Dominican Republic: Legal Framework Of Agency Agreements Between USA Firms And Dominican Agents

Last Updated: 24 August 2017
Article by Merielin Almonte

Once the Free Trade Agreement signed by the United States and other Central American Nations on 05 August 2004 and ratified by the Dominican National Congress via resolution number 357-05, dated 09 September 2005 (hereafter "DR-CAFTA" for Dominican Republic and Central America Free Trade Agreement, or "Treaty") came into effect, a new legal schema applies to agency contracts between Dominican licensees and United States licensors.

This new legal schema radically transforms the regulatory framework of the licensor-licensee relationship foreseen by Law No. 173 on Importer Agents of Merchandise and Products, dated 06 April 1966 and its modifications, which had governed said relationship until DR-CAFTA came into effect, on the date 01 March 2007, and b) Law No. 424-06 for the implementation of said treaty, promulgated on the date 20 November 2006, modified by Law No. 493-06 of 22 December 2006.

From its beginnings, Law 173 had the purpose of granting judicial security to the Dominican licensee vis-à-vis  the possibility that once the image, marks, products and services of the foreign licensor were positioned in the local market, then it would decide to unilaterally terminate the contract and exploit the distribution of its products and services in national territory on its own or by means of third parties to the detriment of the Dominican licensee and ignoring their acquired rights.

This system of legal protection for the Dominican licensee was based fundamentally on: first, the obligation of the foreign licensor to indemnify the Dominican licensee, following the compensation formulas enshrined in article 3 of Law 173, applicable in the case of unilateral termination of the contract or refusal to renew it, in both cases without just cause; and secondly, the inapplicability of the clause that "conventionally" limited the period of the life of license contracts, assimilating them into "contracts for an indefinite period" (Art. 2 Law 173). Such mechanisms and other aspects of the Law in question were invested further with the nature of a public order provision (Art. 8 Law 173), which imposed on Dominican judges the obligation of applying Law 173, even if the Dominican licensee had waived their benefits in the contract.

With the implementation and entry into effect of DR-CAFTA, in the specific case of United States licensors, the public order nature of Law 173 has been overturned, converting it to a rule of partial and supplemental application, if the contracting parties (licensor-licensee) should so expressly agree in the contract.

DR-CAFTA utilizes the term "covered contracts" (hereafter "DR/USA agency contract") to refer to "a license contract ... to which a provider of merchandise and services from the United States or any company controlled by said provider forms part."1 According to the regulation, the general principle is that the Dominican Republic will not apply Law 173 to any DR/USA agency contract which has been signed after the date DR-CAFTA entered into effect, except for an express agreement by the contracting parties to abide by the schema of said law2. Even, in the event that Law 173 should apply by express decision of the contracting parties, the indemnification schema it contains which, along with its public order nature, constitutes the essence of same, will be excluded.

The overturning of the public order nature of Law 173 with respect to DR/USA agency contracts, is not based on a sole or specific provision of the new regulation, but rather is derived from the whole set of provisions making it up: a) DR-CAFTA, in Chapter 11 on Trans-Border Service Transactions, attachment 11.13 on Specific Commitments, section B: Dominican Republic, paragraphs 1-5, and b) Law 424-06 on the implementation of said treaty, in articles 67-71.

In this new scenario, Law 173 is not yet applicable to DR/USA license contracts signed subsequent to the date of entry into effect of DR-CAFTA (March 01, 2007), except when the contracting parties expressly stipulate in the contract that they wish to submit to the schema of Law 173. According to the provisions of attachment 11.13 section B paragraph 1 items (a) – (g) of the Treaty, backed by article 68 and paragraph de Law 424-06, such contracts will be subject to the following provisions:

a) The principles of the Civil Code of the Dominican Republic will be applicable. That is, they will be subject to the provisions of Title III of the Civil Code, entitled "On contracts and conventional obligations in general", which will have a supplemental nature to govern the aspects related to the interpretation, scope and nature of the obligations assumed by the parties, when they have not been explicitly defined in the contract.

