What is the difference between a commercial agent and a distributor?

A commercial agent is an independent entrepreneur or company which brokers business for the manufacturer against commission or which concludes business on behalf of the manufacturer. The distributor, on the other hand, acquires the goods from the manufacturer and resells them in his own name and for his own account to the customer by adding his margin.

Is it possible to appoint several distribution partners for my products in the UAE?

In principle, there is no limit to the number of distribution partners a manufacturer can appoint. However, if a distribution relationship is registered with the Commercial Agency Register kept with the Ministry of Economy of the United Arab Emirates, the distribution partner enjoys exclusivity for the products listed in the distribution agreement and the territory defined therein. A registration with the Ministry of Economy may be required for compliance reasons, for example, or mandatory due to local administrative practice, for instance in order to be able to participate in public tenders.

What are the consequences of a registration with the Ministry of Economy?

The registration of a distribution relationship in the Commercial Agency Register kept with the Ministry of Economy of the United Arab Emirates automatically entails the application of the UAE Commercial Agency Law which is extremely protective of commercial agents and distributors. The registration of a distribution relationship can have considerable negative legal effects for the manufacturer. One repercussion is that upon registration the commercial agent or distributor obtains the exclusive right of sale for the products covered by the contract in the agreed territory. In addition, the manufacturer is obliged to pay the distribution partner a commission for sales concluded in the contractual territory, even if the distribution partner has not contributed to the conclusion of the deal. Furthermore, the distribution partner is authorised to prevent the import of products which are covered by the registration by third parties and even by the manufacturer itself. In the event of a dispute regarding the validity of a termination or non-renewal of the distribution agreement, the distribution partner retains these rights for the entire duration of the legal proceedings.

Is it possible to cancel a distribution contract?

Distribution contracts that are not registered in the Commercial Agency Register of the UAE Ministry of Economy may always be terminated if the conditions of a contractually agreed reason for termination are met. If, on the contrary, the distribution relationship has been registered with the Ministry of Economy, the termination of an unlimited contract or the non-renewal of a fixed-term contract is only permitted for a "material reason". The law does not specify the criteria for such material reason. Instead, it is in the discretion of the courts to determine the relevant criteria. For instance, in the past, courts ruled that - under strict conditions - the distribution partner's failure to achieve contractually agreed sales targets might serve as a material reason. In the absence of a material reason, termination is excluded even in scenarios in which the parties have contractually agreed on a right of termination. A fixed-term contract continues to exist even in the event that the parties have agreed on an automatic termination clause.

Am I required to pay damages if I terminate the distribution contract?

Under local law, if the distribution agreement is registered with the Ministry of Economy, each party has the right to claim compensation for any damage caused by termination. In practice, claims for damages by manufacturers against their distribution partners are generally irrelevant. Instead, in case of a registered distribution agreement, termination by the manufacturer is usually only possible against comparatively high compensation payments to the distribution partner. Even in case of an unregistered distribution relationship, local courts have tended to oblige manufacturers to make compensation payments upon termination.