces limited competition in supplying the product or service; and
- The supplier of the products or services offers it to consumers on a "take it or leave it" basis where consumers have neither a choice in negotiating the terms nor an opportunity to decline.
The Court of Cassation did not consider that the Claimant had
been in a weak position vis-à-vis the Defendants. The
Claimant was not obliged to acquiesce and submit to arbitrary terms
imposed upon it by the Defendants. The Court also noted that the
services provided by the Defendant were also offered by other
broadcasting corporations. Finally, the Court also determined that
subscription to a TV broadcasting service did not qualify as a
crucial public service which was essential to the development of a
consumer's commercial investment interests.
In view of the above, the Court of Cassation found that the
conditions of a contract of adhesion were not satisfied and
dismissed the Claimant's appeal.
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.
