The United Arab Emirates (“UAE”) Cabinet has issued Federal Law No. 3 of 2022, regulating Commercial Agencies in the UAE (the “New Law”) on 15 December 2022, repealing and replacing UAE Federal Law No.18 of 1981 Regulating Commercial Agencies (the “Old Law”). The New Law will be effective beginning of June 15, 2023.
Who can serve as an Agent
The New Law maintains the same approach as the Old Law in limiting commercial agency activities in the UAE to only UAE nationals or companies wholly owned by UAE nationals and allowing public joint-stock companies that have a minimum 51% UAE National ownership to act as a commercial agent. However, the New Law now allows international companies to engage in Commercial Agency activities for their products in the UAE, provided that the company has no commercial Agent in the UAE, and the Commercial Agency is new and has not been previously registered.
According to the New Law, the term of the contract will be five years, unless otherwise specified, if the Agent is required to construct showrooms, outlets, or maintenance/repair facilities as stated in the contract.
Under the Old Law, it was difficult for a principal to terminate or decline to renew a commercial agency agreement that was officially registered unless the principal could satisfy the courts’ stringent standard of ‘material reasons’ to terminate such contract. However, the New Law now allows to terminate a commercial agency agreement in any of the following cases:
- upon expiry of the contract unless both parties agree to extend it;
- termination according to the terms and conditions of the contract;
- termination prior to expiry with mutual consent; or
- by court order.
The party seeking to terminate a Commercial Agency Contract based on the terms and conditions of the contract must give the other party notice of their intent to terminate the agreement:
- at least one year in advance, or
- before the end of half of the contract duration, whichever is less.
Similarly, the party who does not wish to renew the Commercial Agency Contract must send a notice of non-renewal to the other party at least one year before the end of the Contract Term, or before expiration of half of the contract duration, whichever is less.
The New Law has expanded the rights to receive compensation for any damages suffered as a result of termination of the contract as provided below:
- If the contract is terminated upon expiry of the contract, the Agent may ask the Principal for compensation for any losses caused by the termination of the Contract.
- If the contract is terminated according to the terms and conditions of the contract, either party can request compensation for the losses sustained. The Agent has the right to be compensated if they can demonstrate that their activities contributed to the success of the Principal's products, leading to their promotion or a rise in customers, and they missed out on profits due to the termination of the contract.
If either party does not agree to the termination of the contract as outlined in the terms and conditions of the contract, they can bring the matter to the Commercial Agencies Committee to dispute the termination. The Committee is authorized to resolve any disputes between the parties registered with the Ministry and any dispute must be presented to the Committee prior to bringing the case to the court.
According to the Old Law, the Commercial Agencies Committee had exclusive jurisdiction over disputed of registered commercial agencies, while the UAE Courts had exclusive jurisdiction over any appeals against the decisions made by the Committee. The New Law has now widened the scope to allow parties to resort to arbitration after the Committee has made a decision, with UAE as the default seat of arbitration, unless agreed otherwise. In such cases, the decision made by the Committee will not be binding on the parties or the arbitrator.
The New Law allows the Principal to bring goods or services to the UAE from exclusive sources temporarily during the period of the dispute, as long as the Principal is liable to the disputed Agent for any compensation.
Commencement and Application
The termination provisions of the New Law will not apply to:
- contracts which were in effect before the New Law was issued, unless two years have passed from the date of its enactment;
- Commercial Agencies that have been registered for a single Agent for more than (10) ten years;
- or ones in which the Agent's investment volume is more than AED (100,000,000) one hundred million dirhams.
The New Law represents a significant change to the Commercial Agencies regulations concerning the right to early termination of a contract or non-renewal of its term. Moreover, the New Law offers greater flexibility by permitting the use of arbitration and allowing foreigners to register as commercial agents, should they meet the criteria set by the New Law. Additionally, the New Law places importance on the conditions agreed by the parties in their commercial agency contracts.