Revised Commercial Agencies Law in the UAE

New Commercial Agencies Law in the UAE

The Old law was seen to be more in favor of the agents; giving a better legal stance for agents compared to that of principals. Notwithstanding, the New law comes with the spirit of striking harmony among principals and agents. Furthermore, the New law is vigorously dependent on provisions contained in agency arrangements. Absence of which the provisions of the New law will apply in full.

Federal Law No. 3 of 2022 came into force on 15th June 2023 and introduces various significant changes lined up with the United Arab Emirates (UAE's) progressing endeavors to facilitate the way of carrying on with business in the UAE. The previous commercial agency system in the UAE was represented by Federal Law No. 18 of 1981 Regulating Commercial Agencies and the amended Old Commercial Agencies Regulation in 2006, 2010, and 2020. The issuance of the New Commercial Agencies Regulation is certainly the main change to date, making a more adaptable and balanced relationship between agent and foreign principal.

The new law introduces significant changes to the law relating to business offices, showing a move towards flexibility, and possibly reassuring more prominent foreign investment. notably, the New law grants the right for worldwide companies that are not owned by UAE nationals to apply to act as agents for products they own that are not subject to a commercial agency and considers the early termination or non-renewal of commercial agency agreements, dependent upon specific conditions being met.

Key changes in the New Law

Commercial agents: The scope of who can act as a commercial agent has enlarged. The New law reaffirms the common rule that only UAE national individuals, 100 percent UAE owned companies, or public joint stock companies (which are no less than 51% UAE owned) can act as commercial agents. Be that as it may, interestingly, the cabinet may now permit global companies not owed by UAE nationals to act as agents for products they own and sell directly into the UAE market, provided specific rules are met.

Contract term: The New law presently requires a minimum agreement term of five years in the event that an agent is expected to lay out buildings for display, goods stores, or facilities for maintenance or repair.

Termination/Notice: A principal's termination right has been extended. Under the Old law, a principal couldn't terminate or decline the renewal of a registered commercial agency without a "material reason". in proving a "material reason" was troublesome, with endeavors frequently resulting in compensation for loss/damages granted to the registered agent. This was to a great extent the motivation behind why principals avoided their commercial agencies registered. This limitation has now been eliminated, and termination can happen in the accompanying conditions:

1. Upon expiry of the agreement term (unless renewed);
2. By the will of either party, as per the terms of the commercial agency contract;
3. By the arrangement of the parties before the expiry of the agreement term;
4.  A termination notice is served to the other party at least one year preceding the proposed termination date, or before the lapse of half of the agreement term, whichever is less.

Despite the fact that there are broader grounds for lawful termination, the provisions examined above in relation to expiry and early termination won't immediately apply to:

1. any arrangements currently in force at the time of issuance of the New law - until 15 June 2025 (being two years from the date of the New law's entry into force); and
2. any arrangements: (i) that have been registered with the same agent for over a decade; or on the other hand (ii) in which the volume of the agent's investment surpasses AED 100,000,000 - until 15 June 2033 (being a decade from the date of the New law's entry into force)

Dispute resolution: Under the Old law, only the Commercial Agencies Committee and UAE courts had jurisdiction over disputes, and any agreement against the norm was void. The New law gives new adaptability by permitting parties to allude to disputes to arbitration.

Goods during a dispute: During a dispute, and with the Ministry of Economy's approval, principals might keep on carrying goods and services into the UAE by means of exclusive sources other than the agent.

Compensation: An agent can guarantee compensation for the damage it has brought about:

1. Termination of the agreement which has not been renewed (except if the agreement explicitly states otherwise)
2. Early termination

Conclusion

The changes introduced with the commercial agencies law are supposed to provide more support and solace to foreign investors in the UAE as it gives them greater adaptability, for example, the ability to elect a familiar global dispute resolution forum, terminate any commercial agency agreements more effectively and even register as commercial agents, would be advisable for them they meet the requirements specified under the New Law. Also, the New law is vigorously dependent on provisions agreed by the parties to the commercial agency agreement. Companies are therefore encouraged to give close consideration to drafting clear and unequivocal terms in the agency contracts.