Over the last year, the United Arab Emirates has been undergoing unprecedented legal reform to modernize many of its laws. In keeping with the aforesaid, Federal Law No. 3 of 2022 on Regulating Commercial Agencies (the “New Law”) was issued. The New Law abrogates the previous 41-year-old Federal Law No. 18 of 1981 (as amended) (the “Old Law”) and seems to rebalance the distribution of power in the agent-principal relationship. This analysis focuses on some of the key developments ushered in by the New Law.

Under the previous regime, the Old Law enumerated the entities and/or individuals who may act as commercial agents. This was limited to UAE nationals, public companies, private companies wholly owned by UAE nationals or public companies, or public joint stock companies with at least 51% shareholding owned by UAE nationals (subject to specific requirements).

In addition to aforesaid, the New Law now allows for international companies to act as commercial agents for their own products. This, however, is subject to the approval of the Cabinet and Minister of Economy and conditional upon there not being or having previously been any agent inside the UAE for the principal and its products.

The possibility for international companies to act as commercial agents, even those without any UAE national shareholding, is a significant shift from the previous law. This will undoubtedly aid in the growth and diversification of the UAE commercial agency sector.

Previously, a commercial agency may only be terminated or not renewed by mutual agreement of the parties or on the basis of a ‘substantial reason’ justifying termination. While what constituted substantial reason was left to the discretion of the court, case law illustrates that this was interpreted very narrowly, with the courts imposing a high burden of proof on the applicant. The Old Law explicitly held that expiration of the agency contract did not constitute a substantial reason for termination.

This meant that ending a commercial agency under the Old Law was in practice very difficult to achieve, something that fell in line with the legislators aim of protecting national agents.

The New Law however, allows for termination of the agency contract:

(i) and (ii) above are however predicated on the following notice requirements:

Where a party does not wish to renew the agency, they must serve on the other party a notice of one year prior to the expiry of the contract or before the lapse of one half of the agency contract term, whichever is less, unless the parties have agreed otherwise.

A party wishing to terminate an agency agreement at will must send the other party a notice of one year prior to the date set for termination or before the lapse of one half of the contract term, whichever is less, unless the parties have agreed otherwise.

Should the non-terminating party wish to dispute the termination, the New Law allows them to resort to the Commercial Agency Committee (the “Committee”) to challenge the request for termination. The Committee must thereafter issue a decision on the challenge within one hundred and twenty (120) days. Where no decision is forthcoming within the aforesaid prescribed period, the challenge is deemed rejected.

The Old Law provided the broad caveat that any party suffering damage as a result of the termination is entitled to claim compensation for the damages sustained.

Maintaining the previous position, the New Law provided that where the agency terminates at the will, and the termination causes harm to either party, the affected party may claim compensation for damages they have incurred.

The New Law also expands on the aforesaid and provides for devolution of the assets following termination. Furthermore, the law explicitly prescribed the right of the agent to compensation in certain instances:

Previously, any disputes relating to commercial agencies must have been brought before the Committee. Furthermore, the Old Law set out a particular procedure to register a dispute relating to commercial agency and failure to adhere to prescribed procedure resulted in the dispute being considered null and void.

The Committee was required to begin examining the litigation within sixty (60) days of the claim submission. In the event that one of the parties was not satisfied with the Committee’s decision, that party may challenge it by way of appeal before the competent court within thirty (30) days.

While the provisions of the New Law maintain the Committee’s jurisdiction in hearing disputes between agents and principals, it has expediated the procedure. Namely, the New Law requires that the Committee begin reviewing the claim within twenty-two (22) working days and must issue a decision within one hundred and twenty (120) days from the date of submission. The New Law further extends the time for appeal, by allowing a party to challenge the Committee’s decision before the courts within sixty (60) days from the date of decision’s issuance.

In a fundamental deviation from the Old Law, the New Law allows the parties to resort to arbitration, provided that such means of dispute resolution is agreed by the parties. The parties, however, may only resort to arbitration after a decision is issued by the Committee, with the Committee’s decision having no impact on the arbitration.

The New Law is due to come into force on the 16th June 2023. However, the application of certain provisions is not applicable to certain agencies currently in place. In particular, the right to resort to arbitration does not apply to disputes already being heard by the Committee or Court before publication of the New Law. Furthermore, for existing agency contracts, the provisions for termination by way of nonrenewal or termination at will have been restricted as follows:

The New Law, amongst other things, seeks to rebalance the power between agent and principal, allow greater freedom of contract and addresses the previous criticisms of the Old Law. These significant developments heralded by the New Law will be welcome by the commercial agency sector and business community and illustrates the UAE’s openness to foreign markets and international business.

For more information on commercial agencies and how we can support our clients, feel free to contact Abdelmajeed Zwairi at azwairi@maslaw.com