Incoterms_® and Commercial Contracts

1. What rules, if any, govern retention of title (RT) in your country? In the absence of rules, what are the principal mechanisms, if any, on which RT is based in your country?

Article 430 (a) and (c) of the Qatari Civil Code address this matter.

Art. 430 (a) stipulates: “Where the sale price is deferred, the seller may be required to collect the price in full as a condition for the transfer of title to the purchaser, even if the sale item has been delivered.”

Art. 430 (c) stipulates: “Upon payment of the sale price, transfer of title to the purchaser shall be effective from the date of the sale.”

2. Please describe the characteristics and scope of your country’s RT rules

RT is a contractual instrument that may be used in civil and commercial contracts. It is considered as a condition as per Art. 285 of the Civil Code which stipulates: “An obligation shall be conditional where its execution is suspended by a condition which has not been accomplished. “ Accordingly, all rules and terms pertaining to conditions shall apply to RT clauses. Transfer of title to the buyer shall be conditional on payment of price. Upon full payment of price, title and benefits of the sold property shall be transferred to the buyer retrospectively from the date of the sale contract. Until final payment is made, only possession of the sold property shall be transferred.

In case the purchaser fails to pay the price, the purchaser loses its title to ownership retrospectively which was conditional on price payment, and the seller shall retain title to ownership and the sale shall be considered void.

According to Article 107 of the Law No 27 of 2006, the Law promulgating Trading Regulations, “where a sale has been concluded on the basis of a deferred payment, then the seller may stipulate that ownership shall not be transferred to the buyer until the price has been fully paid, even though the sold item has been delivered. The buyer shall be liable for losses from the time of delivery.”

Further, Article 118 maintains that where all or part of the price is due to be paid immediately, then the Seller may keep the goods until the due sum is paid to him even if the Buyer has given a mortgage or security, unless the Seller has granted the Buyer a period of grace after the sale. The Seller may keep the goods even if the period allowed for payment has not ended in the following circumstances:

1. If the Buyer’s bankruptcy has been announced.
2. If the Buyer has weakened by his acts, the assurances he gave to the Seller, or the
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   weakness of guarantees is not linked to the will of the Buyer and the Buyer has not provided to the Seller what completes the guarantee.
3. If the Buyer has not provided the Seller with the guarantees specified in the contract.”

In commercial contracts where the price is due to be paid in instalments and the buyer fails to pay one of the instalments, then the sale may not be declared null and void if it is clear that the buyer has paid at least three-quarters of the price pursuant to Article 126 of the Commercial Code.

So far, there is no case law in Qatar addressing this issue or indicating the scope thereof in practice.

3. If RT is not regulated in your country, are there similar or commercially equivalent forms of security preserving seller’s rights to the goods?

RT is regulated in Qatar.

4. What is the relation of RT and passage of risk in your system? How may a seller protect its interest after the passage of risk?

Passage of risks in the Qatari Civil Code is dealt with through Articles 444, 445, 446 of the Qatari Civil Code; however there is no direct relation between such clauses and the clauses which regulate RT. These clauses regulate passage of risks generally in sale contracts.

Art. 444 stipulates that: “Where the goods sold perish before delivery as a result of a cause beyond the control of the seller, the sale shall be invalidated and the purchaser refunded, unless he was summoned to take delivery before the loss occurred.”

Art. 445 stipulates that:

1. Where the goods sold are partially destroyed or have deteriorated before delivery for a reason beyond the control of the contracting parties, the purchaser shall have the right to reduce the price to the extent of the reduction in the value of the goods sold.
2. Where the destruction or damage occurred before conclusion of the contract and is so considerable that the sale would not have taken place, the purchaser shall have the right to cancel the sale.
3. The above shall apply where the destruction or damage occurred before the seller gave notice to the purchaser to take delivery of the goods sold.”

Art. 446 stipulates that:
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1. Where the goods are destroyed or damaged by an act of the purchaser, he shall remain liable for payment of the full price thereof.
2. Where the destruction or damage is attributed to the seller, the purchaser shall have the option either to cancel the sale or to reduce the price to the extent of the diminution of the value of the goods, without prejudice to his right to claim compensation if grounds exist.”

