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Alex Watson

GlobalScot

Agency & Distribution in the UAE

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General Advantages offered by UAE

➢0% Taxes (VAT IS COMING 2018)

➢Very Low Import Duty

➢Double Taxation Agreements of UAE

➢Free Trade Agreements of UAE

➢Strong and Competitive Economy

➢Strategic Location Advantages of UAE

➢World-class Infrastructure of UAE

DOING BUSINESS IN THE UAE

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Direct Export – Agent/Distributor

➢Cultural aspects – RESEARCH is a must!

➢Registered or Unregistered Agent?

➢Exclusivity can be via product line/specific service

➢Dubai and Abu Dhabi separate agencies?

➢Agreement subject to UAE law – ICC possible?

➢Ensure “getoutability” of contract

DOING BUSINESS IN THE UAE

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AGENCY vs DISTRIBUTION AGREEMENTS

➢ There is a general distinction between an Agent and a Distributor:

✓ Agent: an entity that acts and is authorised to enter into contracts on behalf of its Principal.

✓ Distributor: a customer of the Supplier that sells the Supplier’s

products to its own customers. ➢ The distinction in the UAE is more prominent due to the legal framework

surrounding the concept of Agency, which is set out in Federal Law No.(18) of 1981 (the “UAE Agency Law”).

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AGENCY vs DISTRIBUTION AGREEMENTS

➢ Article 1 of the UAE Agency Law stipulates that “the representation of a principal by an agent to distribute, sell, display or offer a merchandise or service inside the State in return for a commission or profit”. This means that agency agreements can undertake distribution work as well.

➢ However within the UAE the majority of the distribution agreements are not registered. This practice therefore creates a distinction between registered agency/distribution agreements and unregistered distribution agreements as the UAE Agency Law will not be applicable to the latter.

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∙ Agent is responsible for the registration

process.

∙ Agreement between the parties is

exclusive.

∙ Agent has statutory entitlement to

commissions on direct sales.

∙ Foreign company cannot unilaterally

terminate the agreement without paying

compensation.

∙ No new agents can be appointed in the

relevant territory until the agreement ends.

∙ Compensation must be paid to injured

party.

Registered Agency/Distribution

Agreements

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Unregistered Distribution

Agreements

∙ No registration process as the agreement

is a private contract.

∙ There are no exclusivity protections from

the government.

∙ No statutory restrictions on termination

unless included in the contract.

∙ New agents can be appointed upon

termination of the agreement.

∙ No statutory requirement for

compensation.

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Registered Agreements

• These agreements will accordingly be subject to terms under the UAE Agency Law ( Federal Law No. (18) of 1981).

Unregistered Agreements

• These agreements could be subject to terms under the UAE Commercial Transactions law (Federal Law No. (18) of 1993).

Applicable Law:

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The UAE Agency Law

Under the Law, the following provisions apply in respect of structures of registered agency agreements: ➢ Article 2: only an Emirati national or a wholly owned Emirati company can

act as an Agent. ➢ Article 3: commercial Agents must be registered in a specific register with

the Ministry of Economy. In absence of such registration, there is no legal recourse in the event of a dispute under the agency contract.

➢ Article 4: Agency contracts must be in writing and notarised by the Courts. ➢ Article 5: an Agent must be exclusive to a restricted territory, such as an

Emirate.

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The UAE Agency Law

➢ Article 7: the exclusive Agent is entitled to commission on all deals made in the restricted territory, even if the deal in question was secured by a third party.

➢ Article 8: the Principal can only terminate the agency contract for a reason

accepted by a permanent committee formed under the Law. Unless the above criteria can be satisfied, an Agency contract will not be

enforceable under UAE law, therefore Distribution agreements can serve as an alternative, however these should be exclusive so as to avoid any resemblance with an Agency contract.

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UAE Commercial Transactions Law

Under the Law, the following provisions apply in respect of structures of unregistered distribution agreements:

➢Article 220: “The contracts agent may not receive the principal's rights, unless the principal grants him this right.”

➢Article 225: In the event that the principal replaces their agent as a

result of “collusion between the principal and the new agent”, the courts can hold the new agent and principal jointly responsible to pay indemnities to the previous agent.

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UAE Commercial Transactions Law

➢Article 226: the court within which jurisdiction lies the place of implementation of the contract, is competent to rule on conflicts arising from the contract.

➢Article 227: within a distribution contract where the commercial

activities are conducted in a specific area on an exclusive distributorship basis shall be considered a contracts proxy. Articles 220, 225 and 226 of the UAE Commercial Transactions Law shall be applied accordingly.

The applications of these provisions will depend on the circumstances

of each case.

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The Commercial Agencies Committee

• All disputes arising from registered agency/distribution agreements need to in accordance with the UAE Agencies Law be referred to the Commercial Agencies Committee (“Committee”). The Committee would then be in charge of carrying out the relevant steps to resolve the dispute. They would accordingly have to investigate the matter and provide the parties with a ruling.

• This means that parties of a registered agreement will need to always go

through this Committee regarding any or all issues that they may have. • The Committee has discretion to refer the parties of the agreement to the

UAE courts. • Parties may try to appeal the Committee’s decision.

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Arbitration

The position as to whether arbitration is a possible route regarding unregistered distribution agreements remains unclear for two reasons:

• On a general note, the UAE Civil Procedures Law distinguishes matters that are “non-arbitrable” and this is usually regarding matters where “no conciliation may be reached”. This is broadly described which makes it difficult to predict if all distribution agreements are or are not arbitrable.

• Even though certain distribution agreements have been considered arbitrable in UAE courts, there is no precedent system within the UAE. This effectively means that there is no guarantee that such agreements will always be arbitrable and that it will depend on the circumstances of each individual case.

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Termination of agency/distribution Agreements

Termination of such agreements is an important point to consider as the “getoutability” under registered agency/distribution agreements and unregistered distribution agreements differ.

• Under article 27 and 28 of the UAE Agency Law, termination of a registered agreement is possible when there is ‘material reason’ for termination. This is broadly worded but essentially highlights the fact that termination of such agreements are difficult and cannot be discretionary.

• On the other hand, there are no statutory obligations restricting the principal from terminating an unregistered distribution agreement which makes it easier to “get out” of unregistered agreements.

This is an important factor to consider when selecting an appropriate agency/distribution agreement.

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Factors to Consider

• Are the rules under the UAE Agency Law too restrictive regarding agency agreements? Does it favour the interests of agencies over the principal?

• Does the law provide enough protection or stability for parties entering into an unregistered distribution agreements?

• Or do you just need to consider which type of agreement is most suitable for you and the future of your business in the UAE?

Depending on your business objectives you need to carefully consider the merits of both available options and choose the “right” type of agreement.

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Demonstrate a willingness to ‘fit in’ while remaining assured and confident in order to fully grasp the opportunity. Take bold decisions; they can reap rewards. Think on a wider scale: Could your business work in other Middle Eastern markets? And importantly, are you aligned with the economic vision of the country?

GRASP THE OPPORTUNITY

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HELP IS AVAILABLE

➢ Overseas Market Introduction Service

➢ Programme Arrangements

➢ Company Information and Profiles

➢Market Summaries

➢Market Visits

➢ Exhibitions

➢Major Project Data

➢But don’t forget others that can be helpful:

➢ GlobalScot/SDI/Scottish Enterprise

➢ UKTI/British Business Group

➢ Arab British Chamber of Commerce

➢ UAE Chambers of Commerce

➢ME!

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THANK YOU