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

Last Updated: 6 January 2018
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”

Related Topics
 
Related Articles
 
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions