Qatar excluding QFC

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Pre-contractual negotiations
  • The Commercial Code in Qatar and related laws regulate commercial dealings between parties. If no specific provision exists under these laws, then rules and principles (as such exist) are applied in the following order, namely the rules and/or principles of: (1) commercial custom, (2) the Civil Code, (3) Shari’ah, (4) non-commercial custom and (5) justice.

    Is there an implied duty of good faith to continue to negotiate?

    Prior to the formation of a binding contract, there is no onus on the parties to continue negotiations in good faith under Qatar law.  However, if the essential elements of the contract and all other lawful conditions which both parties regard as essential have been agreed, potentially with further details to be agreed upon at a later stage, and there is no express stipulation that the contract has not yet been agreed, then a contract may be deemed to have been already made.

    Terms may be implied into an agreement even if it was not necessarily the parties’ intention to include them and may include that which is an inevitable consequence of its performance. The latter would be interpreted in accordance with the law, custom, justice and the nature of the transaction. Under the Civil Code, if a contract is deemed to have been entered into, the contract must be performed in accordance with its contents and in a manner consistent with the requirements of good faith.

    It should therefore be made clear during pre-contractual negotiations that no binding agreement will be created until all details have been finalised and it has been executed. It would be prudent to record both parties’ agreement to this principle in writing in a Memorandum of Understanding and mark all pre-contractual documents as being non-binding and “subject to contract” and where possible avoid using Qatar law governed MOU documents.

    What are the consequences of termination of negotiations by one party unilaterally?

    If the essential elements of a contract are sufficiently well-defined such that it is deemed to have been entered into, then remedies for breach are available. Remedies should not be available if this is not the case.

    What is the potential impact on third party rights?

    Under Qatar law, a contract may not impose an obligation upon a third party but it may create a right.

    Further, it is permissible for a person to impose a condition that rights are to be for the benefit of a third party. Such condition shall confer upon the third party a direct right against the undertaker for the performance thereof.

Confidentiality agreements
  • Are there implied confidentiality obligations where there are no formal confidentiality agreements entered into by the parties?

    Confidentiality obligations are imposed by the Protection of Trade Secrets Law No. (5) of 2005. In addition, on the basis that each party to a contract has an obligation to perform their obligations in accordance with the requirements of good faith, confidentiality provisions may be implied where the disclosure by a party of information (which was received from another party) may harm the interests of that other party. Specific confidentiality provisions are also implied into certain types of contracts, for example, under the Labour Law in Qatar, an employee is required to keep his employer’s industrial and trade secrets confidential during and after termination of employment, in addition to any express contractual provisions.

    Furthermore, the Penal Code in Qatar creates various criminal offences with respect to breaches of confidentiality which should be considered. These include but are not limited to the following:

    1. It is an offence to publish news, photographs, or comments pertaining to the secrets of people’s private or family lives, if these are real and true.

    2. It is an offence for any person, who by reason of his profession knows a secret, to disclose it other than as permitted by law, or to use it for his own, or another person’s advantage, where permission is not first obtained from the concerned person.

    3. It is an offence for any individual to open a letter or telegram without the consent of the addressee, or to eavesdrop on a telephone conversation.

    4. It is an offence to play a recording of a private conversation, where permission is not first obtained from the concerned person.

    5. It is an offence to publish photographs of a person, where permission is not first obtained from the concerned person.

    What are the consequences of breach?

    In relation to the breach of a contract of confidentiality, the Civil Code in Qatar provides that if the parties have not agreed the amount of compensation that should be payable (payment of which will in any event be subject to restrictions contained in the Civil Code), then compensation may be ordered by the court. While it is permissible to provide for liquidated damages in the contract, the court retains the power to override them and reduce the compensation payable for breach of contract if the defaulting party can show that the damages agreed are grossly excessive or that it has partially satisfied its obligations. If amounts of compensation are not fixed by the contract, the court will assess them with reference to the loss suffered or the gain that has been foregone, provided this was the natural result of the breach and it is proven that at the time of entering into the contract, the loss suffered or gain which has been foregone is one which the defaulting party could normally have foreseen. However, if the defaulting party can prove that the breach was caused by a factor for which the defaulting party was not responsible, then the defaulting party will not be under an obligation to compensate the other party.

    Notice may required to be given to a defaulting party, before the defaulting party comes under an obligation to pay compensation.

    In relation to the offences under the Penal Code mentioned above, the penalties include terms of imprisonment and fines.

