The new UAE Commercial Agencies Law: Levelling the retail playing field?
Retail & Consumer Focus
Federal Law No. 18 of 1981 presented a significantnobstacle to foreign principals wanting to restructure their route to market.
Law Update: Issue 357 - Retail & Consumer
Willem SteenkampSenior Consultant,Corporate Commercial
Historically, foreign principals in the retail sector followed the franchising or distributorship route to market in the UAE, which often created an imbalance between the foreign principals and local franchisees/distributors due to the application of local laws to such arrangements, most of such laws having been geared in favour of local franchisees/distributors. In particular, the Federal Law No. 18 of 1981 (the “Old Law”) presented a significant, and sometimes insurmountable, obstacle to foreign principals wanting to restructure their route to market. This situation has been brought into focus even more as principals weigh up their options to avail of the opportunities for direct route to market created by recent changes to the UAE legal landscape.
Against the above backdrop, the Federal Government of the United Arab Emirates (the “UAE”) has enacted a new Commercial Agencies Law, law number (3) of 2022 (the “New Law”), which regulates the relationship between commercial agents and principals for the distribution of goods and provision of services in the UAE. Once it comes into force, the New Law will repeal and replace the Old Law, in its entirety.
The New Law was published in the official Gazette on 15th December 2022 (the “Publication Date”) and will come into force on 15th June 2023 (the “Effective Date”). In the meantime, the Minister of Economy is expected to issue interim regulations to implement the New Law.
1. Subject to being licensed by the UAE Cabinet of Ministers (the “Cabinet”), foreign multinational companies may be permitted to carry out commercial agency activities in respect of their own products and services within the UAE provided that the relevant goods or services in question have no existing local agent(s) in the UAE.
2. Pursuant to Article 9(1) of the New Law (“Article 9(1)”) and unlike the situation under the old commercial agencies law, a commercial agency will terminate in the following events:
Upon expiry and non-renewal of the term of the commercial agency agreement;
if either party elects to terminate the commercial agency agreement based on agreed contractual terms;
by mutual consent of the parties prior to expiry of its term;
by final court judgment; and
any other event stipulated under the law.
The New Law further provides that the principal or the agent may terminate the commercial agency, prematurely, or announce the intent not to renew the agreement upon its expiry, by serving one (1) year’s prior notice on the other party before the termination/expiry date or, alternatively, before the expiry of half of the underlying agency agreement term – whichever is less, unless the parties agree otherwise. However, the New Law clearly provides that in the event of early termination, there is scope for compensation and a claim for damages from the agent against the principal, particularly if it is evident that the services of the agent has contributed significantly to the success of the products or the business of the principal in the UAE.
3. As an exception on the enforceability of the New Law, the provisions of Article 9(1)(paragraphs (a) and (b)) regarding the expiry/non-renewal and unilateral termination of commercial agency agreements are suspended for a period of two (2) years from the Effective Date with respect to commercial agency contracts in force as at the Publication Date. Furthermore, the same provisions are also suspended for a period of ten (10) years from the Effective Date, with respect commercial agency contracts in force as at the Publication Date that have been registered for a period exceeding ten (10) years or where the total investment made by the commercial agent in the relevant business in the UAE exceeds AED 100 million.
4. The New Law also provides that parties may agree to settle their disputes arising out of registered agency agreements through arbitration in the UAE, unless the parties agree otherwise. It is also very important to note that irrespective of the parties having elected to refer their disputes to arbitration and choose foreign law to govern their contract, the applicable law will still be the New Law, and not the agreed foreign law, in accordance with Article 5 of the New Law.
5. Similar to the provisions of the old commercial agency law, no party, other than the registered agent, can import products into and/or provide services within the UAE, which are the subject matter of a registered commercial agency. In this regard, the New Law empowers the UAE Ministry of Economy (“Ministry”), the customs authority and relevant local authorities, upon request by a registered agent, to block the import of such products into and/or rendering of services within the UAE, as applicable, by any other third party(ies), other than the relevant registered agent. However, the New Law does empower the Ministry to approve the importation of goods into and/or rendering of services within the UAE, in respect of which there is a registered agency, during the period of any dispute between the agent and the principal and until such dispute is settled, provided the principal remains liable to pay compensation in favor of the agent all throughout such period.
6. If the commercial agency requires, for example, warehousing, service/maintenance centers, and showrooms – the New Law sets the term of the commercial agency as five (5) years, unless the parties agree otherwise. However, the New Law is flexible on this point and does enable parties to mutually agree another period in their agreements.
7. The New Law maintained the jurisdiction of the UAE Commercial Agencies Committee (the “Committee”) – whose decisions are appealable before the UAE courts. It also necessitate that the Committee shall hear any dispute between registered agents and their principals, as a pre-requirement for submitting the dispute before the UAE Courts and/or the arbitral tribunals.
8. The New Law provides that the Cabinet may provide a list of specific products which will not qualify for registration under the New Law, including the criteria and the dates for which such a decision will be affected. This, in practice, will mean that agencies which cover these types of specified products that will be identified by the Cabinet shall be cancelled and shall no longer be protected under the New Law.
9. Upon termination or expiry of a registered agency agreement – the New Law provides extensive details on how to deal with spare parts, goods and machinery and how to transfer them to the principal or new agent who has been appointed, including the compensation that needs to be paid to the previous terminated and cancelled agent.
As a whole, the provision of the New Law clearly demonstrates the UAE’s intention to create a balance between the interests of principals, local agents and end consumers in the UAE, while at the same time seeking to stimulate and support foreign direct investment into the UAE economy.
For further information,please contact Naief Yahia or Willem Steenkamp.
Published in April 2023
