Uncovering the new UAE Commercial Agencies Law

The newly issued Commercial Agency Code (Federal Law No. 3 of 2022 Regulating Commercial Agencies) (New Commercial Agencies Law) is set to come into force in June 2023, replacing the old Commercial Agency Code (Federal Law No. 18 of 1981 Regulating Commercial Agencies, as amended) (Old Commercial Agencies Law).

The New Commercial Agencies Law is a fundamental change in approach to commercial agent relationships in the UAE.  The law expands the scope of potential Principal / Agent relationships and provides for a more balanced approach with respect to regulating such relationships when compared to the Old Commercial Agencies Law (which was considered to be largely favourable towards registered commercial agents).

Of particular note, under the Old Commercial Agencies Law, Principals had very limited rights to end their relationship with an Agent in the absence of a “fundamental reason” to do so. Under the New Commercial Agencies Law, Principals have a right to terminate the relationship in line with the terms of the underlying Agency Agreement, as well as the ability to agree with Agents that they will waive any right they may have to compensation on expiry of the Agency Agreement.

Whilst this shift does seek to somewhat restore the balance between Agents and their Principals, it should be noted that, the balance overall does still favour protecting the interests of Agents.

 

Key Highlights

Some of the key highlights in the New Commercial Agencies Law include:

• Foreign agents. The Cabinet may now permit international companies to practice a commercial agency business (without a local party) under certain conditions.

• Expiry and termination. The New Commercial Agencies Law provides that the Agency Agreement will come to an end where:

- The agreement expires and a party doesn’t wish to renew it; or

- A party exercises a right it has to terminate the agreement.

(This shall not apply to Agency Agreements that have been registered with the same Agent for at least ten years or where the Agent’s investment exceeds AED100,000,000 until 2033.)

• Notice to terminate. The New Commercial Agencies Law prescribes strict notice periods that a party wishing to terminate the Agency Agreement must adhere to when exercising its right to terminate, unless the parties otherwise agree.

• Compensation. The right of an Agent to compensation for damage sustained as a result of the Agency Agreement ending is retained under the New Commercial Agencies Law, but it is now possible for the parties to agree that the Agent will waive this right when the relationship ends as a result of the Agency Agreement expiring.

• Goods during a dispute. Under the New Commercial Agencies Law, during a dispute, Principals may continue to bring goods and services into the UAE on a temporary basis with the Ministry of Economy’s approval and provided the Principal remains liable to the outgoing Agent for any compensation that may be due.

• Arbitration. The provisions of the New Commercial Agencies Law expressly permit the parties to the Agency Agreement to refer disputes between them to arbitration. Under the Old Commercial Agencies Law, only the courts of the UAE had jurisdiction over disputes, and any agreement to the contrary was void.

It should be noted that the Executive Regulations (which are expected to provide further clarity on the implementation and application of the New Commercial Agencies Law) have not yet been published. It therefore remains to be seen how this area will develop in the coming months.

Please do not hesitate to reach out to Rami Zayat or Sam O’Neill if you require any further information on the New Commercial Agencies Law and how it may impact your operations in the UAE.