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

A.

Court

of First Instance Judgment: Agent’s request to cancel the registration of a new agent

The Agent’s

request to rescind the registration of new agent’s registration was rejected by

the First Instance court, and accordingly, the Agent filed an appeal. Appeal

court overruled the First Court’s judgment and declared the decision of the MOE

null and void. However, the deregistration of the new agents was not approved

by the Appeal Court as the same issue was not entertained by the First Court

at the time of the judgment. Thus, the

right to appeal is not granted.

The Agent approached the Supreme

Court, and the matter was accordingly

referred to the three experts, wherein, it was

concluded by the experts that the Agent was in breach of the contract

and thus, not entitled to the compensation. Even though the Agent won the

judgment, the new agents were not deregistered.

Accordingly, the request of the Agent to reinstate them in the register before

the Execution court basis the invalidity of the MOE decision was rejected.

B.

Compensation

Claim (Part 1)

Upon finishing the foregoing case, the Agent filed three new cases against the principals for compensation of AED 600 million. The matter was referred to the expert who concluded the faulty actions of the agent which has caused

significant losses to the principals. Thus, the Agents is not authorized to seek compensation. In accordance with the experts’ report, the case was rejected in all the three

courts.

C.

Compensation

Claim (Part 2)

A decade post receiving the unfavourable judgment on the compensation

claim, the Agent filed three new lawsuits, against the principals, the Ministry

and the New Agents. Defences like res

judicata, statutory limitation, and no standing to sue the new agents were

raised by the principals. First Instance Court accepted principals’ defense and rejected the case against the

ministry and the new agent. Subsequently, the case

was rejected by the Court of Appeal and

the Court of Cassation on the same grounds.

Epilogue

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:

·

The agent failed to provide evidence supporting their claim for

compensation or the damages suffered due to termination of the contract;

·

The agents have breached the

contract by failing to adhere with the contractual obligations such as timely

payments, declining sales which caused loses;

The aftermath of the foregoing case sets a precedent for further

Principal-Agent relationship. The court confirmed that the agents would not be entitled to seek compensation for

termination, should there be a non-performance of the contractual obligations

by the agent, notwithstanding the protections granted to agents under the

Agency Law. Foreign companies must before terminating their contract with

Commercial Agents approach Lawyers in Dubai to analyse

the consequences for the same.