In a much anticipated and welcomed recent move, the United Arab Emirates (UAE) Cabinet has now approved and issued Federal Law No. 3 of 2022 regulating Commercial Agencies ("New Law") in the UAE Federal Gazette which repeals and replaces UAE Federal Law No. 18 of 1981 (the "Old Law").
The Old Law was perceived to be more in favour of the agents; providing a more favourable legal stance for agents compared to that of principals. However, the New Law comes with the spirit of striking a balance between principals and agents. Furthermore, the New Law is heavily reliant on provisions contained in agency agreements. Absence of which the provisions of the New Law shall apply in full.
The New Law, which is set to come into force on 15 June 2023 (the "Effective Date") introduces significant changes to the law relating to commercial agencies, showing a move towards greater flexibility, potentially encouraging greater foreign investment. Notably, the New Law grants the right for international companies that are not owned by UAE nationals to apply to act as agents for products they own which are not subject of a commercial agency and allows for the early termination or non-renewal of commercial agency agreements, subject to certain conditions being met.
This Article summarises the key changes in the New Law.
Who can become an "agent"
The New Law restates the position that only UAE nationals or entities wholly owned by UAE nationals, in addition to public joint-stock companies with 51% or more of national capital contribution can become an agent. However, changes in relation to the types of agents permissible under the New Law are as follows:
International companies, even if not owned by UAE nationals can apply to act as agents in selling its own products in the UAE, on the condition that the products did not previously have an agent and are not subject of an existing agency. International companies must however obtain the UAE Cabinet's permit, acting under the recommendation of the Minister of Economy, to be registered as commercial agents.
The term "international companies" has not been defined by the New Law.
Pursuant to the Old Law, the Commercial Agencies Committee ("Committee") had exclusive jurisdiction over any disputes relating to the registered commercial agencies, while the UAE Courts had the exclusive jurisdiction to determine any appeals over the Committee's decisions.
In keeping in line with the UAE's support in allowing parties the leniency to choose arbitration as a mechanism for dispute resolution, the New Law now allows parties to enter into an arbitration agreement to resolve any disputes in relation to the commercial agencies.
However, an important caveat is that the position remains that any disputes relating to commercial agencies are to be heard in the first instance by the Committee. The parties can thereafter resort to arbitration as a next step, in which case, the Committee's decision will neither bind the parties nor the arbitrator.
As for the seat of arbitration, unless otherwise agreed by the parties, the seat is to be within the UAE.
The position under the Old Law and practice of the Committee provided that the only way to terminate or refuse the renewal of a registered commercial agency was following the party's mutual agreement to terminate the agency. Otherwise, by the party wishing to terminate the agency to convince the Committee with "material reasons" for terminating the agreement.
The term "material reasons" was not defined under the Old Law which has caused confusion and resulted into lengthy litigation before the Committee.
The New Law however introduces flexibility in choosing to terminate a commercial agency agreement, under the following circumstances:
on expiry and non-renewal of the commercial agency agreement;
by mutual consent of the parties;
by the unilateral will of either party as per the terms of the commercial agency agreement; or
by court order.
The New Law therefore introduced two new routes for terminating agencies being:
termination upon expiry and non-renewal of the commercial agency agreement; and