Local agents and distributors often seek to register their agreements with foreign enterprises under Law 173. Foreign companies from countries without a free trade agreement with the Dominican Republic are often unaware of this possibility and, without prior legal counsel, may discover a Law 173 registration only after the fact. The concessionaire must record the contract with the Central Bank within the statutory term for the protective regime to attach.

Once registration is obtained, the relationship between the local licensee (the “concessionaire”) and its grantor becomes governed by Law 173, which gives the local concessionaire the following rights:

• The right to bring legal actions against the grantor or third parties to prevent them from directly importing, promoting, or distributing the registered products or services in Dominican territory.
• The right to sue the grantor and any newly appointed substitute for damages, including statutory indemnification for unjust termination under the formula and concepts of Law 173 (Art. 3).
• The right to automatic renewal of the contract, or a mandate that the existing relationship continue.
• Unilateral termination of the local concessionaire only for “just cause,” as narrowly defined by Law 173.
• Exclusive jurisdiction of the courts of the Dominican Republic.

Law 173 protects Dominican agents and distributors of foreign enterprises. Its objective is to shield exclusive and non-exclusive agents, distributors, and representatives from unilateral substitution or termination without just cause by foreign entities after favorable market conditions have been created for them in the DR.

Law 173 defines the grantor as the individual or legal entity that the Dominican agent or distributor (the concessionaire) represents, conducting business in the interest of the grantor or of its goods, products, or services, whether the concession is granted directly by the grantor or through other persons acting in its representation or in their own name but in the grantor’s interest.

An important exception applies under DR-CAFTA. For covered agreements with United States suppliers signed after the treaty’s entry into force for the Dominican Republic (March 1, 2007), Law 173 does not apply unless the contract expressly submits to it. Absent such express submission, the relationship is governed by the parties’ contract and general contract law, termination follows the agreed terms, and indemnification is not owed merely because the relationship ends.

Foreign suppliers should address Law 173 explicitly at the drafting stage, through choice of law, express exclusion where DR-CAFTA permits, and arbitration clauses, because the statutory indemnity formula can far exceed ordinary contract damages.

This publication is provided for informational purposes only and not as legal advice. Any transaction related to any of the described aspects shall require advice and be specifically consulted with the Firm in advance. © Arthur & Castillo. All Rights Reserved. Next