UAE Federal Case No. 50/2017: Clarifying the Distinction Between Franchise Agreements and Commercial Agency Law

A major legal conflict over the interpretation of franchise agreements and commercial agency legislation emerged in a historic UAE case, Federal Case No. 50/2017. Under UAE law, the case brought a difficult question:

Could a franchise agreement mentioning that neither party is an agent or representative yet be regarded as a commercial agency?

A franchise agreement negotiated between a franchisor and a franchisee constituted the main cause of conflict. The two parties' connection rested just on franchising; the agreement was clear: no agency or agent was engaged. But gradually the franchisee sought to use the rights afforded to business agents under UAE legislation. Among these rights are those of exclusivity; should the agreement be revoked, reimbursement is sought; another right is opposing termination ability. The fundamental question was whether UAE law could legally identify the franchise agreement as a commercial agency given its unambiguous wording.

Though the franchisee carried out tasks akin to those of a commercial agent, like marketing and sales, the UAE Federal Supreme Court decided in its ruling that the franchise agreement was not a commercial agency arrangement. The language in the contract, which unequivocally said that no agency connection existed between the parties, was the main determinant of the choice. The court decided that the franchise agreement was essentially a franchising agreement rather than a commercial agency and that the legal categorization under UAE law was decided mostly by the clear language of the contract.

This case teaches us the need for well-written contracts.

This case emphasizes for both franchisors and franchisees the requirement of straightforward wording in contracts. That claim will probably stand up in court if the contract makes it abundantly evident that there is no agency connection. This implies that both sides have to make sure their contracts are well drafted to prevent any ambiguity or possible reclassification as a commercial agency.

What happens should it be categorized as a commercial agency?

UAE commercial agents have several rights, including those against unfair termination, compensation upon termination, and exclusivity rights. Should a franchise agreement be changed to a classification as a commercial agency, the franchisee may be entitled to these rights. Therefore, both sides should be aware of the financial ramifications of not having a commercial agency connection, as it may be really detrimental.

The thin line separating franchising from commercial agencies:

This case brings a significant issue: should these agreements be handled the same way? The boundaries between commercial agency and franchising are becoming progressively hazy. Typically connected with commercial agents, franchisees in contemporary franchising handle activities like marketing and exclusive distribution. Given the identical duties and obligations of the parties, this begs the issue of whether the law should change how it treats these economic partnerships. Is it only about exclusivity?.

United Arab Emirates' commercial agency law:

This case also draws attention to a more general problem: the legal difference between commercial agency agreements and franchise agreements is not as defined as it first seems. Legal specialists should be contacted to guarantee that the contract accurately reflects the type of connection; franchisors and franchisees should be advised of how UAE law might view their agreements.

Has the ruling of the court unfairly deprived the franchisee?

From the perspective of the franchisee, the ruling of the court might seem unjust. Not recognizing the relationship as a commercial agency, the franchisee forfeits rights, including remuneration, upon termination. The franchisee may contend that their obligations were essentially no different from a commercial agent's even if the contract did not create an agency relationship. However, from the law perspective, that could seem unfair to the franchisor, as he may not need to grant exclusivity rights. and therefore this may put the franchisor under different unnecessary obligations if they were willing to conclude a contract with exclusive rights to the franchisee.

Are legal implications known to franchisees?

Most probably the franchisee knows its rights, especially if they are a natural person or a legal person under UAE law. The law has primarily been enforced since 1981, meaning that it took a long time to be interpreted and memorized well by the franchisees; Understanding their legal rights made them comfortable with considering such exclusive agency agreements.

Review closely the agreements you create for franchisees and franchisors.

Writing contracts that clearly indicate the kind of connection and make it very evident that no agency relationship exists asks for great attention from franchisors. This will assist in avoiding any doubt or later legal disputes.

Take the advice of a legal expert.

When signing franchise agreements, both sides ought to have legal advice. This guarantees that the agreement strictly reflects the nature of the connection and follows UAE legislation, therefore avoiding any problems.

Stay current with legal advancements.

Since commercial agency regulations in the UAE are continually changing, both franchisors and franchisees should be informed on any legal advancements. Regular legal counsel guarantees that agreements comply with the most recent legislation.

Considering all things:

At last, UAE Federal Case No. 50/2017 emphasizes the requirement of accurate and clear contractual language, particularly in terms of differentiating between commercial agency agreements and franchise agreements. Although the court's decision derived from the clear wording of the franchise agreement, it also brings more general issues regarding the direction of commercial agency law in the United Arab Emirates. When corporate models shift to avoid costly mistakes or conflicts, both franchisors and franchisees have to consider the legal consequences of their agreements seriously. Ensuring that agreements are fair, legally sound, and in accordance with current laws.

Legal Disclaimer— Darwish Legal Consultants

The information provided in this article is for general informational purposes only and does not constitute legal advice. UAE Federal Case No. 50/2017 serves as an important legal precedent concerning the distinction between franchise agreements and commercial agency relationships under UAE law. However, legal interpretations may vary depending on the specific circumstances of each case.

Darwish Legal Consultants does not assume any responsibility for actions taken based on the contents of this article. We strongly recommend that franchisors, franchisees, and business entities seek professional legal counsel to ensure their agreements comply with UAE laws and avoid potential disputes. The legal landscape in the UAE is continually evolving, and staying informed about regulatory changes is crucial for businesses operating within the jurisdiction.

For tailored legal guidance on franchise agreements, commercial agency law, and contractual structuring, please contact Darwish Legal Consultants.