UAE: A new commercial representation law opens the door for early termination or expiration of commercial representation

simply put

After several rounds of consultations, the United Arab Emirates (UAE) has released its much-anticipated new Federal Law No. 3 of 2022 regulating business establishments (“new law“), repeal and replace the long-standing Federal Law No. 18 of 1981, which has been amended several times, including most recently in May 2020.

For the first time, the new law introduces various changes and grants international companies not owned by UAE nationals the right to represent products they own, provided such representation is new, has never been registered and does not have a commercial agent registered for it in the UAE.

The new law also opens the door for early termination or non-renewal of commercial agency agreements subject to the fulfillment of the conditions stipulated in the new law. It is also important to point out that long-standing significant agency relationships have been excluded from the application of the termination and non-renewal provisions introduced by the new law.

More detail

The main features of the new law are summarized as follows:

• Who can represent: Commercial agency activities may be carried out by state natural persons, public legal persons, private legal persons owned by public legal persons, private legal persons wholly owned by state natural persons or public joint-stock companies incorporated in the UAE with at least 51% of the shares. State contribution. Furthermore, for the first time, the new law allows international companies not owned by UAE nationals to act as commercial agents for their products, provided such products are not the subject of commercial representation.
• Contract period: Unless the parties agree otherwise, the new law states that if the contract requires the agent to establish a showroom or building, a merchandise store, or a maintenance or repair facility, the term of the contract is at least five years.
• Proxy expiration: The new law introduces the possibility that a commercial agency agreement will expire at the end of its term. However, the trustee may claim compensation from the principal for the loss caused to the principal due to the expiration of the agreement, unless otherwise stipulated in the agreement.
• Early Agency Termination: The new law allows an agent or principal to terminate a commercial agency agreement early, subject to the terms of the agreement, provided it lapses at least one year before the termination date or for half the term of the agreement, whichever is shorter, unless the parties agree otherwise. Early termination can be challenged before the Commission on Commercial Agents, and if the agent demonstrates that its efforts contributed to the success of the product and resulted in an increase in customers for such products, the agent can seek compensation for damages suffered by him that would have resulted in lost profits as a result of the early termination.
• Notice of non-renewal: The new law allows non-renewal of a commercial agency agreement, provided that a notice of non-renewal is served on the other party at least one year before the termination date or halfway through the term of the agreement, whichever is shorter, unless the parties agree otherwise.
• Dispute Resolution: The new law affirms the exclusive jurisdiction of the Commercial Agency Board to hear any disputes arising between parties to a commercial agency. The new law gives the commission a 120-day time limit to resolve the dispute, otherwise the parties are eligible to go to court within 60 days of the deadline. The new law also allows, for the first time, parties to agree to resort to arbitration to resolve disputes related to a registered commercial representation agreement. The default seat of arbitration for such arbitrations is the United Arab Emirates, unless otherwise agreed by the parties. The arbitration agreement does not apply to commercial representations where a dispute has arisen or has been heard by the Commercial Representations Council or UAE courts before the new law comes into force.
• Sales of Products During the Dispute: For the first time, the new law regulates the sale of products in dispute, allowing such sales to be made through exclusive sources other than agents, provided the principal remains liable for such sales to the agent in dispute.
• Application exclusion and time limit: The provisions of the new law on the expiration and early termination of commercial agency agreements do not apply to agreements that are in effect when the new law is promulgated, but two years have elapsed since the date of entry into force of the new law (ie, falling six months after the publication of the new law). For commercial establishments registered under the same agent for more than 10 years or with an investment of more than AED 100 million by the agent, the applicable period of such regulations is extended to 10 years (AED 100,000,000) as determined by the Ministry of Economy Standards and controls are assessed.

The Minister of Economy has yet to issue the necessary regulations and resolutions to implement the new law.

Notably, the new law reaffirms some protections for registered agents, summarized as follows:

• The agent has the statutory exclusive right to represent the principal and sell the principal’s products within its territory
• Statutory entitlement to commission, including transactions concluded directly in the agent’s territory by the principal or third parties (regardless of the agent’s efforts to effect such transactions)
• Statutory protection allows the ability to enforce exclusive rights and prevent parallel imports into the territory, as long as the agency is registered
• Early termination may be subject to discretionary compensation assessed and determined by UAE courts based on various factors. The new law does not provide any clarification or criteria for the assessment of such compensation.
• The Commercial Agents Council and the UAE courts have exclusive jurisdiction to resolve disputes between the parties to a registered commercial agent, unless the parties agree to resolve such disputes by arbitration

In conclusion, the new law represents a significant development in the regime applicable to commercial representation, in particular in terms of allowing commercial representation to terminate early and not renew their terms (thus deviating from the automatic renewal rules). However, the new law defers the application of such material changes to specific time frames and preserves the commercial agent’s right to claim damages due to the early termination or expiration of the agreement, unless the agreement provides otherwise.