What Are The Features Of The New Commercial Agencies Law In The UAE?

The UAE Ministry of Economy announced during its press conference, which was held on Wednesday, January 25 of this year, the issuance of Federal Law No. 3 of 2022 that regulates commercial agencies (the new Commercial Agency Law), which repeals and replaces Federal Law No.18 of 1981, which regulates commercial agencies (the old Commercial Agency Law), issued more than 40 years ago. The ministry also indicated that the law will enter into force on June 16, 2023;

In this article, we will highlight the differences between the new and old Commercial Agencies Law, which in short are as follows:

1) Types of Agents

As was the case under the Old Commercial Agency Law; The practice of Commercial Agency business in the State shall be limited to individual citizens, and companies and institutions that are wholly owned by any of the following:

a. A natural person who is a citizen;

b. A public legal person;

c. A private legal person owned by public legal persons; and

d. A private legal person wholly owned by natural persons who are citizens.

- However, the New Commercial Agency Law also allows for public joint-stock companies with at least 51% UAE National shareholding to act as a commercial agent. This reflects recent legislative developments brought about pursuant to Federal Law No.11 of 2022,

- In addition, the New Commercial Agency Law in Article No. (2) Clause No. (2) provides that the Cabinet (based on the recommendation of the Minister of Economy) may allow any international company (not owned in whole or part by a UAE national) to sell its own products directly in the UAE without an agent, provided that there is no agent already appointed in the UAE and the commercial agency is new and not previously registered in the State.

2) Expiration of the Commercial Agency Contract

Under the old commercial agency law, a principal was unable to terminate or refuse to renew a registered commercial agency agreement unless he had a "material reason" to do so. However, Article No. 9 of the new Commercial Agency Law states that the registered commercial agency agreement can be terminated in any of the following five ways:

A. Upon expiry of the contract term unless this term is renewed by the agreement of the contracting parties.

B. By the will of either the Principal or the Agent based on the terms and conditions of the Commercial Agency contract.

C. By the agreement of the contracting parties before the end of the contract term.

D. Upon the issuance of a final court judgment to terminate the Commercial Agency.

E. Any other case mentioned in this Law.

Therefore, the New Commercial Agency Law does not refer to the requirement of a “material reason” to terminate, expands termination rights and provides broader grounds on which lawful termination may occur. Taking into consideration the Controls and Provisions regarding the Termination or Non-Renewal of the Commercial Agency Contract stipulated in Article 10 of the Law.

3) claim for compensation

While the old Commercial Agency Law allowed either party to seek compensation for any damages incurred as a result of termination, Article 11 of the new Commercial Agency Law takes these principles even further and states that:

A. If the parties agree not to renew a fixed-term agreement, then unless there is an agreement to the contrary, the agent is entitled to claim compensation for any damages incurred as a result of the termination of the agreement.

B. If the agreement is terminated by either party in accordance with the termination rights contained in the agreement, then either party can claim compensation from the other party for any damage suffered. In addition, the Agent shall be entitled to compensation, if it proves that their legitimate activity has contributed to the achievement of visible and significant success of the products of the Principal and has led to the promotion of such products or the increase in the number of customers and that the termination of the Commercial Agency contract has led to depriving the Agent of their lost profit regarding this success.

4) Resorting to Arbitration

Under the Old Commercial Agency Law, the Commercial Agencies Committee (the Committee) had exclusive jurisdiction to determine any disputes between the parties in the first instance, with the right of any appeal being referred to the UAE Courts.

While the New Commercial Agency Law provides that the Committee is still responsible for hearing disputes between the parties in the first instance including providing a procedure for determining disputes , it allows parties to arbitrate a dispute within sixty (60) days from the date of notification of the Committee’s decision ( article no. 26 )

In addition, the New Commercial Agencies Law introduces the ability for a principal to seek permission to continue to import its goods which are subject to its registered commercial agency agreement in the case of a dispute between the principal and agent, on a temporary basis (for example, until the dispute is resolved).

5) Regarding existing agencies

A. The final provisions in Article No. (30) of the law clarified that Registered commercial agencies which existed before the issuance of the New Commercial Agency Law will not be subject to the new  provisions of expiration of introduced by the New Commercial Agency Law, except after two years from the date on which comes into force.

B. Also the provisions for expiration of the Commercial Agency of this Law shall not apply to Commercial Agency contracts in force at the time of its issuance except after the lapse of ten years from the date of its entry into force, in the event of:

1. Commercial Agencies that have been registered for the same Agent for more than ten years or

2.Commercial Agencies in which the volume of the Agent’s investment exceeds one hundred million (100,000,000) AED. The volume of the Agent’s investments shall be evaluated according to the standards and controls to be issued by the Minister.

                       Published By    

                                                                         YINGK & SHAYAN LEGAL CONSLUTING TEAM

                                                                                                                        feb                                                     3, 2023