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Termination Of Agency Agreement Uae

Contracts concluded in the United Arab Emirates are governed by Federal Law No. 5 of 1985 on the Civil Transactions Act of Article 267 on termination of contracts and prohibits unilateral termination of contracts. Article 267 provides that « if the treaty is valid and binding, neither contracting party shall be entitled to undo, modify or abrogate it, unless it is a mutual agreement, a court order or a provision of the law ». The United Arab Emirates Federal Act No. 18 of 1981 on Registered Contracts of Commercial Agents (the Commercial Agents Act) provides the agent with legal protection against termination of the distribution contract without an indication of reason or after the duration of the contract. Indeed, Article 8 of the Commercial Agents Act provides that the termination of a commercial agent contract registered under the provisions of the Commercial Agents Act is permitted only for an « essential reason ». UAE courts have ruled that an « essential reason » may include: foreign suppliers who must comply with the 51% local ownership requirement typically enter into ancillary agreements with the UAE partner, in addition to the « ancillary agreements » memorandum of association. The purpose of these ancillary agreements is to ensure that the foreign supplier has full control of the limited liability company. Agency business activities in the UAE may only be carried out by UAE nationals or companies wholly owned by UAE nationals.

Once the Agency is granted and registered with the Ministry of Economy of the Economic Emirates and the United Arab Emirates, the termination of an agency contract by a principal can be extremely difficult to establish and, in most cases, such dismissals result in substantial compensation in favour of the local agent. Article 1 of Federal Law No. 18 of 1981 defines a commercial agent contract as an agreement in which a foreign company is represented by an agent to distribute, sell, offer or provide goods or services within the United Arab Emirates, for a commission or profit. The payment of a commission to a commercial agent is a prerequisite for the existence of a commercial agent contract between a client and an intermediary. When products are admitted to the UAE through another (unregistsed) agent or services are provided by another (unregregistsed) agent, the registered agent has the right to claim a commission on the profits generated by the sale of those goods or services. The commission will be at the rate indicated in the agreement. Distribution agreements governed by federal law No. 5 of the United Arab Emirates of 1985 are subject to the principle of freedom of contract.

As a result, there are no legal restrictions on the choice of law and the jurisdiction of the parties for their distribution relationship. However, with respect to contracts of commercial agents concluded in accordance with Federal Law No. 18 of the United Arab Emirates of 1981, the parties are obliged to submit their contractual relations to the jurisdiction of the federal courts of the United Arab Emirates which apply the federal law of the United Arab Emirates. The distribution agreement may contain restrictions on the exchange of information between a supplier and its distribution partners about customers and end-users of their products, stipulating that all data collected about customers and end-users may only be used to fulfil a party`s obligations under the agreement. That would prevent the supplier and its distributors from exchanging such information outside the framework of their professional obligations with regard to the contract. Parties either a distribution agreement subject to the United Arab Emirates Federal Law No. 5 of 1985 on Civil Transactions, or a commercial agent agreement governed by Federal Law No. 18 of 1981 through commercial agencies (the Commercial Agents Act) may agree to give the supplier or contracting entity (as the case may be) the power to authorize and dismiss persons who direct the trader`s activities. or the agent (as the case may be). Although the supplier may terminate the distribution contract if he is not satisfied with the management agreed in the distribution contract, the termination of the commercial agent contract is only possible if a violation of the administrative provisions constitutes an « essential ground » for termination of the commercial agent contract, in accordance with the « protection against dismissal of the agent » which is provided for in Article 8 of the Commercial Agents Act.

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