The Jordanian Court Of Cassation Upholds The Validity Of An Arbitration Clause In A Distribution Agreement

• Published date: 10 October 2022
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Contracts and Commercial Law, Arbitration & Dispute Resolution
• Law Firm: Amereller Legal Consultants
• Author: Mr Hussam Mujally

In many Arab countries, including Jordan, special legislative and regulatory instruments are in place to provide certain protections for local commercial agents and distributors. The relevant laws regularly vest the local courts with exclusive jurisdiction to rule on disputes between agents/distributors and principals. Such exclusive jurisdiction rules prevent derogation from the jurisdiction of local state courts in favor of foreign state courts in order to protect the local agent/distributor from having to pursue their claims abroad.

There is, however, controversy as to whether such clauses also prohibit conferring jurisdiction on arbitral tribunals, i.e. in such jurisdictions, others have questioned, whether disputes arising from commercial agency agreements and distribution agreements arbitrable at all. In practice, the answer is decisive as to (i) whether a terminated distributor can bring claims before local courts despite a previously agreed arbitration clause and (ii) whether a principal can successfully enforce an arbitral award against the distributor in the distributor's country under the regime of the New York Convention of 1958.

While some Arab countries have opted to amend their commercial agency laws stipulating explicitly that referring disputes arising from commercial agency and distribution agreements to arbitration is permissible (for instance Kuwait, Article 20 of Law 13/2016) some other did not. In these countries the question of arbitrability of disputes arising from distribution agreements remain controversial. Jordan belongs to the latter set of countries. Indeed, the substantive validity of arbitration clauses in distribution agreements has been debated for decades now.

The remainder of this post focuses on the Jordanian position on these issues and, in particular, discusses a landmark decision, issued on 14 June 2022, in which the Jordanian Court of Cassation upheld the substantive validity of an arbitration clause in a distribution agreement (Decision in case no. 916 of 2022). This decision hopefully ends controversy over whether the sole jurisdiction of Jordanian courts under the Commercial Agency Law over distribution disputes invalidates arbitration clauses in distribution agreements.

Background on the Jordanian Commercial Agency Law

Distribution agreements - understood under Jordanian law to comprise commercial agency, dealership, and franchise agreements - are governed by Law 28/2001 on Commercial Agents and Intermediaries...