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Agency, distributorship and franchising contracts in
the United Arab Emirates
IDI Annual Meeting, 13 June 2009, Barcelona
14.07.2017
UAE
Overview
I. Legal sources
II. The meaning of registration
III. Exclusivity and its implementation
IV.Termination and compensation
V. Choice of law
VI.Jurisdiction and enforcement of foreign awards
VII.Arbitration
UAE
Legal sources
I.
Legal sources
1. Commercial Agency Law (CAL)
 Federal Law No. 18/1981, as amended by Law No. 14/1988 and
Law No. 13/2006.
 Definition/ scope of application:
 representation of the principal by an agent to distribute, sell, offer or
provide goods or services within the UAE against a commission or profit;
 wide scope of application (agency, franchising and distribution; goods
and services).
UAE
Legal sources
Only UAE nationals or companies owned 100% by UAE
nationals are allowed to act as agents/ distributors.
Exceptions: Joint-ventures with at least 51% UAE participation or
branch offices which sell exclusively the products of their foreign
mother companies can apply for specific trade licences (but not for
general trading).
The law highly favours the agent/ distributor:
exclusivity (which cannot be waived),
protection against termination of contract,
compensation after termination,
exclusive jurisdiction of UAE courts.
UAE
Legal sources
2. Commercial Code
 Law No. 18/1993 which is based on the Kuwaiti Commercial
Code;
 Art. 198 – 271 (contract agents, commission agents, commercial
representatives, brokers).
3. Civil Code
 Law No. 5/1985 which is based on the Egyptian/ Jordanian Civil
Code;
 Art. 924 – 961.
UAE
Registration
II. The meaning of registration
 Agents shall be registered in the "Commercial Agencies
Register".
 Since 2006, however, registration will only take place if the
principal agrees in explicit written form.
 Agents are interested in registration because of Art. 3 CAL:
„A commercial agency which is not entered in this Register shall
not be recognised nor shall any claim be heard with regard thereto.“
BUT: Courts in fact did hear claims which are not specifically
related to the CAL.
UAE
Exclusivity
III. Exclusivity
 Every registered agent/ distributor has the sole distribution
rights for certain products/ services within a certain territority
(which has to be the size of at least one of the 7 Emirates).
 The exclusivity cannot be ruled out by mutual agreement.
 If the principal concludes himself or through another person
within the agent‘s territory, the agent can claim commission.
The customs authorities shall withhold the items as long as
the Ministry or the registered agent will not release them.
UAE
Termination and compensation
IV. Termination and compensation
1. Valid grounds for termination:
expiry of term (new since 2006; before: non-renewal deemed to
be "abusive exercise of rights");
mutual agreement;
court decision.
No valid ground is the unilateral termination by mere notice
unless there are justifying reasons, such as breach of contract
by the other party.
UAE
Termination and compensation
2. Compensation
Law and courts do not distinguish between compensation for
goodwill activities and reparation of damages.
Due as long as principal cannot proof justifying grounds; due
even after expiry of term (BUT deregistration now easier).
Parties cannot rule it out.
As to the amount: no maximum limit.
Can unregistered agent claim compensation?
Abu Dhabi Court of Cassation 1999: "yes"
Dubai Court of Cassation untill recently "no"; in June 2007: "yes ".
UAE
Termination and compensation
3. Deregistration
a) In theory
in 2006 it became easier to deregister the agent, especially after
the expiry of term (e.g. court decision is no more necessary);
favourable for the principal since deregistration means the end
of agent‘s exclusivity.
b) In practice
authorities reported to show certain reluctance to deregister
Dubai Court of Cassation: Sentence of 2 June 2008 did not
even mention the new legal provisions.
UAE
Choice of Law
V. Choice of law
Generally the contracting parties are free to chose the
applicable law (Art. 19 Civil Code), provided that the "public
order" is not violated (Art. 27).
 The provisions governing commercial agencies is deemed
to be part of the "public order", so UAE courts will not apply
any other law than that of the UAE.
VI. Jurisdiction and enforcement of foreign awards
According to the UAE law, the UAE courts have exclusive
jurisdiction as far as commercial agencies within the UAE are
concerned. Therefore, foreign court decisions cannot be
executed.
The Committee for Commercial Agencies was abolished in
2006, so litigation will be accelerated.
UAE
Arbitration
VII. Arbitration
 Commercial agency/ distributorship agreements are not
capable of arbitration, since the UAE courts have exclusive
jurisdiction.
 Therefore, foreign arbitral awards cannot be executed – not
even under the New York Convention 1958, as this requires
that the dispute can be settled by arbitration under the law of
the member state (which is not the case).
 This might change in future with the evolution and growing
importance of the DIAC.