UAE: The New Commercial Agencies Law


published on 25 January 2023 | reading time approx. 3 minutes

On 13th December 2022, the UAE government has issued Federal Law No. 3/2022 regulating Commercial Agencies (Commercial Agency Code) which has abrogated Federal Law No. 18/1981. The new law is well attuned to economic and global trade developments and the favorable investment climate of the UAE.

Up until 2020 only individuals who were UAE citizens or companies fully owned by UAE citizens could act as commercial agents. Since 2020, UAE government added another entity to practice commercial agents activity such as public joint-stock companies, and public legal entities with at least 51 percent national capital contribution have the right to register commercial agencies. The new law even grants the Cabinet authority to allow international companies, including those not owned by UAE nationals, to engage in commercial agency activities related to their products without the need for a commercial agent in the UAE if they meet special requirements and if it is recommended by the responsible Minister.
The law also resolves a critical issue considering the termination of the agency agreement. Whereas previously a “fundamental reason” was needed to terminate the agency contract or to refrain from the renewal, the commercial agency can now be terminated by mutual agreement of the parties, on the expiry of its term or the will of either the Principal or the Agent based on the terms and conditions of the Commercial Agency contract. 
Another important improvement for investors is the option of re-registering the agency in the name of a new agent while the agent-principal dispute in relation to the commercial agency is in pending status which gives the principal the opportunity to continue the business in the UAE with another agent while the dispute is pending. However, the new agent and the principal could be jointly liable to pay compensation to the old agent for the agency spare parts and products. 
Furthermore, the agent has the right to claim compensation, where appropriate. Especially, if a commercial agency between a principal and an agent has terminated and the agent had expended significant effort in promoting the product in the UAE, The Agent can claim compensation for the damages he has sustained because of the termination and the effort he expended in promoting the agency, unless the parties agree otherwise by express agreement. The law does not specify the amount of such compensation. It seems that it will be a matter of subjective assessment on a case-by-case basis. 
Under the old law, it was conditional for the Ministry to summon the parties to the agency to give their opinion on the cause of deletion before deleting it from the register. This led to many administrative cases in which the courts cancelled decisions of the Ministry for contravening this requirement. Therefore, the new law states that the Ministry has the right to delete the agency on its own initiative if any of the applicable statutory conditions are met or are no longer met.
Another key provision which is Article 26 of the new Law No. 3/2022 as it supports the autonomy and upholds the right of the parties to include an arbitration clause in their commercial agency agreement, which covers any dispute that may arise over its terms and provisions following the issuance of the Commercial Agencies Committee’s decision. Whereas in the former law, arbitration clauses were not being upheld in the context of agency agreement disputes because Article 6 was interpreted strictly which led to the exclusive jurisdiction of the courts in commercial agency disputes.
The UAE government wanted to protect existing commercial agencies and promote a stable rule of law in the UAE while allowing agents to regularize their status. Therefore, the law makes relevant provision in deferring the entry into application of its provisions (e.g. certain articles), including the article addressing the timely termination of commercial agency contracts but also termination based on the terms and conditions of the contract, to two years from the effective date of the law. Through this provision, agents and principals whose contracts have expired or are about to expire and need to be renewed are urged to use the two year grace period for regularizing their status by renewing their contracts and reorganizing their rights and contractual relations.
In conclusion, it can be said that the new law will lead to different improvements in the commercial agent business as it aims to balance the interests of both the agent and the principal by bringing a long-awaited reform and addressing practical issues that were criticized in the former law. By developing a new and advanced legislative framework through clearly worded articles, the UAE are keeping pace with social change and development.
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