A new Federal Law Regulating Commercial Agencies was issued in December 2022 (the UAE Federal Law No. 3 of 2022 (the ‘New Law’), which repeals and replaces the UAE Federal Law No. 18 of 1981 on Commercial Agencies (the ‘Old Law’) and will come into effect in June 2023. Implementing regulations are anticipated to be issued in the near future, to clarify the new provisions and general procedural and executional framework of the New Law.
The New Law introduces some key changes to the commercial agencies’ regime.
The Commercial Agent
As per the new Law, only UAE nationals can act as commercial agents (the same was applied in the Old Law). UAE nationals shall mean individuals (natural persons), or companies (either private or public) wholly owned by UAE nationals.
- New provisions in the New Law allows for public joint-stock companies with 51% or more shareholding of UAE nationals to act as commercial agents.
- The UAE Cabinet, based on the recommendation of the Minister of Economy, may allow foreign international companies (who are not owned by UAE nationals) to become commercial agents of their products in the UAE (and to thereby sell its own products directly in the UAE without an agent), provided that they have no agent already registered in the UAE.
The Commercial Agent’s right to commission
The New Law reserves the Commercial Agent’s right to claim commission on all matters in connection with the distribution of the principal’s products within the territory (UAE). Thereby, the Commercial Agent shall be entitled to commission for every transaction which the principal does in the territory, along with his exclusive right (as a registered Commercial Agent) to sell the products of the Principal in the UAE and stop any counter import/selling by other parties.
Term and Termination
If the Commercial Agency contract (the ‘contract’) requires the Agent to establish display buildings, commodity stores, or maintenance or repair facilities, there shall be a default contract term of five years (unless otherwise agreed between the parties).
Upon its expiry, the contract can be terminated unless it is renewed by the parties, provided that a termination notice of at least one year or one half of a contract’s term (whichever is less) shall be sent from the party intending to terminate to the other party (unless agreed otherwise).
The contract may be also terminated:
- by mutual agreement of the parties (‘Early Termination’);
- By unilateral termination of either party as per the terms and conditions of the contract, provided also that a termination notice of at least one year or one half of the contract’s term (whichever is less) should be sent by the party intending to terminate (‘Early Termination’);
- By court order.
The Commercial Agent may claim from the principal a compensation for the damage(s) it has incurred as a result of the expiration/termination/Early Termination of the contract (unless the contract states otherwise, or the parties agree otherwise especially in case of termination due to the expiration of the Contract). Further, the Commercial Agent is entitled to claim compensation if it can prove that its activities have contributed to the success of the Principal in the UAE and that the termination has deprived it from benefiting from the success it has made the principal achieve.
However, in case of Early Termination, the UAE courts may assess and determine the compensation basis, whereby such assessment was not described in the New Law.
Application of the provisions of the New Law on Existing Commercial Agencies
- Provisions pertaining to expiration/Early Termination of the Contract, shall apply on the existing Commercial Agencies contracts only after two years from the effective date of the New Law (from June 15, 2023).
- Those regulations, and as an exception, shall be applied ten years after the New Law comes into effect in June 15th, 2023, for Commercial Agencies that have been registered for the same agent for more than ten years or Commercial Agencies in which the volume of the Commercial Agent’s investment exceeds AED 100 million (one hundred million dirhams).
Dispute Resolution Mechanism and Methods
The Commercial Agencies Committee (the ‘Committee’) in the Ministry of Economy (in line with the Old Law) has the exclusive jurisdiction to determine any and all disputes between the parties to a Contract within 120 days from the date of recording the case (provided that either party has the right to appeal before the relevant UAE courts) including challenges against Early termination. In case the Committee fails to comply with the mentioned timeline to issue its decision on the case, either party has the right to appeal before the UAE courts within 60 days of lapse of the deadline.
The New Law has introduced new provisions related to the parties’ right to agree on arbitration as a dispute resolution option, whereby which after the Committee issues its decision in the case, either party may initiate arbitration (and ultimately may circumvent the said decision, rendering it with no effect whatsoever).
This new provision related to arbitration, is not applicable on disputes that are already being heard by the Committee or a UAE court before the New Law has entered into effect.
The New Law provided an important provision that the principal and during a dispute may, on temporary basis, sell its products through sources other than the Commercial Agent (given that the Principal may remain liable towards the Commercial Agent for such sales).
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