UAE has introduced new Commercial Agency law i.e., Federal Law No. (3) of 2022 for regulating Commercial Agencies. The said law came into effect on June 16, 2023. The law is based on the principle of autonomy/will and the contract is pacta sunt servanda (agreements must be kept) protecting all parties.It introduces significant changes to the old Commercial Agency lawi.e., Federal Law No. 18 of 1981 which had been in existence for the past over 4 decades.
Below are some of the relevant questions covering the scope and applicability of the new law along with their appropriate answers which makes it overall easier to understand the highlights of the new legislation.
- What is a Commercial Agency under UAE Law?
As per Article (1) of the Federal Law No. (3) of 2022, which provides for few definitions, “Commercial Agency” is defined as the representation of a Principal by an Agent under a contract of agency, distribution, sale, offer or concession, or the provision of a commodity or service within the territory of UAE in return for a commission or profit.
2. Who are allowed to have Commercial Agency under the UAE Law?
According to the Article (2) sub clause #1 of the Federal Law No. (3) of 2022, the constitution of Commercial Agency business shall be limited to;
- Individual citizens, and companies and institutions that are wholly owned by any of the following:
a. A natural person who is a citizen;
b. A public legal person;
c. A private legal person owned by public legal persons; and
d. A private legal person wholly owned by natural persons who are citizens.
In other words, UAE nationals or companies that are wholly owned by natural legal nationals are allowed to operate Commercial Agency in UAE.
3. Does the law allow international companies to practice as Commercial Agency?
Yes, as per Article (2) sub clause #2 of the Federal Law No. (3) of 2022, it does allow international companies to practice as a Commercial Agency even if it is not owned by citizens of UAE to practice as one for the products it owns only if;
a. this Commercial Agency does not have a Commercial Agent inside the UAE.
b. the Commercial Agency is new and not previously registered in the UAE.
In the case of public joint stock companies (PJSC) which are incorporated in the UAE and in which the shareholding of the citizens is at least 51% of its capital, such companies shall be excluded from the requisitions as stated under Article (2) sub clause 1 above. However, for allowing above activity, the decision of the Cabinet is paramount which is based on a recommendation of the Minister. It shall issue a decision on the necessary procedures, controls and conditions to operate such an Agency.
4. Is registration of the Commercial Agency in the Commercial Agencies Register mandatory?
Yes. As per Article (3) of the Federal Law No. (3) of the 2022, registration of the Commercial Agency in the Commercial Agencies Register is mandatory. Without such registration, a Commercial Agency would not be considered valid.
5. What is the term of the contract?
As per Article (6) of the Federal Law No. (3) of 2022, if it is stipulated in the agency contract that the Agent establishes display buildings, commodity stores, or maintenance or repair facilities, the contract term shall be for five (5) years, unless otherwise agreed upon.
6. Is the Commercial Agent entitled to commission in a given territory even if any transaction is concluded either by principal itself or through others in the territory designated for the business of the Agent?
Yes, as per Article (6) of the Federal Law No. (3) of 2022, the Commercial Agency would be entitled to a commission for any transaction which takes place in the designated territory for the business of the Agent.
7. Under what circumstances the Commercial Agency contract shall expire?
According to Article (9) of the Federal Law No. (3) of 2022, the Commercial Agency contract shall expire in any of the following cases:
a. Upon expiry of the contract term unless this term is renewed by the agreement of the contracting parties;
b. By the will of either the Principal or the Agent based on the terms and conditions of the Commercial Agency contract;
c. By the agreement of the contracting parties before the end of the contract term;
d. Upon the issuance of a final court judgment to terminate the Commercial Agency;
e. Any other case mentioned in this Law.
8. How does the devolution of assets of the old Agent take place in case of expiry of the Commercial Agency contract and how is their value assessed?
Unless the parties agree otherwise, the assets of the old Agent shall be transferred to the Principal or the new Agent at fair value as long as the following conditions are met;
- The assets should be the subject matter of the Commercial Agency contract.
- The assets must be agreed upon and in the possession of the old Agent at the time of expiration of the Commercial Agency contract and there must be no restriction on the transfer of their ownership.
For assessing the fair value of the assets, either the Principal or the Agent may file a lawsuit before the Court in whose jurisdiction the headquarters of the Commercial Agency is located to hold the other party liable for the value of such assets.
9. What are the controls and provisions regarding termination and non-renewal of the Commercial Agency contract?
Article (10) of the Federal Law No. (3) of 2022 provides for such controls and provisions which are enumerated below:
1. The party wishing to terminate the Commercial Agency contract based on the terms and conditions of the Commercial Agency contract shall;
a. Send a notice to the other party of their wish to early terminate the Commercial Agency contract, provided that the notice period is not less than one year prior to the date set for termination or not prior to the lapse of one half of the contract term, whichever is less, unless the two parties agree otherwise; this implies that if the contract was for 3 years and it needs to be terminated, then a notice should be of at least one year prior to the date set for termination considering this time period is less than one and a half year – which is the period of one half of the contract term of 3 years.
b. Either Party may submit a detailed report prepared by a specialized professional body on the settlement of dues, guarantees of non-interruption of after-sales services from the markets of the State, estimation of assets and expected damages, and other details.
