Federal Law No.18 of 1981, as amended by Federal Law No.14 of 1988, Federal Law No.13 of 2006 and Federal Law No.2 of 2010 (“the Agency Law“) governs commercial activities relating to agency and distribution agreements (“Agency Agreement“). It is important to keep in mind no distinction is made under the Agency Law between an agency and distributor, although they are different commercial arrangements.
For an Agency Agreement to be governed by the Agency Law it must be registered with the Commercial Agencies Register at the UAE Ministry of Economy (“Register“). In the event of a dispute the Commercial Agencies Committee, shall first investigate and if necessary appoint an expert to resolve the dispute. The parties can appeal the decision of the Committee to the UAE Courts.
The Agency Law is notably favorable towards the interests of the agent rather than the principal. The following are the requirements to register the Agency Agreement:
- Pursuant to Article 2 of the Agency Law, the agent must be a UAE National or company wholly owned by UAE National(s).
- The Agency Agreement must be signed before a notary public and must be written in Arabic only or in Arabic and English.
- Article 5 provides the arrangement must be exclusive and must be in respect of a defined territory, this can be one Emirate, or several or the whole of the UAE.
Once an Agency Agreement is registered, the Agency Law provides substantial protection to commercial agents.
- The agent is entitled to commissions for all transactions made within the territory regardless of whether or not the transaction was made as a result of the contribution of the agent.
- The agent is protected against the termination or non-renewal of the agreement, unless there is a material reason behind the termination. The Agency Law does not define ‘material reason’, however past rulings of the courts suggest a material reason could include, failure to reach sales targets, damage of reputation of the principal or its products/services or breach of the Agency Law.
- The principal is not able to appoint a new agent unless the agency has been rescinded upon the mutual consent of the parties or the Agency Agreement has been terminated due to a material reason.
- The agent is given a right to compensation on withdrawal of the agency rights. In calculating the compensation payable to the agent the following factors will be considered: (i) duration of the Agency Agreement, (ii) net profit generated by the agent and (iii) efforts of the agent in promoting the products/services of the principal.
- The agent has the right to prevent the import of the principal’s products into the UAE if the principal imports any products covered by the Agreement either directly or indirectly through another agent. If the principal does this, it will be liable to compensate the registered agent for commissions earned.
If an Agency Agreement meets the criteria to be registered, the local agent will be afforded a substantial amount of protection to the detriment of the principal.
For a commercial arrangement to fall outside the remit of the Agency Law to ensure the principal has a stronger position, the agreement should take into account the following:
- clearly state the agreement is not capable of registration with the Register, and that the Agency Law does not apply;
- avoid translation into Arabic or being notarised;
- avoid use of words such as ‘agent‘, ‘distributor‘ or ‘reseller‘;
- include a clause for sales targets that the agent must reach, and if the targets are not reached the contract will terminate automatically for material failure; and
- avoid being exclusive.
It is important to note that unregistered commercial agency arrangements are still valid contracts and are governed by Federal Law No.5 of 1985 Civil Transactions Law (UAE Civil Code) and Federal Law No. 18 of 1993 on Commercial Transactions, which are notably more neutral Laws which protect the interests of both parties.
If you require future assistance on the matter, please do not hesitate to contact us at United Advocates.