Art. 470 stipulates that: “Where the goods sold perish while in possession of the seller, the purchaser shall be liable for the loss unless such loss is caused by the seller.”

Accordingly, in sale contracts where there is a RT clause, such rules shall apply to the risks and passage of risks. A seller may protect his interests by delivering the sold property upon conclusion of the sale contract or notifying the buyer of taking delivery of the sold property. In case the buyer does not take delivery of the sold property despite being notified of such by the seller, the buyer shall bear the risk of damage or perish.

5. What are formal requirements, if any, including timing, to perfect the seller’s right?

In commercial contracts the RT clause has to be agreed upon in writing. The RT clause does not have to be agreed upon separately, as it may be part of the sale contract.

Article 127 of the Trade Law stipulates that: “Where the Seller retains ownership of the transferred goods until all instalments have been paid, then the Buyer shall have ownership on payment of the last instalment. The Buyer shall bear the risk of loss of the goods from the time they are delivered thereto. Without prejudice to the provisions set out in the bankruptcy Part, the condition of retention of ownership shall not affect a third party unless it is in writing and has a fixed date and prior to the emergence of the right of third party, or the implementation procedures taken by the creditors on the sold item.”

Also, Article 129 of the Trade Law stipulates that: “Where the Buyer disposes of the goods prior to the payment of the full instalments, and without the Seller’s consent, the Seller may ask the Buyer to pay the remaining instalments immediately.”

6. Effectiveness

1. Does sale to a third party break RT? What if goods have been transformed or sold?

Sale to a third party does not break RT. The RT clause does not prevent the purchaser from disposing of the property in any way. However, such disposition shall also be conditional on transfer of title of such property to him by payment of full price. In such case the purchaser shall own the sold property on condition that the seller acquires title to the property.
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If the sold property was movable and the purchaser resold it to a bona fide purchaser who was not aware of the RT clause, the latter shall then fully own the property and acquire title over it by reason of acquisition.

However, in commercial contracts and pursuant to Article 129 of the Commercial Code where the buyer disposes of the goods prior to the payment of the full instalments, and without the seller’s consent, the seller may ask the buyer to pay the remaining instalments immediately.

If yes, is there a possibility to transform the RT in case of a sale to a third party?

Not applicable.

2. Enforcement of RT if delinquent buyer is not insolvent — What is the judicial procedure and what is its likely timeline?

In the case of a delinquent buyer who is not insolvent, the sale contract shall be considered as void and title shall be retained by the seller definitively and retrospectively, without the need for a court judgment deciding as such.

The seller may also retain all or part of the already paid amounts or instalments by the delinquent buyer as punitive damages. Consequently, the law provisions pertaining to punitive damages shall apply in such case, including that the judge shall have discretion and supervision over the adequacy of the amounts the seller is entitled to as damages.

Nevertheless, the seller is entitled to claim enforcement of the contract, instead of rendering it void, through claiming performance by the buyer of his or her contractual obligations. Hence, the seller may seek attachment of the sold property or the buyer’s funds and assets towards payment of the price.

In case the buyer contests the seller’s right to retain title of the sold property definitively or to retain any of the paid amounts as punitive damages and wishes to refer such arising dispute to the courts, the total duration or estimated time frame of any civil case in Qatar may go through up to 4 stages, namely, the court of first instance, the court of appeal, the court of cassation and the execution court. The time periods vary as they depend on whether the court deems it necessary to engage the services of an expert to determine the technical and financial issues involved. Typical time periods for cases before the court of first instance are 6-9 months, before the court of appeal 4-6 months and before the court of cassation 3-4 months. It is impossible to determine the length of time it takes to execute a judgment as it depends on the liquidity of the judgment debtor.

3. What happens in case of conflict between RT and a buyer’s creditors’ rights, including carrier’s liens?

In case of insolvency of the buyer and the price is not yet paid, the remaining amount shall enter
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into the buyer’s bankruptcy. The right of retention does not generate a lien over the buyer’s bankruptcy. However, the seller may enjoy a special preference over the sold property as per the general rules of liens according to Articles 1182 and 1184 of the Civil Code.

