What you Need to Know About Commercial Agencies in the UAE

Businesses looking for growth opportunities in the UAE often seek the help of commercial agents since these are local persons equipped with the relevant expertise of business operations and networking in the country. Therefore, as part of the continuous effort to increase international business in the UAE, the government has put forward a new law regulating the commercial agencies in the country. The new Federal Commercial Agency Code has seemingly incorporated extensive reforms when compared to its predecessor.

Who can act as a commercial agent under the new Commercial Agency Code?

Acting as a commercial agent has been kept limited to the UAE nationals as per Article 2(1) of the new Commercial Agency Code, including companies or individuals fully owned by the following:

1. A natural national person
2. A public legal person
3. A private legal person owned by public legal persons
4. A private legal person fully owned by national natural persons

In addition to the abovementioned, the Council of Ministers may allow an international company not owned by a national(s) to act as a commercial agent for its own products, provided that it meets the following requirements:

1. Such company does not have a commercial agent inside the country
2. Such company will be a new commercial agent not registered before in the country
3. Such company will act as a commercial agent within the limits and as per the conditions prescribed by the Council of Ministers in this regard

Further, public joint-stock companies incorporated in the UAE with at least 51% of capital contribution by UAE nationals can also carry out commercial agency activities, as per Article 2(3) and (4) of the new Code.

Has the term of the contract for commercial agency been revised under the new law?

Article 6 of the new Commercial Agency Code states that if the agency contract stipulates that the agent will establish display buildings, commodity stores, maintenance or repair facilities, then the minimum term of the contract shall be 5 years, otherwise, it will be the term agreed upon.

What are the changes in the new law with respect to termination of the agency contract?

A commercial agency contract can be terminated in any of the following ways, as per Article 9 of the new law:

1. Expiry of the term of the contract unless it is renewed
2. By the Principal or the Agent as per the terms and conditions that may be stipulated in the agency contract
3. By agreement of the parties before expiry of the term of the contract
4. Final court judgement terminating the agency
5. Any other way that may be mentioned in the law regulating Commercial Agency

Article 9 provides much wider grounds for termination of an agency contract under the new Commercial Agency Code, as opposed to the reason of "material breach" as provided under the old law.

Upon termination of the agency contract, can the parties request for compensation for any damages incurred on their end?

Article 11 of the Code provides that if the agency contract is terminated upon expiry of its term and is not renewed by the parties, then the agent can claim compensation from the principal for any damages that he may have incurred as a result. This provision is subject to any agreement that the parties may have in this regard.

Compensation can be claimed by the affected party in case the agency contract is terminated by the opposite party, and the agent in such a case will be entitled to compensation if he is able to show that the principal has achieved great success due to the agent’s activities and because of the termination of the agency he was deprived of the profits in relation to that success.

Will the provisions of the new law apply to the already existing commercial agencies in the UAE?

The provisions regarding termination of the agency contract, as laid down under Article 9(a) and (b) of the new Code will not apply to agency contracts already existing at the time the new Code is issued, unless two years have passed from the date of its enforcement. This period of 2 years is extended to 10 for commercial agencies which have been registered with the same agent for more than 10 years, and for those in which the agent’s investments are more than one hundred million dirhams.

Can the parties to the agency contract resort to arbitration for resolution of disputes as per the new Code?

The Commercial Agencies Committee, as established under Article 23 of the new Code, is competent to hear any dispute at the first instance, between the parties to the agency contract, under the new Commercial Agency Code. However, this does not preclude the parties from resorting to arbitration if they have agreed to it previously. Moreover, the decisions issues by the Committee with respect to any dispute between the parties can also be referred to arbitration, as per Article 26 of the new law.

The new Commercial Agency Code comprises of major changes in terms of dispute resolution and termination of agency contracts, and these provisions will act as catalysts in promoting the growth of international business in the UAE, while maintaining a balance between the principal and the agent.

Dr. Hassan Elhais is a legal consultant in Dubai, specializing in the drafting of all statements of claim, memos and consultation on litigation of all manner.