Federal Law No 2 of 2010 amending provisions of Federal Law No. 18 of 1981 (Agency Law) has now been gazetted. The Agency Law (as amended), is the law regulating commercial agencies in the UAE.

In brief:

  • Federal Law No 2 of 2010 reverses some of the amendments made in 2006 to the Federal Law No.18 of 1981 and introduces new amendments.
  • The Commercial Agency Committee has been re-instated and its role is to review any dispute pertaining to commercial agencies.
  • Foreign principals will be prevented from terminating or refusing to renew the agency unless they can show to the Committee and/or court (as applicable) "a material reason justifying its termination or non-renewal". It is therefore important to have clear and detailed termination provisions as principals may not be able to simply rely upon the expiry date of the agreement to end the agency relationship.

A commercial agency is defined in the Agency Law as "the representation of a Principal by an Agent on the distribution, sale offer or presentation of commodities or services within the State". In order for the Agency Law to apply however:

  • the agent must be a UAE national or a company wholly owned by UAE nationals;
  • the relationship must be exclusive either in relation to territory or to a specific product; and
  • the relationship between the agent and principal must be registered (currently with the UAE Ministry of Economy).

Prior to 2006, the ability to terminate a commercial agency under Article 8 of the Agency Law was quite difficult unless done for valid reasons acceptable to the Commercial Agencies Committee (Committee). If the Committee was not satisfied, then the matter would be referred to the courts. Certain Cassation judgments handed down in Dubai, however, set a precedent which allowed either party to by-pass the Committee and go to court directly.

In 2006, the Agency Law was amended to include provisions that:

  • stated a commercial agency agreement with a fixed term shall terminate on the applicable date;
  • allowed either party to an agency agreement can seek compensation for damages resulting from the malfeasance of the other party; and
  • abolished the Commercial Agencies Committee within the Ministry of Economy and Planning (Ministry).

Since the 2006 amendment, a significant number of specific-term agencies were terminated using the procedure set out by the Ministry which required an official notice served on the agent (copied to the Ministry) stating the intention of the Principal not to renew and to terminate on expiry of the term. This meant that where a fixed term was specified, there was no further requirement to find valid and justified reasons (acceptable to the Committee) before termination was permitted.

The new amendment (as discussed below), which is now gazetted under Law No. 2 of 2010 reverses some of the 2006 amendments and introduces new amendments.

COMMERCIAL AGENCY COMMITTEE

The Committee has been re-instated and its role is to review any dispute pertaining to commercial agency. The Committee is required to commence the examination of a conflict within 60 days after the date of filing a complete application. The Committee's decision can be challenged before a competent court within 30 days of the date of the Committee's decision, otherwise, the Committee's decision shall be deemed final.

TERMINATION AND JUSTIFIABLE CAUSE

Foreign principals will be prevented from terminating or refusing to renew the agency unless they can show to the Committee and/or court (as applicable) "a material reason justifying its termination or non-renewal". Prior to the 2006 amendments, the Committee interpreted "justifiable cause" strictly and with a tendency to favor the agent. The 2006 amendments made it unnecessary to look into "justifiable causes" for fixed term contracts. The requirement for "justifiable cause" has now been reintroduced. This new amendment under Law No. 2 of 2010 does not allow both parties - even if in fixed term agreements - to go directly to the court before filing their dispute with the Committee.

It is therefore now more important to have very clear detailed and binding termination provisions in commercial agency agreements. For example, failure to meet specific targets, dealing with competitors and competitive commodities and any other material provision that an agent is not in compliance with could constitute a "material breach" thus enabling the Committee and/or court (as applicable) to accept that there is "a material reason justifying" the termination or non-renewal of the agreement.

REGISTRATION OF NEW AGENCY AGREEMENTS

A new agency agreement may not be registered in the name of another agent, regardless of whether the previous agency agreement provides for a fixed term. The new agency may only be registered:

  • if the previous agreement was terminated by agreement of both principal and agent;
  • where it is found that there is "a material reason justifying its termination or non-renewal" approved by the Committee; or
  • if "a final and conclusive judicial judgment is rendered ordering that the agency be struck off".

CONCLUSION

The new amendments to the Agency Law means that it is more, important to have clear and detailed termination provisions and principals may not be able to simply rely upon the expiry date of the agreement to end the agency relationship.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.