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Agency Agreements and How to Deal with Them

Guiding Principle

This article discusses common issues with the UAE Agencies Law and how to avoid certain pitfalls

The appointment of a local agent in the UAE is often one party’s gain and the other person’s pain. All too often, the “gain”-bit remains with the Emirati agent while the foreign principal is confronted with a local partner whom he cannot really control, because UAE laws do not allow the principal to terminate the agency relationship unilaterally.

There are, of course, many such partnerships, which work extremely well for both parties involved. However, the fact that registered agencies cannot be terminated unilaterally results in a contractual imbalance in a sense that even in severe cases of under-performance, the foreign principal is unable to force his local partner to perform his contractual obligations.

How should this best be dealt with? There are several options:

I. Situation Prior to the Appoint-ment of the Local Agent

Prior to appointing a local agent, the principal should ask itself if such appointment is actually required and if so, to what extent. It is correct, of course, that the laws of the UAE make it mandatory to appoint a local agent prior to distributing any product or service in the UAE. However, we would not be in the UAE if legal requirements and practical reality are always the same. In reality, it is common practice to distribute all kinds of products and services throughout the nation without any such local agent being appointed.

In practice, dealings with certain public authorities (especially in the oil and gas and the defence sectors) still do require the appointment of a local agent. Here, the appointment of a local agent is one of the base requirements prior to being entitled to submit a bid to any public tender.

Even if the appointment of a local agent cannot be avoided, however, this does not necessarily mean that the agent needs to be appointed in relation to all of the principal’s products or services. Instead, a smart lawyer will be able to assist with limiting the scope of the agency to the minimum required, thus leaving the principal at liberty to distribute all remaining products and services without involvement of the local agent.

II. Situation after Appointment of the Local Agent

In situations where a local agent has already been appointed and such appointment has been registered with the relevant Ministry of Economy, the foreign principal is likely to still have more options than it may be aware of. Contrary to popular belief, registration of an agency does not always mean that the principal is tied to the agent with its complete product or service portfolio. Taking a closer look at the actual agreement (as it has been registered) often surprises.

If, for example, the agency has been registered several years ago, chances are that the registered agreement relates to products, which are no longer produced. The current product portfolio may not even be affected by the registration at all. Quite often, the principal’s entity that is party to the agreement is a group company which has since been merged with another entity, or this entity has changed its principal line of business, etc.

In this scenario it is advisable to have ones’ legal options evaluated by a specialized law firm in order to assess the situation and decide the furter course of action.

January, 2015 Dr. Michael Krämer
Meyer-Reumann & Partners, Dubai Office
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