Dubai court ruling on non registered agreement

• No automatic renewal of a limited-term Distribution Agreement by the continuation of Trade
• No compensation for non-renewal/termination of a Distribution Agreement

Registered vs Non-registered Commercial Agency

The UAE Commercial Agency Law (Federal Law 18 of 1981) has strict requirements that govern the relation between the commercial agent and the principal. For instance, the commercial agent must be a UAE national (or a legal entity 100% owned by a UAE national(s)) and the agreement between the agent and the principal must be attested (notarized) and registered with the Ministry of Economy.
Termination or non-renewal of an agency agreement (or the distribution agreement), once registered with the Ministry of Economy, requires legal ground. Without a justifiable legal ground, which is defined very narrowly by the courts, or mutual agreement, it can be extremely difficult to terminate the agency agreement. Moreover, depending on the circumstances of the termination, the courts may give the agents substantial compensation for the damages suffered as a result of the termination.

In practice, even though the idea of entering the market through a local agent has its perks, such as the agent’s knowledge of the market, it could be more attractive for the principal to enter into an agreement which is not subject to the UAE Commercial Agency Law, as a registered agreement would be extremely difficult to terminate (even if there are fixed terms), would give exclusivity to the agent and ultimately substantial control for the agent over the subject matter of the agreement.

Therefore, it is very crucial to carefully draft an agency agreement, whether subject to the UAE Commercial Agency Law or not, in order to avoid adverse legal consequences.

New DIFC-LICA arbitration rules came into force from 1-10.2016

The DIFC-LCIA Arbitration Rules have been slightly amended with effective date of October 1, 2016. In a nutshell, the new DIFC-LCIA Arbitration Rules have incorporated provisions regarding the access to emergency arbitrator (see Article 9B); provision for multi–party disputes (see Articles 1.5 and 2.5); measures to increase efficiency and avoid delays in proceedings (see Articles 9C, 10 and 11); and online filing and commencement of proceedings (see Articles 1.3 and 2.3). It seems clear that the amendments have the purpose to expedite and simplify the arbitration proceedings.

However, the introduction of an ‘Emergency Arbitrator’ gives a party access to interim relief even prior to the constitution of the Arbitration Tribunal.

What is an Emergency Arbitrator?

The constitution of the Arbitration Tribunal, i.e. the appointment of the arbitrators, inevitably can be time-consuming. A problematic situation might arise where interim relief is needed by one party before the tribunal has been constituted. In order to bridge this time-gap, most arbitration rules contain provisions for the appointments of an emergency arbitrator. As such an emergency arbitrator deals with requests for urgent interim relief, such as an interim injunction, before the main tribunal is constituted.

In light of the above situation, the newly included Article 9 B provides:

• 9.4 Subject always to Article 9.14 below, in the case of emergency at any time prior to the formation or expedited formation of the Arbitral Tribunal (under Articles 5 or 9A), any party may apply to the LCIA Court for the immediate appointment of a temporary sole arbitrator to conduct emergency proceedings pending the formation or expedited formation of the Arbitral Tribunal (the “Emergency Arbitrator”).
• 9.5 Such an application shall be made to the Registrar in writing (preferably by electronic means), together with a copy of the Request (if made by a Claimant) or a copy of the Response (if made by a Respondent), delivered or notified to all other parties to the arbitration. The application shall set out, together with all relevant documentation: (i) the specific grounds for requiring, as an emergency, the appointment of an Emergency Arbitrator; and (ii) the specific claim, with reasons, for emergency relief. The application shall be accompanied by the applicant’s written confirmation that the applicant has paid or is paying to the DIFC-LCIA Arbitration Centre the Special Fee under Article 9B, without which actual receipt of such payment the application shall be dismissed by the LCIA Court. …..
• 9.8 The Emergency Arbitrator shall decide the claim for emergency relief as soon as possible, but no later than 14 days following the Emergency Arbitrator’s appointment. This deadline may only be extended by the LCIA Court in exceptional circumstances (pursuant to Article 22.5) or by the written agreement of all parties to the emergency proceedings. The Emergency Arbitrator may make any order or award which the Arbitral Tribunal could make under the Arbitration Agreement (excepting Arbitration and Legal Costs under Articles 28.2 and 28.3); and, in addition, make any order adjourning the consideration of all or any part of the claim for emergency relief to the proceedings conducted by the Arbitral Tribunal (when formed).

In light of the above situation, the newly included Article 9 B provides:

The application fee is fixed at AED 50,000 (appr. USD 13,600) and the Emergency Arbitrator’s fee amounts to AED 120,000 (appr. USD 32,700). By inserting Article 9 B the DIFC-LCIA Arbitration opens the door for granting interim relief for the parties of arbitration prior to the constitution of the Tribunal.

The Enforceability of an Emergency Arbitrational Award

The practical impact of the introduction of an “Emergency Arbitrator” seems to be limited, as the nature of an interim injunction normally requires a sudden and immediate execution, e.g. in the case of an attachment of certain assets. If, for example, the claimant fears that the respondent will dissipate assets outside a specific jurisdiction, a request for an interim injunction before an Emergency Arbitrator might even increase this risk, as Section 9.4 of the DIFC-LIAC Rules 2016 requires that the Applicant and the Arbitration Centre respectively have to notify the Respondent with the request to issue an interim junction. By doing so, the Respondent will be aware of the request and has sufficient time to defeat the purpose of the interim measure, i.e. transferring his funds to a safe haven.
In contrast, in most jurisdictions the national courts issue interim junctions without notifying the Respondent about the request to issue an interim junction, so called ex parte (without notice). Arbitration tribunals, however, never hear ex ante or make ex parte orders.

If the national courts issue an interim junction, it can be executed immediately and it reaches the Respondent without any warning. As such, interim junctions issued by national courts, have – compared to an interim junction of an Emergency Arbitrator – more “bite” and are more effective.

Moreover, the enforceability of an award of an Emergency Arbitration cannot be compared with the recognition and execution of final arbitral awards. The recognition and execution of a final arbitral award is governed in most jurisdictions by the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (“The New York Convention”). As the award of the emergency arbitrator is not (even) binding for the Tribunal that will at a later stage deal with the dispute, it is at least controversial whether an Emergency Award is governed by the Convention. Thus, if it comes to an award of an Emergency Arbitration one has to consider the position of the local courts that have jurisdiction regarding the execution whether they will enforce such award.

In light of the above, the appointment of an ‘Emergency Arbitrator’ still might make sense in the following cases:

• An interim relief of an ‘emergency arbitrator’ serves its purpose in ongoing contractual relationships mostly in construction case, e.g. an application for specific performance under an existing agreement or the release of an interim payment under a construction contract.
• The Appellant seeks to keep the entire dispute confidential.
• It is clear or expected that the Respondent will apply voluntarily with the interim injunction of the Emergency Arbitrator
• The competent local courts are inefficient or might be partial

In this context, it is worthwhile to mention that Article 9B provides that it shall not prejudice any party’s right to apply to a state court or other legal authority for any interim or conservatory measures before the formation of the Arbitration Tribunal.

The practical impact of emergency arbitration will be limited due to the above mentioned practical obstacles. In certain situations, it will be a case by case decision whether Emergency Arbitration is worth the candle.