    Are specific terms/formalities required for a binding confidentiality agreement?

    No. The formalities required for a binding confidentiality agreement are usually no different from those required for any other type of contract.  

    The requirements for a binding contract in Qatar are similar to those in common law jurisdictions such as England. Article 64 of the Civil Code provides for three key components of a legal contract under Qatar law including offer, acceptance, and the contract having a lawful purpose. In addition there must be an intention (willingness) to create legal relations; (in certain circumstances) consideration; and certainty of the subject matter of the contract.

    It is also important to note that whilst not an express requirement under Article 64 of the Civil Code, a contract must be performed in a manner consistent with the requirements of good faith (Article 172(1), Civil Code).

Exclusivity arrangements
  • Can an obligation to negotiate exclusively be implied where no formal agreements are entered into by the parties?

    It is unlikely that this could happen. However, it is worth noting that in other situations, there may be a legal requirement for exclusivity.  For example, when appointing a contracts agent in Qatar, the agent is given by law exclusive rights to represent the principal in the territory covered by the agreement and may be able to take action to prevent the products covered by the agency agreement from being imported into the territory through another agent.

    Are any specific terms/formalities required to make exclusivity arrangements enforceable?

    No, the formalities required for a binding exclusivity agreement are usually no different from those required for any other type of contract, as is the case with confidentiality agreements.

Heads of agreement
  • Are they legally binding?

    Under the Civil Code in Qatar, if parties to a contract agree on the essential elements of a contract and the remainder of the other lawful conditions which the parties regard as essential and leave matters of detail to be agreed upon afterwards, but they do not stipulate that the contract shall not be regarded as made in the event of absence of agreement on these matters, the contract will be deemed to have been made.  If a dispute arises as to the matters which have not been agreed upon, this would be decided by a court in accordance with the nature of the transaction, the provisions of the law, custom and the principles of justice.

    If one of the parties does not intend a contract to be made during the course of negotiations, then a contract which remains partially agreed, will not become binding on the parties, until that becomes the intention of both parties.  Therefore, whether a heads of agreement is inferred to be binding depends on the status of the “pre-contractual negotiations”.

    If the parties intend for the heads of agreement to be binding, they should ensure that:

    (a) it is clearly stated as being binding or that the relevant clauses are clearly stated as being binding, and

    (b) the essential terms are clearly stated so they can be interpreted with sufficient certainty.

    Can heads of agreement have any tax implications/adverse consequences?

    Heads of agreement are unlikely to have tax implications in Qatar but the tax consequences for a party to a contract will vary depending on the specific circumstances of that party.

Break fees
  • Are break fees usually payable?

    We do not regularly see break fee arrangements in this jurisdiction. However, in relation to negotiations connected with a share purchase agreement, it may be reasonable for the buyer to receive a break fee in the event that the seller breaches exclusivity (or other obligations) to cover the costs incurred by the buyer in undertaking its due diligence of the company. From a seller’s perspective, it may possible to ask for a break fee if a buyer has been granted exclusivity, possibly following an auction process, and then fails to proceed to completion for reasons not linked to any adverse findings from its due diligence of the target company. In each case, the party claiming compensation would need to prove that it has suffered a loss.

    Note however, that the concept of specific performance is recognised under the Civil Code in Qatar and a party who declines to satisfy its contractual obligations may be ordered by the court to pay a penalty.

    What are the main legal issues to be considered eg enforceability?

    Enforceability issues relating to break fees in Qatar contracts may be complex. As a form of liquidated damages, break fees may be specified in contractual agreements. However, the law allows either party to a contract to make an application to a court for the specified damages to be varied if the defaulting party can show that the damages are grossly excessive or that it has partially satisfied its obligations. Any agreement to the contrary will be void.

    So, it is difficult to forecast with certainty how a contract may be interpreted and applied by the courts. Much would depend on the facts of a particular case, the ambiguity (or absence thereof) of the terms of the contract in question, and the then current legislation.

    It is generally advisable for parties to include an arbitration clause so that a jurisdiction can be specified in which a legally sound outcome may be expected. Qatar is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and so an arbitration award obtained in another jurisdiction (which itself is a signatory to the convention) should be enforceable in Qatar. Judgments obtained from foreign courts, however, are less likely to be enforced in Qatar. If a foreign governing law and jurisdiction is specified for a contract and an award or judgment is subsequently rendered outside Qatar based on a foreign governing law which is not compatible with mandatory provisions of Qatar law, that judgment or award will likely not be enforceable in Qatar.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.