Minimizing risks by knowing about legal particularities
Should you strive for a cooperation with a commercial agent or distributor in the United Arab Emirates or should you already maintain business relations with local sales partners, it can be advisable to seek legal advice. We focus on the following aspects:
- Advising on building up new and restructuring existing distribution channels
- Preparing and reviewing commercial agency and distribution agreements
- Identifying possible entries in the commercial agency register
- Assisting with the termination of commercial agencies and distributorships
Appointing a Commercial Agent or Distributor in the United Arab Emirates
If a principal decides to engage a commercial agent or distributor to market his products or services in the United Arab Emirates ("UAE"), he needs to consider the legal consequences of registering or not registering the commercial agency.
Protective Regulations for Registered Commercial Agencies
In case a registration of the commercial agency at the appropriate ministry is possible and will also be implemented, Federal Law No. 18 of 1981 as amended ("UAE Commercial Agency Law"), which is extremely advantageous for the commercial agent, will be applicable. The provisions of this law are mandatory and cannot be contracted out or bypassed.
A registered commercial agent, for example, enjoys exclusivity within his territory. In addition, the commercial agent is entitled to a commission for all products and services he is registered for and which are sold within his territory. He is even entitled to such commission should he not have been involved in the business transaction. Furthermore, the commercial agent is able to block the import of products at customs, should there be a disagreement with the principal.
The commercial agent is protected and covered by the UAE Commercial Agency Law until the registration of his agency is formally deleted from the ministry's register.
The aforementioned protective regulations do not apply to unregistered commercial agencies.
Termination of Registered Commercial Agencies
The deletion of the agency from the ministry's register will not automatically be enforced even if a time-limited contract expires. In fact, a serious reason needs to be presented for not renewing a time-limited contract or for terminating a time-unlimited contract.
Most often a principal will only be able to withdraw from a registered commercial agency contract by paying a high compensation to the agent.
Drafting Commercial Agency Contracts
Due to the extensive protective rights of a registered commercial agent, it is essential to choose a representative carefully. Before his appointment, the principal should also consider whether he might want to execute the agency contract in such a way that it cannot be registered, provided compliance considerations allow to proceed as such.
In either case, local laws and regulations have to be kept in mind when drafting the contract to best justify terminating or not extending a contract in case of an agent’s wrongdoing.