Out-Law Guide 4 min. read
16 Feb 2023, 10:55 am
International businesses looking to grow and expand in the UAE market without a corporate presence often elect to work with a local distributor or agent.
This enables them to benefit from local knowledge and a local distribution network, but navigating the agency laws is important to maintaining a successful and profitable relationship with local distributors.
Generally, agreements for the distribution of products are considered to be “agency agreements”. There are two types of agency agreements recognised in the UAE:
The rules governing commercial agency agreements are set out in UAE Federal Law 18 of 1981 (as amended) (the Agency Law). The Agency Law does not tend to differentiate between agents and distributors, but applies only in respect of arrangements that are registered.
The Agency Law has traditionally been very protective of local registered agents in that:
To register an agency agreement, certain criteria must be met. For example, a registered agency agreement must be an exclusive arrangement with:
The agreement must also be notarised and translated and be governed by UAE law – the governance can be inferred if all of the former criteria are met.
Termination of a registered agency agreement can be incredibly difficult and in most cases a principal's attempts to terminate a relationship with an agent will result in compensation for loss and damages being awarded to the local agent.
However, the changes made to the Agency Law allow companies more control over how long registered agency agreements will last and when an agency agreement can be terminated. These changes will apply to new registered commercial agency arrangements from 15 June 2023. The law will not apply to existing agency contracts until two years after that if the contract is less than 10 years old. For contracts that are more than 10 years old, the new rules will apply 10 years after the law has come into force.
Whilst the changes to the Agency Law help to increase attractiveness and competitiveness, registered agency agreements are often avoided by foreign principals. Except for in certain circumstances, such as in respect of certain goods that can only be distributed by a registered distributor in the UAE, carefully drafted provisions can be included in agency and distribution contracts to avoid “registered” status.
It is possible for parties to enter in to an "unregistered” agency agreement. From a UAE law perspective, these agreements would be enforced as a matter of contract law under the UAE Federal Civil Transactions Law (the Civil Code) and the UAE Federal Commercial Transactions Law (the Commercial Code).
Although the Civil Code and the Commercial Code are generally offer local agents much less protection than the Agency Law, the Civil Code and the Commercial Code still contain certain protections in relation to the termination of commercial agency relationships. Therefore, it is important to ensure that the right provisions are included in agency and distribution contracts from the outset.
Forward planning and careful contractual drafting are vital to a successful and profitable relationship between distributor and principal. Important considerations for foreign principals in the planning stage include: