A closer look at the UAE’s Commercial Agencies Law
In UAE, a trade agency is an arrangement whereby an international company appoints an agent to distribute, offer, negotiate the sale or purchase of goods on its behalf in the UAE market for commission or profit.
UAE Agencies Law No.18 of 1981 (the Law) is a federal law and is therefore applicable in all Emirates. The law which is very favorable to agents offering certain protections such as exclusivity, commission protection and other statutory protections (as described below) was amended in May 2020 under Federal Law No.11 of 2020, where fundamental requirements were introduced into UAE legislation. entities authorized to register as commercial agents with the Ministry of the Economy (MOE).
In light of recent changes in the law, in order for a commercial agency arrangement to be registered with the MOE, the agent must now be:
- UAE national;
- UAE Public Joint Stock Company (PJSC) at least 51% owned by UAE nationals;
- UAE private entity owned by a PJSC meeting the above requirements; or
- UAE private entity 100% owned by UAE nationals.
Types of agencies
There are many types of agencies under UAE law. The types of agencies discussed here are the two most common types: (i) distribution agreements and (ii) commercial agency agreements.
Although a distribution agreement may have a commercial effect similar to a commercial agency agreement (for example, representation of a principal by a distributor, distribution in a certain jurisdiction and commission based on sales), unless the If the distribution agreement is registered with the MOE as a commercial agency contract, the law will not apply. Therefore, the exclusivity and other statutory protections under the law will not be enforceable by the distributor.
If the agreement is not registered, the Commercial Code (Federal Law No. 18 of 1993) (and the Civil Code (Federal Law No. 5 of 1987) in certain circumstances) will apply. Termination of these agreements, under these laws, is less onerous and will be subject to the usual contractual elements of breach, negligence and fraud.
The agent’s exclusive protections
By law, registered business agency agreements cannot be terminated or terminated (even if they have expired) unless there is mutual consent or if there is a “material” reason. The “material” reason is not defined by law. However, this includes (but is not limited to) non-compliance with a non-competition provision, non-compliance with sales targets (when they are defined in the contract and therefore contractual) or serious breach key performance indicators (KPIs).
In addition, the agent will be able to block any other person (including the principal) importing the products, within its territory, into the UAE.
Termination of a commercial agent
In practice, the dismissal of a commercial agent registered with the MOE can only take place by one of the following two methods:
- By mutual consent of both parties, when a settlement is made and an amount of compensation is agreed to be paid by the principal in exchange for the termination of the agency contract by the agent; or
- By virtue of a committee decision (Articles 27 and 28 of the law) or a court judgment terminating the agency contract.
The purpose of a settlement agreement with an outgoing registered agent is to (i) record the agent’s consent to terminate the agreement (thereby avoiding the need to demonstrate a “ material ” reason to the committee; ( ii) state the agent’s obligation to cancel the registration of the agreement (as only the agent can do so); and (iii) agree on compensation to be paid to the agent for the termination of the agreement. agreement, such payment being payable only after receipt of the cancellation certificate.
In the event of a dispute between the principal and the agent, any decision on the existence or not of a “ material ” reason justifying the termination of the agency is subject to the discretion of the committee and to its interpretation of the facts of the case. litigation.
The commercial agency committee
According to Articles 27 and 28 of the Law, a trade agency committee is authorized to settle any dispute between a UAE trade agent and the foreign principal. The commercial agency committee will have primary jurisdiction over all registered commercial agency disputes.
The following steps must be taken before you can terminate a registered agency contract:
- As a first step, the principal must submit a request for cancellation of the agreement to the agency committee of the Ministry of the Economy, before taking such a decision unilaterally;
- The request must be based on substantive reasons which justify the cancellation;
- If the committee’s decision is not acceptable to the principal, it may be appealed to the court within 30 days from the date of its publication, otherwise the committee’s decision will be final and binding on the principal;
- UAE courts, federal and local courts, have previously dismissed claims filed under a registered commercial agency for failing to address the committee first with respect to the dispute that arose between the agent and the agent. principal in accordance with the law.
The process can take a long time, ranging from six to eight months, during this time the principal cannot appoint a different agent in the same jurisdiction, or for the same product, until the dispute with the registered commercial agent takes hold. end.
Governing Law and Dispute Resolution Provisions for Distribution Agreements
UAE law recognizes the principle of freedom to contract, parties to a contract are, in theory, free to choose the law applicable to that contract and to choose arbitration as the applicable law and arbitration as the mechanism for resolving disputes. disputes.
However, UAE law and UAE court jurisdiction are binding in a number of cases, including any registered business agency agreement that is subject to the law. The principle and the agent cannot avoid this requirement.
A registered commercial agent protection under the law, which prevents the principal from terminating the commercial agency without a material reason. The agent is also entitled to a commission on sales made in the UAE by the principal or any third party, which violate the exclusive rights of the agent.
In addition, in cases where the principal appoints a third-party distributor during the duration of its dispute with the registered agent, that registered agent may apply to the court to compensate them on the basis of the sales and / or profits of the products registered with the registered trade agency. agreement.
This type of complaint is very common. In practice, these court-accepted requests are often seen, especially in circumstances where the court is not satisfied with the reasons given for the cancellation of the registered commercial agency contract.
Partner, Ibrahim & Partners
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