Art. 1182 stipulates: “The seller of a movable asset shall have a lien on the sold asset to the extent of the sale price and other ancillary costs payable to the seller. Such lien shall remain valid so long as the sold asset maintains its description, without prejudice to the rights of third parties in good faith, subject to the provisions concerning commercial transactions.”

Art. 1184 stipulates: “The seller of real property shall have a lien on the sold real property to the extent of the sale price and ancillary costs payable to the seller.”

Depending on the classes and priorities of the buyer’s creditors, each shall claim his or her rights from the bankruptcy.

4. Bankruptcy — interaction of RT (which is not contract law) and bankruptcy law

1. Goods still with buyer

As explained above, in case the goods are still with the buyer then the seller may enjoy a lien over the sold property as per the general rules of liens according to Articles 1182 and 1184 of the Civil Code.

In commercial contracts, Article 643 of the commercial code stipulates that “By force of law, on the mere issue of an adjudication of bankruptcy a group of creditors, whose rights against the bankrupt arose from proper cause prior to the issue of the adjudication of bankruptcy, shall be established.”

This group shall enjoy legal personality and shall be represented by the receiver.

Under the foregoing paragraph the holders of debts guaranteed by mortgage or special lien shall not be deemed to be included in the group of creditors, except in those cases where they come into the bankruptcy as ordinary creditors as stated in this law.

2. Goods already sold by buyer

In the case of goods already sold by the buyer, such sale may not become effective against the seller unless the latter agrees in writing. If the seller does not agree in writing to the resale of the goods and the buyer resells the goods to a bona fide buyer who is not aware of the RT clause, the latter shall then fully own the property and acquire title over it by reason of acquisition in accordance with Article 1171 of the Civil Code which stipulates: “The right of preference may not be held thereto against such person that may acquire a movable asset in good faith”, and Article 1182 which stipulates “The seller of a movable asset shall have a lien on the sold asset to the extent of the sale price and other ancillary costs payable to the seller. Such lien shall remain valid so long as the sold
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asset maintains its description, without prejudice to the rights of third parties in good faith, subject to the provisions concerning commercial transactions.”

In such case the seller may only claim its rights from the bankruptcy of the buyer and may not claim the goods per se. If the sold property is immovable the seller shall enjoy a special preference right pursuant to Article 1184 which stipulates:

1. The seller of real property shall have a lien on the sold real property to the extent of the sale price and ancillary costs payable to the seller.
2. The lien shall be registered even if the sale is registered, and it shall be effective from the time of such registration.”

3. Time limits to declare title to receiver

Article 651 of the Law No. 27 of 2006 promulgating the Trading Regulations stipulates that:

“After obtaining permission from the judge in bankruptcy, the receiver may pay debts guaranteed by a mortgage on a movable asset, recover the mortgaged movable asset and add thereof to the assets of bankruptcy.

The receiver may also notify the mortgagee of the necessity to take legal actions to enforce on the mortgaged things within a reasonable time determined thereby.

Where the mortgagee fails to take such procedures, the receiver after taking permission from the judge in bankruptcy, proceed on the sale of mortgaged movables.

The permission of the adjudicator to sale shall be communicated to the mortgagee. Such creditor may appeal this decision without having the effect of suspending the appeal, unless the court decides otherwise.”

Moreover, Article 665 stipulates that:

“Any person may recover from the bankruptcy such specific things to which he proves right of ownership. Subject to the permission of the judge in bankruptcy, the receiver may deliver to the recoverer what he has claimed. Where the receiver refuses to hand over such requested items, the dispute shall be raised to the court of jurisdiction.”

4. Who pays storage, insurance and transport during discussions with receiver?

The costs for storing the goods under RT and insurance are included in the proceedings’ costs, whereas the costs for transporting the goods under RT back to their owners must be paid by the
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owners.

7. Model clause(s) — Drafting tips

NOTE: The following language is based on contractual provisions commonly seen in this country, but readers should always consult legal counsel before including an RT clause in a contract.

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