As regards non-renewal of the Commercial Agency contract, the party not wishing to renew the Commercial Agency contract shall notify the other party of non-renewal one year before expiry of the term of the Commercial Agency contract, or before the lapse of one half of the term, whichever is less, unless the two parties agree otherwise. Again, this implies that if the contract was for 3 years and it does not need to be renewed, then a notice to the other party should be of at least one year prior to the date of expiry considering this time period is less than one and a half year – which is half of the contract term of 3 years.
10. What is the mechanism outlined under law for the party not accepting the termination?
The party not accepting the termination of the CommeWrcial Agency contract may resort to the Commercial Agencies Committee (CAC) to challenge the request for termination of the Commercial Agency contract. Either party may provide the Committee with the report prepared by the professional body. The Committee shall then decide on the challenge request within a period of 120 days (4 months) from the date of recording it, provided that the lapse of the aforementioned period without a decision having been issued is deemed a rejection of the challenge. In such a situation, the Commercial Agency contract shall continue in force until the end of the notice period or the resolution of the dispute by the CAC, whichever is later.
11. What is the process for registration in the Commercial Agencies Register?
The application for registration in the Commercial Agencies Register should be submitted to the Ministry of Economy. It shall be accompanied with the following documents:
- A copy of valid business license.
- A copy of the Commercial Agency Contract attested and legalised by the concerned authorities in UAE.
Post submission, the Ministry shall issue the decision within 10 working days from the date of completion of requirements for registration. Any rejection can be challenged before the competent court in UAE within 60 days of the date of being notified of the rejection or becoming aware of it.
12. What are the prohibitions contained under the UAE Law?
As per Article (20) of the Federal Law No. (3) of 2022, entry in UAE of goods, products, manufactured goods, materials or other property which are subject matter of Commercial Agency shall not be admitted or released by Customs for trading other than through the Agent. The approval for release of such goods by Customs can be obtained from the Ministry of Economy of the Agent. Customs have every authority to confiscate or seize the goods so imported until any dispute is settled.
13. What is the dispute resolution mechanism provided for under law?
As per the provisions of Article (24) of the Federal Law No. (3) of 2022, disputes that may have arisen under the Commercial Agency contract between the parties registered with the Ministry for Commercial Agency agreement shall be brought forth and heard by the Commercial Agencies Committee. The Committee is required to hear the dispute within 22 working days from the date of submission of the application for hearing. The dispute needs to be decided within a period of 120 days from the date of submission of the application for hearing. In case it is to be challenged or is not decided then either party, as the case may be, can proceed before the court within 60 days from the date on which this deadline of 120 days lapses or from the date of the notification of the Committee’s decision. The 60 days deadline is to be followed in all strictness as there can be no admissibility of any challenge against the Committee’s decision post expiry of this period. In such circumstances, the Committee’s decision shall have the force of being a writ of execution.
14. Is arbitration allowed under the new law as a means of mechanism to settle disputes?
Yes, as per the provisions of Article (26) of the Federal Law No. (3) of 2022, the parties can choose arbitration as a mechanism for dispute resolution. It now allows parties to enter into an agreement to resolve any disputes in relation to the commercial agencies by referring it to arbitration. The seat of arbitration shall be within the UAE unless agreed between the parties otherwise. Further, if this arbitration is resorted to by the parties after issue of the decision by the Commercial Agencies committee and that too within the time period of its appeal, the decision so issued by the Committee will have no effect on such proceedings nor it will give rise to any consequences.
15. What is the status of or rather applicability of this new law vis-a-vis the expiry or termination clauses of the existing Commercial Agency contracts?
According to the new law, Article (30) of the Federal Law No. (3) of 2022, contains some of the ‘final provisions’ according to which the rules relating to the expiry or early termination of commercial agency agreements shall not apply immediately after issuance of this new law to the existing commercial agencies. These shall be applicable as follows:
|Duration of the registered commercial agency||Agent’s investment||Applicability of the expiry or termination provisions under Federal Law No. (3) of 2022 to existing commercial agencies|
|Any||Any||Two years i.e., from June 16, 2025 onwards.|
|10 years||Any||10 years i.e., from June 16, 2033 onwards.|
|Any||AED 100,000,000||10 years i.e., from June 16, 2033 onwards.|
Thus, as can be seen from the above, the new Commercial Agency law clearly outlines the rights and obligations of the principal and agent including the mechanism to resolve the dispute which now includes arbitration, etc. It also now allows the international companies that are not owned by UAE citizens to act as agents for products they own while also allowing for the early termination or non-renewal of Commercial Agency agreements provided these meet certain conditions. Thus, such a balanced approach towards principal and agent relationship is likely to nurture more confidence amongst the large-scale business investors and help in attracting more foreign direct investment into the country.
If you have any questions about this or any other query related to intellectual property, corporate & commercial, commercial laws and digital assets laws, please get in touch with the author Rajiv Suri directly on email@example.com.
Rajiv Suri is a senior associate in the intellectual property and corporate and commercial team at Alsuwaidi & Company. Rajiv advises clients on strategies involving a wide range of intellectual property and commercial laws including contractual agreements and digital assets. He has been involved in managing corporate portfolios across various industries.