Introduction to Content of Distributor Agreements
The content of distributor agreements in the UAE vary, of course, like any contract anywhere. Contacts need to address the specifics of each transaction within the single commercial relationship. This being said the skeleton can follow a predictable bone sequence.
A distributor agreement is a legal contract between a manufacturer or supplier of goods and a distributor who will sell those goods to customers or other businesses. This agreement outlines the terms and conditions of the relationship between the parties. In this publication we address the key components that a distributor agreement should typically contain.
Upon addressing the content of distributor agreements we will address the basic differences between distributor and agency agreements, a very recurrent question.
Content of Distributor Agreements in the UAE
Parties Involved
Distributor agreements in the UAE should state the names and details of the parties involved – the supplier (manufacturer) and the distributor.
Scope of Distribution
Distributor Agreements in the UAE should define the territory or market where the distributor is authorised to sell the products. Specify if the distributor has exclusive rights to sell in a certain area or if there are any limitations. It is not rare to see contracts with UAE based distributors selecting the entire GCC as area of distribution. Loads of questions and licenses would need to be revised in this case to accept such broad coverage.
Products and Pricing
Distributor agreements in the UAE should list the products that the distributor will sell and any pricing guidelines or terms for pricing adjustments. Include details about any minimum purchase requirements. It is also not rare to come across distributor agreements without any minimum purchase requirements. Such, if accepted, should be accepted in full knowledge of its consequences.
Terms of Sale
Distributor agreements in the UAE should outline the terms of sale, including payment terms, shipping terms, and any discounts or incentives offered to the distributor.
Responsibilities of Parties
- Supplier Responsibilities: agreements should describe the obligations of the supplier, such as providing product training, marketing materials, and technical support.
- Distributor Responsibilities: agreements should outline the distributor’s responsibilities, including sales targets, marketing efforts, and customer service.
Intellectual Property Rights
Distributor Agreements should clarify the intellectual property rights related to the products, including trademarks, copyrights, and any restrictions on their use by the distributor.
Term and Termination of Distributor Agreements in the UAE
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- Term: it is very important to specify the duration of the agreement (e.g., one year, renewable annually).
- Termination: Outline conditions under which either party can terminate the agreement, such as breach of contract, bankruptcy, or failure to meet sales targets.
Confidentiality
Distributor agreements in the UAE should Include provisions to protect any confidential information shared between the parties during the course of the agreement. Clients, margins are among the information that tends to be exchanged.
Dispute Resolution
Distributor Agreements in the UAE should specify how disputes between the parties will be resolved, whether through negotiation, mediation, or arbitration. When dealing with UAE nationals or companies owned by UAE nationals foreign entities tend to prefer to arbitrate potential disputes. There are however limits to the arbitrability of agency agreements (we will see the differences) based on the level of protection that the agency agreement receives (based mainly on the ratio of UAE nationality ownership of agency and whether or not the contract has been registered). This requires a careful look vis a vis the specifics of each case.
Governing Law
Distributor agreements should state the governing law of the agreement, which determines which laws will apply in case of a legal dispute. The law most often used in UAE based transactions is UAE law but we have also come across with English law regularly.
Non-compete and Exclusivity Clauses
Include any clauses related to non-compete agreements or exclusivity arrangements, if applicable.
Indemnification
Define responsibilities for indemnifying each party against claims arising from the distribution or use of the products.
Amendments and Modifications
Outline how amendments or modifications to the agreement will be made, and whether they require written consent from both parties.
Miscellaneous Provisions to Distributor Agreements in the UAE
Include any other provisions relevant to the specific nature of the distribution relationship, such as insurance requirements or regulatory compliance.
Difference between Distributor Agreements and Agency Agreements
the key difference between an agency agreement and a distributor agreement is the level of control and authority over sales transactions. An agency relationship involves the agent acting on behalf of and binding the principal, whereas a distributor relationship involves the distributor purchasing and reselling products as an independent entity. Each type of agreement has its own legal implications and considerations, and businesses should choose the most suitable arrangement based on their specific needs and goals.
In an agency agreement, the agent acts on behalf of the principal (the supplier or manufacturer) to negotiate and enter into contracts with third parties (customers or buyers). In a distributor agreement, the distributor purchases products from the supplier or manufacturer and resells them to customers or end-users.
In terms of authority, the agent typically has the authority to bind the principal legally in contracts with third parties. This means that contracts entered into by the agent are generally considered binding on the principal. The distributor, on the other side, operates as an independent entity and is not an agent of the supplier. The distributor is not authorized to legally bind the supplier in contracts with third parties.
In terms of Parties’ implication, the principal is more directly responsible for the actions of the agent, and the agent owes certain fiduciary duties to act in the best interests of the principal. In an agency relationship, the principal typically retains ownership of the goods or services being sold, and the agent does not take title to the products. The agent earns a commission or fee for their services. The distributor typically has more autonomy in how they sell the products and is responsible for marketing, distribution, and customer service.
In terms of termination, an agency agreement can usually be terminated more easily by either party, subject to any notice periods or termination clauses specified in the agreement. A distributor agreement may involve a more formal relationship, often with specified terms regarding exclusivity, territory, and minimum purchase requirements. Termination of a distributor agreement may require adherence to specific notice periods and conditions.
Conclusion to Distributor Agreements in the UAE
Entering into commercial agreements should be revised carefully. It’s important for both parties to review the distributor agreement carefully and seek legal advice if needed to ensure that all terms are fair, clear, and legally enforceable. Years of practice in the UAE reveal the issues arisen as a consequence of non-experience and non-legal knowledge in the country (this we see when lawyers based abroad were involved at the early stage of contract formation). It is crucial that lawyers with competence in UAE law to revise the agreements involving UAE parties and/or UAE based transactions.
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We hope this publication will help you understand the importance of the content of distributor agreements and remain available for any legal and commercial question regarding contracts with UAE connection.
For more information published in English you can visit all our publications at this link as well as the videos in English of our Partner Maria Rubert.
*The information on this page is not intended to be legal advice. This article is intended to provide an initial introduction to the content of distributor agreements.