A substantial claim does not mean a substantiated loss. In a recent exclusive distribution dispute, our firm successfully defended a supplier against an AED 16,356,849 compensation claim through the Court of First Instance, Appeal, and the Court of Cassation. The judgments highlight the importance of proving contractual breach and actual damage, and of producing the operational and financial evidence needed to support the compensation sought.
In Brief
- An exclusive distribution arrangement may support a compensation claim for breach, distinct from enforcement of rights under the commercial agencies regime. The claimant must nevertheless substantiate its claim;
- The Courts relied on the absence of substantiated operating cost information concerning distribution channels, employees, warehouses, sales tools and administrative personnel allocated to the relevant products; this information was relevant to establishing the costs incurred in carrying out the distribution relationship and assessing the alleged loss;
- The dismissal was upheld through Cassation, protecting our client against the AED 16,356,849 compensation claim; and
- Our defence focused on the evidential requirements for compensation: neither asserted exclusivity nor a consultant’s valuation substitutes for proof of loss.
1) A Commercial Relationship Ends, and a Substantial Claim Follows
The dispute arose from a food products distribution relationship without any written agreement which began in 2014. The distributor maintained that it had been appointed as the exclusive distributor for the supplier’s products throughout the UAE for an indefinite period. It alleged that it had developed the local market and promoted the products before the supplier terminated its exclusive distribution rights.
The distributor claimed AED16,356,849 in compensation for damage and lost profit. It characterised the termination as arbitrary and unsupported by a legitimate reason, relying on a consultant expert report to support the amount claimed.
The claim was dismissed at First Instance. On Appeal, the Court appointed a new expert committee but ultimately upheld the dismissal. The Court of Cassation rejected the distributor’s further challenge.
The outcome reflected a litigation strategy established at the outset in close coordination with the client. The Hadef & Partners team anticipated the principal evidential challenges and potential adverse expert findings, adopting a consistent defence approach across First Instance, Appeal and Cassation. This enabled the team to respond to each procedural development while maintaining the client’s core position.
2) The Defence Strategy: Addressing Exclusivity and Expert Evidence
The claim presented three strategic challenges. First, the distributor produced a document asserting that it had been appointed as the exclusive distributor for the supplier’s products throughout the UAE for an indefinite period.
Second, the distributor relied on a consultant report that quantified the compensation sought at AED 16,356,849, providing the claim with an apparently credible financial basis.
Our defence strategy focused on the evidential requirements for compensation. Rather than contesting the existence of the distribution relationship in isolation, Hadef & Partners directed the court’s attention to the evidential requirements for compensation. The strategy focused on demonstrating that exclusivity, even where established, does not itself prove damage. The critical question was whether the distributor could substantiate the expenditure it claimed to have incurred in operating the relationship and the loss it alleged resulted from termination.
Third, the commercial agencies expert on the committee appointed by the Court of Appeal expressed an opinion supporting compensation. Our team filed detailed objections addressing the evidential basis of that opinion, its consistency with the documentary record and its treatment of legal issues reserved for the Court. The objections also highlighted findings supporting our client’s defence.
Our approach kept the focus on whether the distributor had substantiated its alleged loss from both technical and legal perspectives, leading the experts' proceedings. In its judgment, the Court of Appeal relied on the appointed committee’s findings that the distributor’s operating costs and damage arising from termination had not been established, in accordance with our firm’s strategy during the experts’ proceedings. The Court adopted those findings and upheld the dismissal, which was subsequently maintained by the Court of Cassation.
3) Where the Compensation Case Fell Short: The Evidence Behind the Claim
The issue was whether the distributor had proved compensable damage resulting from its termination. The expert committee appointed on Appeal found that the documentary evidence did not establish a written contract between the parties. It also found that the distributor had not substantiated its operating costs during the relationship, including information concerning:
- Distribution channels;
- Employees;
- Warehouses;
- Sales tools; and
- Administrative personnel allocated to the products covered by the alleged exclusive distribution arrangement.
These evidential gaps were significant because the information was needed to establish the expenditure incurred in implementing and maintaining the commercial relationship. The Court of Appeal adopted those findings, and the Court of Cassation upheld the resulting dismissal.
The significance of these criteria lies in their connection to the particular loss alleged. They should not be understood as a universal requirement that every distributor maintain dedicated premises, employees or administrative personnel. Rather, on these facts, the absence of substantiated operational-cost information prevented the claimed expenditure and resulting damage from being established.
Nor should the judgment be read as establishing that an unwritten distribution arrangement is necessarily unenforceable. Although the absence of a written contract defining the parties’ obligations featured in the evidential assessment, the reasoning also addressed the failure to establish damage. The practical lesson is that neither the commercial history of a relationship nor the amount stated in a compensation claim substitutes for evidence of loss.
4) The Preliminary Judgment: The Appointment of Experts and the Characterization of the Parties’ Legal Relationship is Not a Final Determination
The distributor also argued that the Court of Appeal’s earlier order appointing experts had already determined the existence and character of the exclusive distribution relationship (i.e., the preliminary judgment). On that basis, the distributor insisted that the subsequent expert committee had exceeded its mandate by revisiting the contractual documentation, and that the final judgment contradicted the preliminary judgment.
The Court of Cassation rejected that argument, reiterating that an evidentiary judgment does not acquire res judicata effect where its reasons do not resolve a disputed preliminary issue. It treated the expert appointment as a procedural measure intended to clarify the merits, rather than a binding determination preventing the Court from deciding the substance of the dispute.
For litigants, the distinction is important: wording used to frame an expert’s investigation should not automatically be treated as a conclusive finding on contractual rights or liability. The legal effect depends on what the earlier judgment actually decided.
Our successful defence protected the client against an AED 16,356,849 compensation claim through all three stages of proceedings. The practical lesson is clear: exclusivity may explain the relationship, but evidence must establish the loss.
If you would like more information on this topic, or have any questions, please contact Dr. Rami Omar or Jawaher Alreyaysah.
This article is intended for general informational purposes only and does not constitute legal advice. Readers should seek independent legal counsel in relation to their specific circumstances.