The expansion of multinational companies is always either through
incorporating a subsidiary or associating with a local distributor or a
commercial agent in any jurisdiction. UAE is a standout amid the most preferable
alternative where international companies can either sign an agreement for
distribution or enters into an arrangement with the commercial agent for
subsequent augmentation. Federal Law Number 18 of 1981 concerning UAE Agency
Law, as amended (the Agency Law) is the only legislation which governs the
attributes pertaining to the Agency Agreement signed by the parties.
It is
inevitable for foreign nationals to determine the advantages and disadvantages
prior to engaging in a commercial relationship. Thus, Corporate Lawyers in Dubai
have simplified for the readers to understand the Agency Law of UAE prior to
appointing or terminating a Commercial Agent in UAE.
A registered agent typically relishes the exclusivity in their jurisdiction. In
addition, under the Agency Law, the agent is entitled to earn a commission on
registering and selling the products thereof. Further, the Agent is also
authorized to block the imports at the customs authority, should there be a
disagreement between the parties. The foregoing rights are devised in such a way
to safeguard the interest of the agent who might have devoted significant
efforts to build a profitable market for the principal.
Henceforth, the agents
in UAE can utilize the Agency Law to prevent the principal from registering a
replacement agent unless the compensation is paid. Despite the stringent
provisions, the court, in certain cases, has overruled the demands of commercial
agents for termination of the contract on the grounds of non-performance of the
agency contract. Following is the landmark judgment of the Court of Cassation
declining the compensation for termination on the failure of agents to prove
unjustified termination.
Facts
In the recent case of Federal Supreme Court Case 811 of 2017 and Federal Supreme
Court Case of 814 of 2017, principal terminated the commercial contract due to
substandard performance of the agent; it was evident that he was in clear breach
of the agency contract.
Two principals in 1980 appointed an agent in UAE, whereby they agreed to sell
and provide services on three brands of product, first two brands for principal
1 and the third brand for the principal. However, post two decades, the
principals were facing the issue as the agency failed to perform his obligations
under the said contract. Despite continuous reminders and warnings, the agent
continued to be in default. Accordingly, the principals sent the letter for
termination of the contract, inclusive of a final notice period to abide by the
obligations pursuant to the contract, failing of which the agreement will be
terminated completely. The agent failed to resolve the issue amicably.
In accordance with the Agency Law, the Ministry of Economy (MOE) is empowered to
terminate an agreement based on justified reasons for termination. Thus, the MOE
cancelled the agreement relying on three letters of termination for each brand,
and subsequently, the invoice for the outstanding guarantee was issued.
Accordingly, three cases were registered before the civil court against both the
principals to set aside the ministerial decision for termination and
reinstatement of the agent, placing its reliance on Article 14 of the Agency
Law.
The foregoing provision states that a meeting should be convened within 60
days from the date of termination to address the rationale behind termination
and to offer an opportunity for agent's defence. Thus, failure to meet the
pre-requisite of convening the meeting authorizes the court to strike down the
ministerial decision of termination. However, to the utter shock of the agent,
the court of the first instance rejected the claim and opined that MOE had
fulfilled their duty basis the communication between the parties. Accordingly,
the appeal was filed which ruled out the decision of Court of First Instance
stating that although the meeting is a mere formality, it still exists to
protect the agent. Principals filed an appeal to the Supreme Court, which upheld
the decision of the Appeal Court. Post the decision of the MOE, the principals
appointed new agents and subsequently the agency was registered.
Judgments and Appeals
As evident from the case history, the matter was referred to the panel of experts to determine the entitlement of compensation, however, which was rejected in all the cases. Accordingly, the Supreme Court opined that:
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