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.
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.
Specific Questions relating to this article should be addressed directly to the author.
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