The Agency Law is in the spotlight once again as The Committee on Financial, Economic and Industrial Affairs of the Federal National Council (‘’FNC’’) has indicated further changes are coming. In this article we will outline the Agency Law as it stands in respect of commercial agents and agency agreements which are registered in the Commercial Agency Register of the Ministry of Economy (the ‘’Ministry’’) and highlight the enhanced rights of agents, a factor to be carefully considered by any product manufacturer/exporter to the UAE (a ‘’Principal’’). A point to bear in mind: the system which applies to exclusive agents also applies to exclusive distributors.
Who can be an Agents
In order for a commercial agency agreement to be registered at the Ministry, the agent appointed must meet certain criteria. Previously, only a UAE national (or a company wholly owned by UAE nationals) could be registered as an agent, however the 2020 Amending Law has introduced two new legal entities which are now allowed to register:
- a UAE public joint stock company (‘’PJSC’’) owned, at least, 51 per cent by UAE nationals;
- a UAE private entity owned by a PJSC which is owned, at least, 51 per cent by UAE nationals
Once registered, the Agency Law is favorable to, and provides enhanced rights and significant statutory protections for exclusive agents and distributors, such as;
Exclusivity
The exclusivity can be conferred within a specific Emirate or the entire UAE. It allows an agent to block any other party, (including the Principal) from importing goods which are the subject of the agreement into their jurisdiction and from entering into an agreement with another commercial agent unless the existing agreement has been validly terminated.
Commission on Sales
An agent is entitled to receive a commission from all sales for goods he is registered for which are sold within his jurisdiction, irrespective of the agent’s contribution to those sales.
Grounds for Termination
Arguably the most talked about statutory protection under the Agency Law is in relation to termination or non renewal. As it stands, an agreement can not be terminated even where it has expired, unless there is mutual consent between the parties or it is terminated for a ‘‘material’’ or “essential reason”. The Commercial Agency Committee has sole jurisdiction over agency disputes and (unless appealed) it will decide whether such material or essential reasons exist. Therefore, in the absence of an agent’s agreement to terminate, a Principal may find itself having to make a case to justify any desired termination, adding to the cost and complexity of bringing an agreement to an end. In reality, a Principal will often only be able to withdraw by paying significant compensation to the agent. Nevertheless, precedent shows that, while these protections exist, they will not protect agents who are clearly in breach of their agreements, as can be seen in decisions such as Federal Supreme Court Case 811 of 2017 where the court found in favor of a Principal, for non performance of an agent.
Heirship
Finally, the recent amendment expressly provides for the transfer of the agreement to the heirs of an agent in the event of his/her death, which serves to further underline the protective nature of the Amending Law.
Conclusion
While the enactment of Amending Law No. 11 of 2020 certainly represents a significant shift, allowing non UAE nationals to participate in the business of commercial agency or distributing through PJSC’s, the Agency Law continues to afford exclusive agents and distributors substantial legal protections. Even so, engaging with an agent or distributor can allow new businesses access to invaluable local knowledge, seasoned sales teams and market contacts and can avoid costs associated with the Principal setting up its own company to do business in the UAE, but it is vital to do your own research first.
In our next article of the series, we will see how the current Agency Law and the UAE Monopolies laws work in relation to each other.
For legal advice, please contact James Berry.
Managing Partner