There are a multitude of relevant regulatory considerations for international food exporters dealing with food distributors in Dubai. Questions around what is usual and customary for international companies arranging local food distributorships in Dubai varies considerably depending on the circumstances. That said, it is worthwhile considering the legal framework that underpins the food distribution relationship before agreeing terms with any one distributor. It is important that drafting of relevant distribution agreements is carefully undertaken and jurisdiction-specific advice taken as it relates to the UAE regulatory framework.
The primary body of regulation regarding food distribution into the UAE is the local commercial agencies law - Organisation of Commercial Agencies, Federal Law No. 18 of 1981, as amended (the Agencies Law). Under this law, a commercial agency is “the representation of a principal by an agent for the purpose of distributing, selling, offering or providing merchandise [including food products] or services inside the UAE for a commission or profit”). A principal may be either “the producer or manufacturer” of the relevant product or the “exclusive accredited exporter or representative of the producer”, and this includes any food manufacturer or exporter.
The Agencies Law makes no distinction between agreements relating to distributorships, franchising, representative and commission arrangements or other forms of sales representative arrangements. So any engagement around food import and distribution, subject to certain conditions, may be picked up in the law’s remit. Significantly, the Agencies Law applies only where the distributor party is a UAE nationally owned entity, but remains highly relevant given the prominence of larger local conglomerates in the sector.
Points for consideration
Some of the more pertinent provisions contained in the Agencies Law include:
- Only UAE nationals or companies wholly owned by UAE nationals registered with the Ministry of Economy may engage in the commercial enterprise referred to as commercial agency activities. This does not prevent other, non-UAE national companies, from acting in the distributor role. However, it does mean that any UAE national food distributor may register its agreement with the authorities and be afforded significant levels of legislative protection.
- A “registered commercial agent” must be either an individual UAE national or entity incorporated in the UAE that is wholly owned by UAE nationals.
- A registered agent is entitled to receive commissions irrespective of whether it is directly responsible for the sale of the imported food products.
- Where a commercial agent is not registered with the Ministry of Economy, that agency or distributor relationship and agreement will not be recognised and will not be subject to the adjudication processes of the Ministry when it comes to agency disputes.
- One aspect of the Agencies Law which is for the primary benefit of the international food exporter principal relates to protection of intellectual property. The Agencies Law allows for an increased level of protection to a food exporter’s IP as a registered agency will prevent the parallel import of food products in the name of the principal. This protective mechanism is significant for highly recognisable international food brands. Under the Agencies Law no party is permitted to import any commodities, products, manufactured goods, materials or any other merchandise (which includes food products) that are the subject of a registered agency where such import is in the name of a party other than the registered local distributor. Only with the prior approval of the Ministry of Economy and the relevant parties will UAE Customs clear the import of food products through parties other than the registered distributor. The local distributor will rely on its registered agency agreement to ensure import of the food products is undertaken by itself.
- The Agencies law provides that where the underlying distribution agreement is of a fixed duration or term and that term is due to come to an end, both parties must agree to an extension of the term of the agreement within one year prior to its natural conclusion. Importantly, food exporters can only terminate agency agreements earlier with a “justifiable cause”, however the law provides that if the termination results in damages to a party, that aggrieved entity (be it the local distributor or international principal) may seek compensation. The Agencies Law does not define what constitutes a "justifiable cause". However, it has been seen to include matters such as non-performance or breach of the legislation by the local distributor, or otherwise the local distributor not acting exclusively or in the best interests of the principal.
- The Agencies Law provides for the establishment of a Commercial Agency Committee under the regulatory control of the Ministry of Economy. Typically this committee will hear and adjudicate on matters, which are subject to judicial review, in relation to the termination of a registered agent and whether the international principal meets the “justifiable cause” scenario referred to, but not defined, in the law. All international principals ought to be mindful that very significant amounts of compensation have been payable where unlawful termination has been found.
Based on the unique aspects of commercial agency in the UAE, it is imperative that careful consideration of the terms of distributor agreements occurs before a commercial deal is reached on food import and distribution. Local law expertise is a must for food importers and distributors into Dubai and the wider UAE. Lawyers in DWF’s corporate and commercial team have a long history of advising international food exporters and local distributors on all aspects relevant to food regulatory issues, as well as commercial agency.