Bi-monthly report based on practical experience of our team of advocates in the courts of the UAE. This month, Michael Dark and Mahmoud Awad discuss the implications of foreign law and arbitration clauses in distribution or agency agreements.
With Dubai’s growing economy, many international brands are looking to enter the Dubai market through an exclusive distributor or agent. Because of ignorance or uncertainty about UAE law, the principal may try to insist on the insertion of clauses that make the distribution or agency agreement (hereinafter referred to as “Distribution Agreement”) subject to foreign law and jurisdiction.
However, in circumstances where a dispute arises, such clauses can produce a significant amount of uncertainty.
Under UAE Law, a wholly Emirati owned entity can register a Distribution Agreement with the relevant authorities and obtain protection under the provisions of the UAE Agency Law, Federal Law No. 18 of 1981 (hereinafter referred to as “UAE Agency Law”).
In addition to other safeguards, the UAE Agency Law requires that “any disputes arising from a commercial agency registered with the Ministry” must first be heard before the Agency Committee.
The Agency Committee is made up of appointees by various UAE authorities.
This means that if a Distribution Agreement is registered with the relevant authorities, the Agency Committee will have exclusive jurisdiction to hear any dispute and will only apply UAE legal principles irrespective of any foreign law or jurisdiction clause.
The UAE Agency Law allows either party to challenge the Agency Committee’s decision “within thirty (30) days following the date on which the [Agency] Committee’s decision is notified, otherwise the [Agency] Committee’s decision shall be deemed final and not subject to challenge.”
However, it is important to note that any challenge to the Agency Committee’s decision must be made before the “Dubai Courts,” again irrespective of any foreign law or arbitration clause.
As such, an increasing number of principals are finding themselves in a difficult situation in which they have relied on an arbitration agreement or foreign law only to find themselves subject to UAE law and courts.
Please note that if the agent or distributor is not wholly Emirate owned then an arbitration clause may be effective.
In view of the possible implications, it would be prudent for principals and distributors to seek legal advice prior to entering into any distribution agreement.
All recommendations in this publication are provided without consideration of any specific reader's objectives, situation or particular needs. Those acting upon such recommendations do so entirely at their own risk.