Agency, distributorship and franchising contracts in the United Arab Emirates

1. Agency, distributorship and franchising contracts in the United Arab Emirates IDI Annual Meeting, 13 June 2009, Barcelona

2. Legal sources • The meaningofregistration • Exclusivityanditsimplementation • Terminationandcompensation • Choice oflaw • Jurisdictionandenforcementofforeignawards • Arbitration • UAE • Overview

3. 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

4. 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

5. 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 • Legal sources

6. 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 • Registration

7. 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 • Exclusivity

8. 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

9. 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

10. 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 • Termination and compensation

11. 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. • UAE • Choice of Law

12. 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.

13. 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. • UAE • Arbitration