b) The contractual bond between licensor-licensee is treated as an ordinary contractual relationship, based on the principle of the will of the parties (Art. 1134 of the Civil Code). Its legal governance and, consequently, its treatment by the jurisdictional agencies, is shorn of the public order nature imposed by Law 173. This implies that the terms and conditions under which the parties should decide to establish their relationship are under their full liberty and discretion. If any conflict should arise, which must be resolved by a jurisdictional agency, the conventions agreed to in the agency contract prevail and are imposed upon said agencies, with the capacity of them to intervene in the contractual relationship of the parties being limited.

c) The licensor and the licensee can freely agree to a term of specific effectiveness for their contractual relationship, upon the expiration of which they are at liberty to not renew the agency contract. When the term of expiration agreed to should be reached, either of them should refuse to renew the contract, the termination under these circumstances is considered to be based on just cause. Therefore, the party executing the unilateral termination in these circumstances (arrival of term) will not, in principle, compromise their civil liability solely by the act of termination or their refusal to renew the contract. Even in those cases in which the contract does not have a specific period of effectiveness, termination based on "just cause" is imputed when either of the parties should serve the other with a "termination notice" six months of advance notice. Obviously, this does not exclude the possibility of suing for judicial compensation against the party exercising the termination when there are causes for generating contractual civil liability, according to the general principles governing same.

d) Although the new regulation of DR-CAFTA and Law 424-06 enshrine the possibility of the parties to be able to put an end to their contractual relationship, whether by stipulation of a specific term of effectiveness, or via an notice of termination served six months in advance, this "will not prevent the parties from demanding an indemnification, when it is in order, in the form, the manner and the amount agreed to in the contract."3 From this provision of the Treaty it is inferred that the parties can agree in the contract to some formula for indemnity compensation (penalty clause) applicable in the event that the termination should produce a violation of that provided for in the contract. However, this has two limiting factors, namely "...a provider of merchandise or services is not required to pay damages and indemnities for terminating a contract due to just cause or for allowing for said contract to expire without renewal for a just cause."4

e) In the event that the termination of a DR /USA agency contract signed subsequent to DR-CAFTA should occur, the following provisions will be applicable: "(i) if the contract contains a provision regarding an indemnification, including non-indemnification, this aspect of the contractual relationship will be governed by that which may have been agreed to in the agency contract; (ii) if the covered contract should not have said provision, any indemnification will be based on the real economic damages and not on a statutory compensation formula (as foreseen by article 3 of Law 173); (iii) the licensor will honor pending guarantees; and (iv) the licensor will compensate the distributor for the value of any inventory which the distributor cannot sell by reason of the termination or the decision to not renew the contract. The value of the inventory will include any customs duty, surcharge, transportation expenses, internal movement costs and the costs of for taking the carrying the inventory paid by the distributor."5

f) The parties have the faculty of recurring to a procedure of binding arbitration to resolve the disputes that may arise between them. They further have the liberty of choosing, at their entire discretion, and to establish in the contract the mechanisms and forums they wish to turn to in the case of conflicts. This opens the possibility that the parties may attribute competence to foreign agencies to resolve disputes that may occur among them.

g) Regarding the rights of exclusivity which the United States licensor may confer upon their Dominican licensee, the Treaty establishes that "it shall be interpreted that a contract establishes exclusivity of a distribution only to the degree in which the terms of the contract explicitly declare that the distributor has the rights of exclusivity to distribute a product or service."6

The provisions indicated above constitute the law currently applicable to agency contracts which are formalized by United States licensors and Dominican licensees. However, since they are not of a public order nature, the parties can renounce the benefit of same in the document sustaining the contractual relationship.

Footnotes

1 Paragraph 5 of section B of attachment 11.13 of DR-CAFTA

2 Paragraph 1 of section B of attachment 11.13 of DR-CAFTA and Art. 68 Law 424-06

3 Infine part of paragraph 1 of section B of attachment 11.13 of DR-CAFTA

4 Paragraph 3 of section B of attachment 11.13 of DR-CAFTA

5 Section B paragraph 1 literal e) of attachment11.13 of DR-CAFTA

6 Ídem

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.