Navigating the New Federal Commercial Agency Code in the UAE: Key Changes and Implications for Busin

Businesses aiming to expand in the UAE frequently turn to local commercial agents for their expertise in business operations and networks within the country. In line with efforts to foster international business, the UAE government has introduced a new Federal Commercial Agency Code, which brings extensive reforms compared to the previous law governing commercial agencies.

Who Can Act as a Commercial Agent Under the New Law?

Under Article 2(1) of the new Commercial Agency Code, only UAE nationals or entities fully owned by UAE nationals are permitted to act as commercial agents. These include:

• A natural UAE national
• A public legal entity
• A private legal entity owned by public legal entities
• A private legal entity fully owned by UAE nationals

The Council of Ministers may also allow international companies not owned by UAE nationals to act as commercial agents for their own products, but only if they meet specific conditions:

1. The company does not have an existing commercial agent in the UAE.
2. The company is new to the commercial agency market in the UAE.
3. The company adheres to the limits and conditions set by the Council of Ministers.

Additionally, public joint-stock companies established in the UAE with at least 51% of their capital held by UAE nationals are also eligible to engage in commercial agency activities, as outlined in Article 2(3) and (4) of the Code.

Has the Contract Term for Commercial Agencies Changed?

Yes, the new law brings updates to contract terms. Article 6 states that if the agency agreement requires the agent to establish facilities such as display buildings, storage spaces, or repair centers, the minimum contract term must be five years. Otherwise, the term will depend on the agreement between the parties.

Changes to Termination of Commercial Agency Contracts

The new law significantly expands the grounds for terminating an agency contract. According to Article 9, contracts can now be terminated under several conditions, including:

• Expiration of the agreed term, unless renewed.
• Termination by either the principal or agent as per the contract’s terms.
• Mutual agreement to terminate before the contract ends.
• A final court decision.
• Other provisions mentioned in the law.

This marks a shift from the old law, which only allowed termination in cases of "material breach."

Can Agents Claim Compensation After Contract Termination?

Article 11 addresses compensation claims when an agency contract is terminated. If the contract ends and is not renewed, the agent may seek compensation from the principal for any losses incurred. The agent must demonstrate that their efforts led to the principal's success, and the termination deprived them of potential profits.

This provision is subject to any prior agreements between the parties regarding termination and compensation.

Application of the New Law to Existing Commercial Agencies

For agency contracts that were in effect before the new law came into force, the provisions for termination under Article 9(a) and (b) will not apply for the first two years after the law’s implementation. However, this grace period extends to 10 years for agents who have maintained their status for over a decade or whose investments exceed AED 100 million.

Dispute Resolution and Arbitration

The newly formed Commercial Agencies Committee, as established under Article 23, is the primary body responsible for resolving disputes between the principal and the agent. However, parties are not precluded from seeking arbitration if previously agreed upon. Furthermore, any decision made by the Committee can be referred to arbitration under Article 26 of the new law.

Conclusion

The new Federal Commercial Agency Code introduces significant updates regarding the roles, responsibilities, and protections of both principals and agents. It allows for more flexible termination terms, offers clearer avenues for compensation, and provides multiple options for dispute resolution. These reforms aim to strike a balance between promoting international business growth and protecting the interests of local agents.

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