Federal Law No. 3 of 2022 Concerning the Regulation of Commercial Agencies (the "New CA Law") came into force this week (15th June 2023) and ushers in a number of important changes aligned with the United Arab Emirates' (UAE's) ongoing efforts to ease the path of doing business in the UAE. The previous commercial agency regime in the UAE was governed by Federal Law No. 18 of 1981 Regulating Commercial Agencies (the "Old CA Law") and, although the Old CA Law has been amended over the years (in 2006, 2010 and 2020), the issuance of the New CA Law is certainly the most significant change to date, creating a more flexible and balanced relationship between agent and foreign principal.
This article summarises some of the most significant new provisions under the New CA Law and also serves as a helpful reminder of how wide reaching the UAE commercial agency regime can be and, therefore why it is so important for businesses looking to offer their products and/or services in the UAE to obtain local law advice at the outset.
Who does the New Commercial Agency Law apply to?
What constitutes an agent under the New CA Law is much wider than in other jurisdictions as it captures any agreement which appoints a distributor, licensee or franchisee as well as agents in the more traditional sense. Whilst there are additional requirements which must be met, such as the agent falling within one of the categories required for conducting the practice of commercial agency in the UAE, there is wide scope and therefore associated risk for foreign entities contracting with third parties as a way of entering the UAE market.
What are the requirements to be a UAE Commercial Agent?
The New CA Law broadens the definition of "Commercial Agent" to allow, subject to a Cabinet decision approving the appointment, any international company, even if it is not owned by UAE nationals, provided that (i) the international company does not already have a commercial agent in the UAE; and (ii) the commercial agency is new and not previously registered in the UAE. This is a significant development for foreign entities looking to enter into the UAE without the requirement to appoint an UAE commercial agent and, whilst it remains to be seen what companies the Cabinet approves under this new provision, it is certainly a positive step for foreign principals.
Territory and exclusivity
As with the Old CA Law, under the New CA Law, a commercial agency must be granted on an exclusive basis for one or more of the seven Emirates or for the whole of the UAE (Article 7). Therefore, a non-exclusive agreement will not qualify as a "Commercial Agency" under the New CA Law. It is worth noting that, as with the Old CA Law, registration may be unavoidable in the case of provision of certain goods or services to UAE government bodies or for certain categories of products which cannot be imported other than through a registered commercial agent, such as pharmaceuticals, fire safety equipment and others. In contrast to registered commercial agents, an unregistered agent has no statutory right to exclusivity and therefore, this will be a matter for negotiation between the parties.
Is there a requirement to register your agreement as Commercial Agency?
Due to certain provisions under the Old CA Law, in particular in respect to a very limited scope of termination rights for foreign principals, there was often a justified reluctance by the principal for potentially qualifying agreements to be registered with the Ministry of Economy as a "Commercial Agency" and great effort was taken to include certain contractual provisions to help ensure the agent could not register the agreement. However, there are instances where it can be beneficial to the principal to register the agreement, such as the right of a registered agent to block parallel imports/grey market goods (under Article 20).
The termination provisions under the New CA Law may result in some principals being more comfortable with the registration of new commercial agency agreements as the requirement under the Old CA Law for termination only in the event of "mutual consent" or there being a "material reason" for the termination (which had in practice a very high threshold) have been entirely replaced to permit for termination in the following circumstances:
- by mutual agreement prior to the end of the contract term;
- on notice by one party to the other provided that the notice period provided is not less than one year prior to the date set for termination or prior to lapse of one half of the contract term, whichever is less;
- upon expiry of the contract term, unless it is renewed by the other party and provided a notice of non-renewal has been issued by one party to the other not less than one year prior to the date set for termination or prior to lapse of one half of the contract term, whichever is less;
- on issuance of a final court order terminating the agreement; or
- in any other cases as stipulated under the New CA Law.
Although these new termination provisions are positive and welcomed, they will not apply to commercial agencies registered prior to the implementation of the New CA Law. For existing registered commercial agencies, the provisions related to termination in the event of expiry of the contract and/or mutual agreement of the parties under the New CA Law will not apply for a period of two years from 15th June 2023. In addition, these same provisions will not apply to registered commercial agencies that have been registered (i) with the same commercial agent for more than 10 years; or (ii) where the commercial agent has invested more than AED 100,000,000 for a period of 10 years from 15th June 2023 (such investments to be evaluated by the Minister of Economy).
Changes to dispute resolution
The New CA Law includes significant new provisions with respect to jurisdiction over registered agencies. Although the UAE courts still have jurisdiction under Article 5(2), the New CA Law no longer specifies that any agreement to the contrary is void (as was the position under the Old CA Law). Furthermore, Article 26 allows the parties to agree to submit any disputes to arbitration, including with a foreign seat which is another welcomed change for foreign principals.
Overall, the New CA Law sets out a more balanced framework for agents and foreign principals and will no doubt be welcomed by foreign principals looking to enter the UAE market. Although there are a number of transitional provisions, it is important for those already operating with agents in the UAE to review their existing agreements in light of the New CA Law. Our UAE team have decades of experience advising on commercial agency law and related matters in the UAE and will be delighted to assist you with any queries.
To discuss any of the points raised in this article, please contact Rachel Armstrong, Charlotte Wright or Joy Kadi.