United Arab Emirates: Recent Changes to the UAE Commercial Agencies Law

The UAE federal government has recently published in the Gazette, Federal Law No 2 of 2010, which amends certain provisions of Federal Law No 18 of 1981 Regulating Commercial Agencies (Agencies Law). The amending law varies the termination and renewal provisions of the Agencies Law and establishes a committee to hear disputes arising in respect of commercial agencies.

Commercial Agencies and Agencies Law

The Agencies Law is the primary source of law in the United Arab Emirates (UAE) governing commercial agencies. A commercial agency is defined in the Agencies Law as "the representation of a principal by an agent for the purpose of distributing, selling, offering or providing merchandise or services inside the UAE for a commission or profit". A principal may be either "the producer or manufacturer" of the relevant product or the "exclusive accredited exporter or representative of the producer".

It is important to note that the Agencies Law makes no distinction between commercial agency agreements, agreements regarding distributorships, franchises, commission arrangements and other forms of sales representative or sales agency relationships. All of these forms of business arrangements may qualify as commercial agencies under the Agencies Law.

The Agencies Law will apply if the following requirements are satisfied:

Under the Agencies Law, registered commercial agents are afforded certain protections which relate, amongst other things, to termination and renewal of the agency agreement.

From the commencement of the Agencies Law until 2006, it was difficult for a principal to terminate a commercial agency, as Article 8 of the Agencies Law provided that a principal may neither terminate nor refuse to renew an agency agreement without "justified cause", even if the agency agreement provided for a fixed term. During this period, establishing justified cause for termination before the commercial agency committee, which was set up under the Agencies Law, or the court, was a difficult task, even in cases where the agent failed to perform.

2006 Amendments to the Agencies Law

In 2006, an amendment to the Agencies Law was passed pursuant to which the revised Article 8 provided that commercial agency contracts of a fixed term would expire at the end of that term unless both parties agreed to extend such term within one year of the expiration date. The amendment further provided that, if the termination of an agency agreement caused damage to either party, the aggrieved party could claim compensation for the damage suffered (thus providing both the principal and agent a statutory right to claim compensation). The amendment also abolished the commercial agency committee, leaving recourse to the court as the means of dispute resolution.

While the 2006 amendments did not permit a principal to terminate an agency agreement prior to the end of the term without justified cause, the amendments certainly made it easier for principals to terminate an agency agreement at the expiry of a fixed term as there was no longer a requirement to provide a reason justifying such termination. As a result, a number of fixed term agencies were terminated following these amendments to the Agencies Law.

The recent 2010 amendments to the Agencies Law, as first mentioned above, change the position again in respect of termination and renewal of commercial agencies and reinstate the 'Committee of Commercial Agencies' which was abolished by the 2006 amendments.

2010 Amendments to the Agencies Law

The latest amendments to the Agencies Law provide that a principal may not terminate or refuse to renew an agency agreement unless there is a "material reason" for termination or non-renewal, and such reason must be established and subsequently determined to be satisfactory by the Committee (the Committee is further as discussed below). These amendments therefore no longer permit a principal to terminate an agency agreement at the expiry of a fixed term and instead, "a material reason" must be capable of being established to justify termination or non-renewal of an agency agreement.

The 2010 amendments go further than previous amendments to the Agencies Law to provide that, even if an agency is for a fixed term, an agency cannot be re-registered in the name of a new agent unless:

As mentioned above, the Committee, named the 'Committee of Commercial Agencies' has been re-established to hear disputes arising in respect of commercial agencies and the law now provides that a dispute must be taken to the Committee before it can proceed to court. The Committee is obliged to hear disputes within 60 days of the date of application to the Committee and the Committee's decision shall be considered to be final and binding unless challenged before a competent court within 30 days of the date the Committee issues its decision.

Concluding Remarks

It has always been important for parties to an agency agreement to ensure the termination provisions of the agreement are clear and unambiguous and provide for particular instances when the principal will have "justified cause" to terminate the agreement. Nevertheless, the 2010 amendments highlight the importance of this for principals, especially as a "material reason" is required to terminate an agency agreement at the expiry of a fixed term.

A "material reason" to terminate an agency agreement may be determined by the Committee or a court to constitute failure to comply with any of the material provisions of the agency agreement such as pricing, competition, restrictions on sale or key performance indicators or targets, or repeated and consistent breach of the terms of the agency agreement. Failure to address the termination issue satisfactorily in the wording of the agency agreement could leave a principal in the invidious position of having to continue with an agent with whom the commercial relationship has broken down or being unable to proceed with a new agent.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.