Overview of UAE Commercial Agencies Law
The Federal Law No. 18 of 1981 on Commercial Agencies as amended by Federal Law No. 14 of 1988, Federal Law No. 13 of 2006 and Federal Law No. 2 of 2010 (the “Agencies Law”) regulates the appointment of commercial agents in the UAE. The Agencies Law defines a commercial agency as any arrangement whereby a UAE agent represents a foreign company, i.e. a principal, for the purpose of “distributing, selling, offering, or providing goods or services in the UAE for a commission or profit”. A principal may be a manufacturer, a franchisor, an exclusive accredited exporter or an official representative of the manufacturer. The Agencies Law makes no distinction between commercial agency agreements, distributorship agreements, franchise agreements, commission arrangements and other forms of sales agency relationships. Although, such forms of business representation may also be defined as commercial agencies under the Agency Law.
The Agencies Law puts forth following requirements for the parties in order to be qualified and protected under the Agency Law:
Under the Agencies Law, the agents enjoy a range of privileges if the agency arrangements is registered with the Ministry. We will talk about the agent’s privileges under the Agencies Law later in this article. The Agencies Law does not govern unregistered commercial agency arrangements and consequently the parties shall not be able to avail of the provisions of the Agencies Law. However, unregistered commercial agency arrangements are considered as valid contracts and are governed by the federal Law No. 18 of 1993 on Commercial Transactions (Law No. 18 of 1993) and the Federal Law No. 5 of 1985 on Civil Transactions (Law No. 5 of 1985). Under these Laws, foreign owned businesses can also enter into agency or distributorship agreements; however, without being protected under the Agencies Law.
Amendments to the Agencies Law
Since the adoption of the Agencies Law until 2006 amendments, it was complicated for a principal to end a commercial agency agreement. According to the Article 8 of the Agencies Law of that time, a principal may neither terminate nor decline to renew an agency agreement without a “justified cause”, even if the agency agreement was for a limited term. During that period, proving a justified cause for terminating or declining to renew the agreement was a challenging task even in cases where the agent failed to perform. The Commercial Agency Committee (the “Committee”), which was established under the Agencies Law, or the court, had to take a decision on whether there was a justified cause or not for terminating or discontinuing the agency agreement by the principal.
2006 Amendments to the Agencies Law
In 2006, the Federal Law No. 13 of 2006 has amended certain provisions including the Article 8 of the Agencies Law. Pursuant to the amended Article 8, the commercial agency agreements of a limited term would expire at the end of that term unless both parties agreed to renew such term within one year of the expiration date. Thus, the 2006 amendments cancelled the requirement to have a justified cause for discontinuing the limited term agreement upon its expiry. As a result, many fixed term agency agreements were not renewed following these amendments. However, as per the amendments, termination of the agency agreement prior to the term was not permitted without justified cause.
The 2006 amendments further provided that, if the termination of an agency agreement caused damage to any of the parties, the aggrieved party including the principal could claim compensation for the damage suffered (thus providing both of the parties a statutory right to claim a compensation). The amendment also stopped the existence of the Committee to hear disputes, leaving the court as the means of dispute resolution.
2010 Amendments to the Agencies Law
The Agencies Law was amended again in 2010 that have again effected the requirements in respect of termination and renewal of commercial agency agreements and reinstated the Committee, which was abolished by the 2006 amendments.
The 2010 amendments to the Agencies Law state that a principal may not terminate or decline to extend an agency contract unless there is a “material reason” for termination or non-renewal. A “material reason” must be established and determined to be acceptable by the Committee. These amendments therefore no longer allow a principal to end an agency agreement at the expiry of a fixed term unless there is “a material reason” satisfactory to the Committee is established.
Furthermore, the 2010 amendments provide that, even if an agency is for a limited term, an agency cannot be registered in the name of a new agent unless:
As mentioned above, the Committee has been re-established by 2010 amendments to hear disputes in relation to commercial agencies. As per the amendments, a dispute must be taken to the Committee first. The parties can proceed to the state court in case if any of the parties wants to appeal the decision of the Committee. The Committee is obliged to hear disputes within 60 days of the date of application. The Committee’s decision shall be considered final unless challenged before a competent court within 30 days of the date the Committee issues its decision.
