UAE Laws and Islamic Finance

Laws of the UAE and Islamic Finance

Archive for January 26, 2010

Establishing a Commercial Agency in the UAE

 

 

The Commercial Agency: Signifies the representation of a Principal by an Agent on the distribution, sale, offer or presentation of commodities or services within the State against commission or profit.

The Principal: Signifies the producer or manufacturer within or outside the territories of the State, the exporter or exclusive distributor accredited by the producer, providing that the latter shall not, himself, exercise the activity of marketing.

The Agent: Is that ordinary person holding UAE nationality or that legal entity totally owned by national ordinary persons to whom the power of disposal in the Agency’s subject -matter shall be provided according to the Agency Agreement providing that he shall not exceed his or her capacities.

You must be a UAE national or UAE firm to be a commercial agent in the UAE and agents automatically have exclusive distributorship within the designated territory.  Article 2 of the Laws states: “The practice of Commercial Agency activities within the State shall be confined to national individuals or firms owned totally by national ordinary persons.”  Furthermore, all commercial agency agreements must be in writing, authenticated, and registered with the Ministry of Economy in the Commercial Agents Register.  Article 4 of the Law states: “For legality of agency registration an agent shall directly be connected with the principal through a written authenticated agreement.”

A UAE local agent should familiarize him or herself with the provisions of Federal Law No. (18) of 1981 Concerning the Organization of Commercial Agencies in the UAE and Law No. (14) of 1988 Concerning the Amendment of Certain Provisions of the Aforementioned Law No. (18) (the “Law”) prior to entering into an agency agreement with a foreign principal.

The authority concerned with the Law’s implementation is the Ministry of Economy and Planning, which registers agency agreements in a special register called the “Commercial Agents Register.”  The Ministry thereafter sends notification upon registration of the agency agreement to all municipality departments, customs authorities and the Federation of UAE Chambers of Commerce and Industries in the UAE. (Refer to Articles 1, 10, and 11 of the Law)

A principal may seek the services of a sole- agent in the UAE as a single territory.  He or she may also appoint an agent in each emirate or in a group of emirates, providing that the distribution of goods and services, which are the subject- matter of the agency, should be restricted within the agency territory and to the designated agent.  In addition, an agent may appoint a distributor in an emirate or in a group of emirates included in the territory of the agency.  (Refer to Article 5 of the Law)

An agent should approach the Ministry of Economy and Planning requesting registration of his or her agency agreement in the Commercial Agent’s Register.  The application for registration should include the agent’s name and address, the principal’s name, address, and nationality, the products and services which are the subject- matter of the agreement, agency territory, and the date of commencement and the date of expiry of the agreement. (Refer to Article 10 of the Law)

It shall not be permissible for anybody to clear into the country any goods, products, manufactured items, materials or any other type of financial assets which are the subject- matter of any agency agreement duly registered at the Ministry in the name of any other agent for the purpose of trading in them not via the agent, unless granted prior permission by the Ministry or the agent himself or herself. (Refer to Article 23 of the Law)

Article 23 of the Law states: “No person shall be permitted to import any commodities, products, manufactured goods, materials or any other merchandise being subject- matter of a commercial agency registered with the Ministry in the name of another person with the purpose of trading without prior consent of the agent.  The Customs departments and other concerned Authorities shall, each within its own jurisdiction and upon request of the involved agent, detain those imports while still in ports and to store them either in the port’s warehouses or in those of the importer, until a dispute settlement is achieved.  Exceptionally, are those materials liberalized upon a decree that may be issued with such materials from the Register.”

Terms and Conditions When Exercising the Activity of a Commercial Agency in the UAE:

1. The agent must have a trade license allowing the practice of the line of business in the field he or she chose for his or her firm, whether it is an establishment totally owned by him or her or a company in which he or she has other partners holding UAE nationality.  The said license is usually issued by the Department of Abu Dhabi Municipalities and Agriculture, whereas the Membership certificate is issued by the Abu Dhabi Chamber of Commerce and Industry. Both the department trade license and the chamber’s membership certificate must show the activity of the commercial agency, otherwise the agent will not be allowed to practice the said activity unless he or she applies to both parties (the Abu Dhabi Municipalities and Agriculture and the Chamber of Commerce) requesting addition of the said activity.

2. The agent can then conclude a written and authenticated agreement with the principal (the products which are the subject- matter of any agency agreement must fall within the same range of the line of business as stated in both the trade license and the chamber’s membership certificate).

