Overview of the UAE New Commercial Agencies Law

March 6, 2024
UAE, Legal, 2024

March 6, 2024

The UAE laid the foundation for the commercial agency regulations by virtue of Law No. 18 of 1981, (“UAE’s Former Agencies Law”) which was subsequently replaced by UAE’s Commercial Agencies Law No. 3 of 2022, effective as of June 2023 (“UAE’s Current Agencies Law”)

UAE’s Current Agencies Law provides significant additions to the UAE’s Former Agencies Law to achieve a balance between the interests of the Principal and the Agent.

The UAE’s Current Agencies Law limits Agency activities within the UAE to (I) a natural person who is a UAE citizen (ii) a public company (iii) a private company owned by a public juridical entity (iv) a private company wholly owned by natural persons who are UAE citizens (v) a public joint stock company incorporated in the UAE and in which the shareholding of UAE citizens is at least 51% of its capital.

UAE’s Cabinet Decree No. 83 of 2023 dated 20 July 2023, concerning the procedures and requirements to license public joint stock companies to practice commercial agency activities provided fulfilling certain requirements, namely the following:

The shareholding percentage of UAE nationals shall not be less than (51%) of the company’s capital.
The objective of the company must be exercising commercial agency activities, and the company must carry out this activity by itself.
Meeting the necessary conditions and requirements specified by the competent authorities and any of the official authorities in the UAE such as the Securities and Commodities Authority.
Meeting the specified requirements by the Ministry of Economy and providing it with any requested information, in addition to notifying the Ministry of Economy immediately with changes that occurs to any conditions that may affect the company and the prerequisites aforementioned.

Aside from the criterion mentioned above, the UAE’s Current Agencies Law introduces a new provision granting an exception concerning international companies (i.e. foreign entities) that do not wish to abide by the national ownership restrictions mentioned above. In this regard, the Cabinet, upon the recommendation of the Minister of Economy has the authority to permit international companies to engage in Agency activities related to their own products, thereby exempting them from the national ownership requirements. However, such permission is subject to (i) not having an Agent within the UAE and (ii) the exemption license being concerned with a Current Agency that was not previously registered in the UAE.

The Commercial Agency Agreement must be notarized and registered with the Ministry of Economy Commercial Agencies Register department. Otherwise, no Agency activities will be deemed valid. On the other hand, de-registration is carried out through a request raised to the Ministry of Economy by either the Agent or their legal representative within sixty days from the date of the event that the Agent no longer meets the requirements of the UAE’s Current Agencies Law or in the event the Commercial Agency Agreement expires without being renewed. The Ministry of Economy may also initiate with de-registering the Commercial Agency Agreement within (10) ten days from the date of being informed of those instances.

The UAE’s Current Agencies Law also introduced a new provision with respect to the term/duration of the Commercial Agency Agreement as it set a term of (5) five years in the event that the Agent is required to construct showrooms, outlets, or maintenance/repair facilities as stated in the Agreement, unless a different duration is agreed upon.

There is also a significant addition regarding terminating the Commercial Agency Agreement. In the UAE’s Former Agencies Law, the expiry of the Commercial Agency Agreement was not considered as sufficient ground for terminating the Commercial Agency Agreement. The Current UAE Agency Law addresses termination in Articles 9, 10 and 30, whereby the newer statute explicitly states that the expiry of the term is considered grounds for terminating the Commercial Agency Agreement. In that manner, we wish to set out the events of termination:

upon expiry of the Commercial Agency Agreement unless both parties agree to an extension.
termination according to the terms and conditions of the Commercial Agency Agreement.
termination prior to expiry with mutual consent.
by virtue of a court order.

It is important to note that when one party wishes to terminate the Commercial Agency Agreement according to the terms and conditions therein, they are required to provide the other party with a notice of their intention to terminate one year in advance, or before reaching the half-way mark of the Agreement’s term, whichever is less, unless agreed otherwise. However, the events of termination stipulated in Article (1) (a)(b) of the UAE’s Current Agencies Law are excluded in each of the following instances:

Commercial Agency Agreements which were in effect prior to the introduction of the UAE’s Current Agencies Law unless a period of two years has lapsed since its entry of effect.
Agencies that have been duly registered with a sole agent for a period exceeding ten years.
Agencies in which the Agent’s investment volume is more than AED (100,000,000) one hundred million dirhams.

Under UAE’s Current Agencies Law, receiving compensation for any damages suffered as a result of termination of the Agreement may occur if:

The termination is upon expiry of the Commercial Agency Agreement, so the Agent may demand compensation from the principal for any losses which resulted from termination, unless agreed otherwise.
the Commercial Agency Agreement is terminated in accordance with the terms and conditions therein, then either party can claim compensation for the damage suffered as a result of the termination.

Therefore, and contrary to the previous legislation, the UAE Current Agencies Law does not refer to the term “material reason” for termination, enhances termination privileges, and offers a more extensive range of legitimate grounds for termination. This is also unlike Article 8/3 of the UAE Former Agencies Law which stated that it is not considered a “material reason for termination in the event of the expiration of the Commercial Agency Agreement”. In that vein, it is worth to mention that the assessment of whether the reasons are material or not is subject to the discretionary power of the court and /or the committee. (Dubai Court of Cassation Case No. 307-308 of 2005 dated 26 December 2005 and case No. 161 of 2014 dated 16 April 2015).

The Agent is entitled to compensation if he could substantiate that his work contributed to the success of the principal’s products, thereby resulting in product promotion or an increase in revenue, and that they incurred a loss of potential earnings due to the termination of the Commercial Agency Agreement.

The governing law of the Commercial Agency Agreement must be UAE Law. Any disputes must be firstly referred to the Committee. However, the UAE Current Agencies Law introduced and modified some timeframes for viewing the disputes. To elaborate, the timeframe for the Committee to look into the dispute is now (22) twenty-two days, whereas in the UAE Former Agencies Law it was (60) sixty days.

In addition, the UAE Current Agencies Law requires that the Committee must issue a decision with respect to the dispute within (120) one hundred and twenty days from the date of filing the dispute application. Otherwise, adverse may refer to the local courts within (60) sixty days. Also, the time bar to challenge the decision of the Committee under the UAE Current Agencies Law is (60) sixty days, as it was (30) thirty days under the UAE Former Agencies Law.

One of the biggest highlights in the UAE Current Agencies Law is that the parties of the Commercial Agency Agreement could resort to arbitration after the issuance of decision by the Committee. The default seat of arbitration will be in the United Arab Emirates, unless the parties have agreed otherwise. In such cases, the decision made by the Committee will not be binding on the parties or the arbitrator should the parties’ resort to arbitration within the sixty-day time bar of appealing the decision of the Committee.