In brief
The UAE Federal Law No. 18 of 1981 regulating Commercial Agencies (Law) was amended for the fourth time on 28 May 2020 by Federal Law No. 11 of 2020 (the 'Amendment'). The last amendment had taken place in 2010.
The Amendment granted, for the first time, the right for companies incorporated in the United Arab Emirates (UAE) that are not 100% owned by UAE nationals, namely public joint-stock companies with at least 51% of national capital contribution, to act as commercial agents. While the Amendment brought some changes to the Law, the relaxation for foreign investors was however limited.
On the other hand, the Amendment reconfirmed the statutory protections offered to commercial agents.
The following summarizes the major characteristics of the Amendment:
- Who can act as an Agent: Commercial agency activities can be carried out by national natural persons, public legal persons, private legal persons owned by public legal persons, private legal persons fully owned by national natural persons, or public joint-stock companies incorporated in the United Arab Emirates with at least 51% of national capital contribution.
- Transfer of Agency to Heirs: With the Amendment, commercial agencies can now be transferred to the heirs of a deceased agent.
- Termination of Agency: The Amendment reinforces the protections granted to agents under the Law by restating that a principal may not terminate or refuse to renew an agency agreement without a material reason justifying the termination or non-renewal. Also, an agency may not be registered in the name of a new commercial agent, even if the existing agency term has expired, unless the agency is terminated by mutual agreement between the agent and the principal, or if the Commercial Agency Committee (Committee) is convinced a material reason justifies the termination or non-renewal of the agency.
- Dispute Resolution: The Amendment confirms the exclusive jurisdiction of the Committee but limits the Committee's scope to disputes arising between the parties to an agency agreement. Prior to the Amendment, the Committee's scope was broader and covered any dispute arising out of an agency irrespective who the parties to the dispute are.
The necessary regulations and resolutions for implementing the Amendment are yet to be issued by the Minister of Economy.
It is worth noting that the Amendment reaffirmed clearly the wide array of protections conferred upon the agent, which can be summarized as follows:
- Statutory exclusivity right for the agent within its territory to represent the principal and sell the principal's products.
- Statutory entitlement for commission including on transactions directly concluded by the principal or by a third party within the agent's territory (regardless of the efforts taken by the agent to conclude such transactions).
- Statutory protections allowing the enforcement of exclusivity rights and the ability to block parallel imports to the territory, as long as the agency is registered.
- An agency agreement may only be terminated (or not renewed) if the principal can demonstrate a justified material reason. The Committee and the UAE courts tend to enforce this requirement quite strictly, generally in favour of the agent.
- Any termination would be subject to discretionary compensation assessed and determined by the UAE court based on various factors.
- Exclusive jurisdiction to the Committee to resolve disputes between the parties to an agency.
In conclusion, the Amendment has effectively allowed non-UAE nationals access to UAE commercial agencies through public joint-stock companies, it has however largely maintained the historical benefits that UAE agents have enjoyed since the inception of the Law.
For further information, please reach out to one of the contacts above or your usual Baker McKenzie contact.
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