3. The agent should also take the following points into consideration when wording the agency agreement:

• The agreement should either be called an exclusive ‘trading agency agreement’ or an ‘exclusive distributorship agreement.’  It must also include full statements on the principal manufacturer or producer and the principal and agent’s full name and address (in case the agent is a company, the agent’s trade name must be mentioned instead of his or her personal name.)

• The clause providing for appointment as agent must exclude all ambiguities, i.e. the agreement must provide that the first party (principal) is appointing the second party as a ‘sole agent’ or ‘exclusive distributor’ to market the products of the first party.

• All names of affiliated companies (if any) should be mentioned, whereas, the nature of relation with such companies should be clearly defined in the agreement.

• Products and trade names of items which are the subject- matter of the agreement must be clearly shown.  The territory covered by the agreement should be obviously defined.  (Whether on the emirate or group of emirates level).  In case the territory includes other Gulf and/ or Middle Eastern countries in addition to the UAE, it is advisable that this is mentioned.

• The agreement should be comprehensive and clear and should define the rights and liabilities of each signatory.  In case unjustifiable terms are set by the principal to suggest prejudice or loss at times of future disputes, the agent may refuse such terms before signing the agreement.

• Date of commencement (effect) and date of expiry should also be provided in days, months, and years.  It is advisable that the lifetime of an agreement is made to last not less than two years apt to be renewed automatically.

 • It is advisable that the grace time following a notice or notification on agency termination by either party is long enough to settle pending liabilities or obligations of either party towards the other.  (Such period should preferably be three months or more) and it should be provided that termination must be based on obvious, substantial, and justifiable reasons.

 • The agreement should be signed by both signatories and duly attested and authenticated by the official concerned authorities in both countries, as stated below:

In the Principal’s Country:

1. Notary Public

2. Ministry of Foreign Affairs

3. UAE Consulate (If unavailable, any Arab Consulate, member within the Arab league)

In the Agent’s Country:

1.   Ministry of Foreign Affairs

2. Once an agent receives a duly and authenticated agency agreement, he or she should get it legally translated into Arabic.

3. Approach the concerned Ministry of Economy and Commerce requesting registration of the agency agreement in the Commercial Agent’s Register.

Article 10 of the Law states:

“Application for registration in the Commercial Agent Register shall be submitted to the Ministry on the form prepared for the purpose and shall include the names, nationalities, and addresses of the agent and the principal, commodities and services subject matter of the Commercial Agency, territory of the Agent’s activity and the dates of effect and expiry.  In case a commercial agent happens to be a commercial firm, the said application shall, in addition to those provided for in the previous clause, include the firm’s name, type, capital, headquarters address and branches within the State.”

Attach the following documents to the application for a commercial agency:

1. Originals and copies of the trade license and commercial register certificate issued by Abu Dhabi Municipalities and Agriculture Department, as well as the membership certificate issued by the Abu Dhabi Chamber of Commerce and Industry.

2. Originals and copies of the agency agreement duly attested and authenticated by the aforementioned concerned authorities in both countries and legally translated into Arabic if the original agreement is in a foreign language.

3. Original and copies of the civil status extract or identity card of the agent (if he or she is a national individual establishment).

4. Articles of association and letter of incorporation duly attested by the concerned authority and a copy of each of them, along with a certificate certifying that all partners are holders of the UAE nationality (if national company).

5. A Letter of maintenance affirming that the owners of the agent’s trade name are the actual owners without any non-national partners. (ministerial circular)

Once a period of six months has elapsed from the date of signing an agency agreement, registration with the concerned authority cannot be made unless the agent presents a letter from the principal stating that the agency in question is still effective and that he or she has no objection to registration (ministerial circular).

The Ministry views the application and issues a decision within fifteen days from the date of submission.  In case of approval, the agent is granted an accredited certificate denoting registration.  The decision is, thereafter promulgated in the official gazette along with pertinent details and notified to Municipalities and Agriculture and Customs Departments, as well as to the Federation of UAE Chambers of Commerce and Industries.

The Ministry has the right to refuse an application in case of failure to meet the terms provided in the law.  In such cases, the Ministry should notify the concerned agent of the reasons justifying refusal within one month from the date of application submission.  Notification is usually sent by registered mail or delivered by hand.  However, in case such notification hasn’t been made by the Ministry, it should be understood as a refusal. Whoever has his or her application refused has the right of appeal against the Ministry decision before the concerned civil court within sixty days from the date of notification on refusal or after one month from the date of application without a reply from the Ministry.

Once registered, the agent should inform the commercial agent’s register of any alteration or amendment of the agreement within sixty days from the date of the amendment or alteration.

In case an agency agreement is rescinded or expired, the agent, his legal attorney or his inheritors in case of demise should apply to the Ministry with supporting documents requesting agreement write-off in the Register of the Commercial Agents within sixty days from the date of rescindment, expiry, or demise.

