In the UAE, distinction is made between whether a franchise/distribution agreement ("Agreement") is "registered" in terms of UAE Federal Law No. 18 of 1981 on the Organisation of Commercial Agencies, as amended (the "Agency Law") or unregistered. Melissa Murray looks at compensation on the termination of "registered" and "unregistered" Agreements under UAE law.

In Brief:

There are certain stipulations for Agreements to be "registered" in the UAE under the Agency Law.

  • The UAE Agency Law does not apply to "unregistered" Agreements and pursuant to Article 3 of the Agency Law, the UAE Courts are not permitted to deal with "unregistered" agency issues.
  • The UAE Courts may however, for unregistered agency matters, hear limited matters such as debt issues and/or making good to any established harm issues pursuant to the terms of the Agreement and the general contractual principles set out in the UAE Commercial Code and Civil Code usually apply.

For an Agreement to be "registered" under the Agency Law:

  • the agent must be a UAE national or a company wholly owned by UAE nationals that is registered to undertake commercial agency activities;
  • the relationship must be exclusive (for either the territory or specific products); and
  • the Agreement must be prepared in a form to allow registration (i.e. Arabic or dual English-Arabic with the relevant signatures legalised and notarised) and then registered with the UAE Ministry of Economy.

Where an Agreement is "unregistered" then, termination issues such as compensation arising from specific agency related elements are unlikely to be heard given Article 3 of the Agency Law which provides "any trade agency not registered in the above register shall not be considered, nor legal cases therefore shall be heard." However, the UAE Courts may still hear limited matters arising from the agreement such as debt issues and/or making good to any established harm issues under the agreement and pursuant to the general contractual principles contained in the relevant agreement and the UAE Civil Transactions Law, Federal Law No. 5 of 1985 ("Civil Code") and the UAE Commercial Transactions Law, Federal Law No. 18 of 1993 ("Commercial Code").

In respect of compensation that may be payable upon termination:

  • For registered Agreements (where the Agency Law therefore applies) termination by the Principal of the Agreement can be difficult, as there is a specific process to remove a registered agent under the Agency Law. Given the protection afforded to agents under the Agency Law, substantial compensation can be awarded to the agent upon termination of the Agreement. Such compensation could be reduced if it is established that the agent has violated the Agreement for example by not meeting contractual targets, dealing with competitors and competitive goods and any other valid contractual grounds taken as acceptable for termination within the application of the Agency Law.
  • For unregistered Agreements, even if both parties to the Agreement have set out an obligation for compensation on termination, the UAE Courts are unlikely to allow such compensation given the application of Article 3 of the Agency Law which imposes non hearing of an unregistered agency case; and therefore for an unregistered agency, it can be difficult for an agent to claim compensation.

The UAE Courts or Commercial Agencies Committee (as appropriate) are likely to appoint an expert to quantify any compensation taking into consideration all related aspects in accordance with the Court/Committee's mandate to the expert, while the judge is broadly empowered to reduce the level of compensation if the person suffering harm participated by his own act in bringing about or aggravating the damage (Article 290 of UAE Civil Code).

With regards to the assessment of compensation for registered agencies, there is no set formula and the UAE Commercial Agencies Committee and UAE Courts will take into account all the relevant circumstances of the agency including, without limitation, the following:

  • the course of implementation and dealings between the parties;
  • the number of years the relationship has been on-going;
  • related profits in the business; and
  • other related aspects and the agents' other businesses.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.