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Continuing the trend of introducing major legislative reforms aimed at attracting foreign investment, the United Arab Emirates (“UAE”) has now updated its 40-year-old Commercial Agency Law.
Federal Law No. 3 of 2022 on the Regulation of Commercial Establishments (“New Institutional Law”) repeals and replaces its predecessor, the UAE Federal Law No. 18 of 1981 (as amended) (“Old Institutional Law”). The new agency law grants foreign principals greater protection and freedom of contract that did not exist under the old agency law.
The new agency law is expected to come into effect on June 15, 2023, and it will apply to new commercial agency agreements registered in the UAE with the UAE Ministry of Economy.
In this article we consider some of the fundamental changes introduced by the new agency law and the possible impact on future commercial agency arrangements.
Who can act as a registered commercial agent?
Under the old agency law, the following categories of individuals/companies were allowed to act as registered commercial agents:
(a) a UAE national; (b) a UAE private company wholly owned by a UAE national; (c) a UAE public joint stock company (“PJSC”) that is at least 51% owned by a UAE national; (d) a UAE private company owned by a PJSC; The entity is at least 51% owned by UAE nationals.
“The new representation law allows parties the option to appeal decisions made by the Commercial Representation Board and have the decision resolved through arbitration.”
Under the new Agency Law, the Cabinet may, on the advice of the UAE Ministry of Economy, allow international companies to act as registered commercial agents for their products in the following cases:
(a) they do not have an existing registered commercial agent in the UAE; (b) the business establishment is newly established and not previously registered in the UAE.
Termination of commercial agency arrangements
Under the old agency law, it was not possible for a principal to terminate or refuse to renew a registered commercial agency without “significant cause”. Substantive reasons are not clearly defined and it is often difficult to demonstrate substantive reasons to the satisfaction of UAE courts, which is the main reason why many foreign principals try to avoid registering their agreement as a commercial agency.
Article 9 of the New Agency Law lists the circumstances under which a registered commercial agent may be terminated, including:
(a) the term of the agreement expires – unless the parties agree to extend the term; (b) the principal or agent seeks termination under the terms of the agreement, for example for breach of contract.
The new Agency Act provides a broader basis for legally terminating a registered commercial agent. This is in stark contrast to the position under the old agency law, which in practice restricted a principal’s ability to terminate a registered commercial agency unless it had a court order allowing it to do so.
The termination rights introduced by the new agency law will apply to existing registered commercial agents after two years from the effective date of the new agency law. However, for an existing registered business establishment (i) has been registered with the same commercial agency for more than 10 years; (ii) the investment amount of the agent exceeds AED e100,000,000. The parameters for evaluating a nominee investment will be determined by the UAE Ministry of Economy.
Dispute Resolution
Under the old agency law, disputes concerning registered commercial agents could only be adjudicated and decided by a dedicated commercial agency committee and any appeal against such decisions would be subject to the exclusive jurisdiction of the UAE courts.
The new representation law gives parties the option to appeal decisions made by the Commercial Representation Board and have them decided by arbitration. This development shows that the UAE is increasingly recognizing arbitration as an alternative method of dispute resolution.
In addition, under the new agency law, subject to certain conditions being met and approval from the UAE Ministry of Economy, the head of a disputed registered business establishment can continue to temporarily sell its goods in the UAE pending dispute resolution.
demand compensation
Unless otherwise expressly agreed, according to Article 11 of the New Agency Law, the right to claim compensation after the termination of a registered commercial agency is also extended to include:
(a) a claim by an agent for loss or damage suffered by him as a result of the non-renewal of a commercial agency registration for a fixed term; claims for compensation.
In addition, Article 11 of the new Agency Law states that upon termination (for reasons other than the expiry of the term of the agreement), the agent is entitled to claim compensation and Termination will result in a loss of their future profits.
in conclusion
The long-awaited implementing regulations are expected to address the practical implementation of the new agency law, and it remains to be seen how the new agency law will look in practice. Regardless, future new agency agreements will need to be carefully analyzed and drafted to reflect the new agency law, and you should contact your usual WFW contacts if you need any assistance in this regard.
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