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Recently, the United Arab Emirates has issued the new Federal Law No. 3 of 2022 regulating commercial agencies, repealing and replacing the longstanding Federal Law No. 18 of 1981.
The law has already undergone several amendments, the recent being in May 2020. This amendment came on 28th may 2020, being amended for the fourth time. During then, the amendment granted, for the first time, the right for companies incorporated in the UAE that are not 100% owned by UAE nationals, namely public joint-stock companies with at least 51% of national capital contribution, to act as commercial agents. Among other changes, the amendment allowed for commercial agencies to now be transferred to the heirs of a deceased agent.
Moving on the recent changes that have been introduced in the New Law brings various changes and grants for the first time. The amendment has also opened doors for the early termination or non-renewal of commercial agency agreements, subject to the conditions provided for in the New Law being met. Additionally, the law, for the first time has granted the right for international companies that are not owned by UAE nationals to act as agents for products they own. However, such companies will only be given this benefit provided they have never been registered and also does not have a commercial agent registered for it in the UAE.
Among other changes the law has introduced, it has mentioned individuals who can act as an agent for commercial agencies. Particularly, national natural persons, public legal persons, private legal persons owned by public legal persons, private legal persons fully owned by national natural persons, or public joint-stock companies incorporated in the UAE with at least 51% of national capital contribution, can act as an agent. While this amendment was brought in the 2020 edition, the New Law, for the first time, has given permission to international companies, that are not owned by UAE nationals, to act as commercial agents for their products provided that such products are not the subject of a commercial agency.
The New Law even provides for a minimum contract term of five years, if the agent is required under the contract to establish showrooms or buildings, commodity stores or maintenance or repair facilities, unless the parties agree otherwise. It has also introduced the possibility for a commercial agency agreement to expire at the end of its term. In case of early termination, the law allows either the agent or the principal to terminate the commercial agency’s agreement prior to its term, provided that a termination notice is served to the other party at least one year prior to the termination date or prior to the lapse of half of the agreement term, whichever is less. However, early terminations can be challenged before the Commercial Agency Committee, where the agent can claim for compensation if any damage has incurred. Here the agent will have to prove that its efforts have contributed to the success of the products and has also helped in increasing the customers for the said product, which would have then led to the loss of profit as a result of the early termination.
Moving on, the New Law allows the non-renewal of the commercial agency agreement provided a non-renewal notice is served to the other party at least one year prior to the termination date or prior to the lapse of half of the agreement term, whichever is less, unless the parties agree otherwise. It also confirms the exclusive jurisdiction of the Commercial Agency Committee to hear any dispute arising between the parties to a commercial agency. The New Law has introduced a timeframe of 120 days for the Committee to resolve a dispute, otherwise the parties become eligible to resort to the court within 60 days from the deadline date. The New Law has also allowed for the first-time parties to agree to resort to arbitration to resolve disputes in relation to a registered commercial agency agreement. The default seat for such arbitration is the UAE, unless otherwise agreed by the parties. An arbitration agreement will not apply to a commercial agency in relation to which a dispute has arisen or is already being heard by the Commercial Agency Committee or a UAE court before the New Law has entered into force.
Other features of the amendment allows the sale of products during a dispute process for the first time, however such sales are to be conducted through exclusive sources other than the agent, provided that the principal here remains liable for such sales towards the disputed agent.
To conclude, we can certify that the new amendment aims to bring a major development to the commercial agencies by bringing provisions such as early termination, non-renewal of its term, sale of products during a dispute and more. With this, we can ensure that such strong framework will maintain the rights of the commercial agents allowing them to claim damages as a result of an early termination or expiration of an agreement at its term.
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