Out with the old and in with the new – The New UAE Commercial Agency Regime25 April 2023
"The New Agency Law provides broader grounds for lawful termination of a registered commercial agency."
Federal Law No.3 of 2022 concerning the Regulation of Commercial Agencies (the “New Agency Law”), repeals and replaces its predecessor, the UAE Federal Law No. 18 of 1981 (as amended) (the “Old Agency Law”). The New Agency Law gives foreign principals greater protections and freedom of contract that did not exist under the Old Agency Law.
The New Agency Law is expected to come into force on 15 June 2023 and it will apply to new commercial agency agreements registered in the UAE with the UAE Ministry of Economy.
In this briefing, we consider some of the fundamental changes introduced by the New Agency Law and the likely impact on future commercial agency arrangements.
Who can act as a registered commercial agent?
As under the Old Agency Law, the following categories of individuals/companies are permitted to act as a registered commercial agent:
(a) a UAE national;
(b) a UAE private company wholly owned by UAE nationals;
(c) a UAE public joint stock company (‘PJSC’) owned, at least, 51 per cent by UAE nationals; or
(d) a UAE private entity owned by a PJSC at least 51 per cent by UAE nationals.
"The New Agency Law permits the parties to opt for decisions rendered by the Commercial Agencies Committee to be appealed to and determined by arbitration."
Under the New Agency Law, the Cabinet may, based on the UAE Ministry of Economy’s recommendation, allow international companies to act as registered commercial agents for their own products if:
(a) they do not have an existing registered commercial agent within the UAE; and
(b) the commercial agency is new and had not previously been registered in the UAE.
Termination of commercial agency arrangements
Under the Old Agency Law, it was not possible for the principal to terminate or refuse renewal of a registered commercial agency without a “material reason”. There was no defined meaning of a material reason and evidencing a material reason to the satisfaction of a UAE court tended to be difficult and was the primary reason why many foreign principals tried to avoid having their agreements registered as commercial agencies.
Article 9 of the New Agency Law provides a list of circumstances in which a registered commercial agency may be terminated including where:
(a) the term of the agreement expires – unless the parties agree to extend the term; or
(b) the principal or the agent seek to terminate in accordance with the terms of the agreement e.g. termination for breach.
The New Agency Law provides broader grounds for lawful termination of a registered commercial agency. This is a stark contrast to the position under the Old Agency Law which in practice limited a principal’s ability to terminate a registered commercial agency unless it had a court order permitting it to do so.
The termination rights introduced by the New Agency Law will apply to the existing registered commercial agencies after a period of two years from the date on which the New Agency Law comes into force. However, for existing registered commercial agencies (i) which have been registered with the same commercial agent for more than 10 years; or (ii) in which the volume of the agent’s investment exceeds AED 100,000,000, these termination rights will not apply for a period of 10 years from the date on which the New Agency Law comes into force. The parameters for evaluating the agent’s investment will be determined by the UAE Ministry of Economy.
"The 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 be perceived in practice."
Under the Old Agency Law, disputes concerning registered commercial agencies could only be adjudicated and determined by a special Commercial Agencies Committee and any appeals of such decisions were subject to the UAE courts’ exclusive jurisdiction.
The New Agency Law permits the parties to opt for decisions rendered by the Commercial Agencies Committee to be appealed to and determined by arbitration. This development showcases the UAE’s increased recognition of arbitration as an alternative method of dispute resolution.
Additionally, under the New Agency Law, subject to certain conditions and the UAE Ministry of Economy’s approval, a principal of a registered commercial agency under dispute may continue to sell their goods in the UAE temporarily pending the resolution of the dispute,
Request for Compensation
Unless expressly agreed otherwise, the right to claim compensation following termination of a registered commercial agency has also been expanded under Article 11 of the New Agency Law to include:
(a) an agent’s claim for compensation for loss or damage it suffers as a result of non-renewal of a fixed term registered commercial agency; and
(b) either party’s claim for compensation for loss or damage suffered as a result of the other party lawfully (in accordance with the contractual provisions) terminating.
Moreover, Article 11 of the New Agency Law entitles an agent to claim compensation in the event of termination (for a reason other than the expiry of the term of the agreement) if they can prove that they contributed significantly to the principal’s success in the UAE and that the termination will cause them future loss of profits.
The 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 be perceived in practice. In any event, careful analysis and drafting will be required to new agency agreements going forward to reflect the New Agency Law and you should contact your usual WFW contact if you require any assistance in this regard.