The agent should provide the chamber with copies of the following documents so as to be kept in his file:

(a)    copy of the original agency agreement and the legal translation in case it is initially written in a foreign language;

(b)  copy of the registration certificate issued by the Ministry of Economy after registration in the Commercial Agent’s Registrar.

In the Event of a Dispute:

1. Lodge a complaint supported with documents presenting the subject -matter of dispute to the concerned Ministry of Economy and Commerce, which acts immediately in order to prevent any further development in the dispute.

2. Inform the Abu Dhabi Chamber of Commerce and Industry of the subject- matter of the complaint so as to contribute to finding an amicable settlement for the dispute in coordination with the concerned ministry.

3. In case of failure to reach amicable settlement for dispute, the agent may request the Ministry to broach the subject before the commercial agencies committee, which as per article 27 of the Law, should view the dispute within sixty days from the date of request.

Article 27 of the Law states: “A “Commercial Agencies Committee” shall be formed of:

1. Undersecretary of the Ministry of Economy and Commerce (chairman);

2. Representative of the Municipality in each competent Emirate nominated by the Chairman of the Municipality (Member);

3. Representative of the Chamber of Commerce and Industry of each respective Emirate nominated by the Chamber’s President (Member);

4. Representative of the General Secretariat of the Municipalities nominated by its Board (Member);

5. Representative of the Federation of Chambers of Commerce and Industry nominated by its Board (Member).

A decree by the Minister of Economy and Commerce shall be issued on the formation of the committee, which shall have a secretary nominated by the Minister, but having no right of voting during its discussions.”

Article 28 of the Law states:

“The Committee shall be competent to adjudicate any dispute emanating from a commercial agency, a task which shall have to be started within sixty days from the date of application submitted to it.  In the course of fulfilling its tasks, the Committee may avail itself of the assistance of those whom it deems appropriate through a written assignment. Divulging particulars they happen to know on account of their commission shall be strictly forbidden.”

Penalties:

Article 24 of the Law states:

“Without prejudice to any severer penalty provided for in the penal code or any other punitive statute a fine of not less than five thousand Dirhams shall be inflicted upon any person who commits any of the following offences:

a.) Deliberately submits to the Concerned Authority or any other official authority false information concerning registration, cancellation, or remarking in the Commercial Agents Register, if such false information consequently led to registration, cancellation, or remarking in contravention to provisions herein the court shall, in addition to passing the specified penalty, order that the registration, remarking or cancellation, as the case may be written off and the judgment shall be published in the Official Gazette.

b.) Records through publications or commercial correspondence or publishes in any media of information contrary to factual truth, that he is commercial agent of any natural or judicial person or that he is agent of such person for the discharge, sale or distribution of certain goods, products, materials or the like.  The Court shall in all such cases, order the correction of details according to respective conditions on dates fixed by the Court itself.  The judgment shall be published in the Official Gazette.”

Article 26 of the Law states:

“Further to penalties herein provided for the Court of jurisdiction may order the closure of the commercial agents’ premises and the concerned Authority may decide the reopening of such premises on request tendered by the concerned party if the causes of closure are eliminated or for liquidation purposes.”

NEW COMMERCIAL AGENCY DISPUTE PROCEDURE AS OF MARCH 2011:

http://www.hadefpartners.com/News/pageid/120-137/default.aspx?Mediaid=171

Advice and Instructions:

1. It is very important for every agent to be acquainted with Federal Law No. (18) of 1981 Concerning the Organization of Commercial Agencies in the UAE and Law No. (14) of 1988 Concerning the Amendment of Certain Provisions of the Afore-mentioned Law No. (18).

2. It is advisable to prepare a draft agreement that remains subject to negotiations by the would-be signatories. The agent may refuse any prejudicial obligations.  It is necessary for the agent to abide by the clauses of the agreement signed with the principal.

3. The agent should do his or her best to promote the products or services, which are the subject- matter of the agency.  The principal may try to rescind the agency agreement on the basis of the agent’s inability to successfully promote the products or services, which are the subject-matter of the agency agreement, during the lifetime of the agency.

4. The agent must also inform the principal of the various laws and regulations enacted in the UAE that may affect the agency.

*This information has been taken from the Commercial Agent’s Guide issued by the Abu Dhabi Chamber of Commerce and Industry.

 

New Amendments to the Commercial Agency Law.  Click Link Below To See:

http://www.hadefpartners.com/News/pageid/120-137/default.aspx?Mediaid=137

 

UAE Laws and Islamic Finance

Laws of the UAE and Islamic Finance