Termination of Commercial Agency in the United Arab Emirates
The United Arab Emirates (the “UAE”) issued Federal Law No. 3 of 2022 on regulating commercial agencies (the “Law”), which will come into force next month (i.e., 16 June 2023). This Law is assumed to be an essential development for the state’s commercial sector, as it aims at the market stability and enhancing the fairness, efficiency and transparency of commercial transactions in the UAE, by introducing new concepts (e.g., resolving disputes by arbitration and termination for convenience as clarified below). Hence, such Law reflects the UAE’s commitment to creating a business-friendly environment and fostering a robust and sustainable economy.
Term of a Commercial Agency Contract
The legislator has taken into consideration the actions and costs incurred by the agent to perform his duties, whereby Article 6 provides that in the case where it is stipulated in the contract that the agent shall establish buildings for exhibition, warehouses, or maintenance facilities, the term of the contract shall be five (5) years, unless otherwise agreed upon.
Termination of a Commercial Agency Contract
While the Law grants the parties to commercial agency contract to terminate the same, it also grants the non-terminating party the right to seek compensation due to early termination or in the event that such termination resulted in damages.
Cases for terminating a commercial agency contract
- The expiry of the contract term unless it is renewed by a contract between the contracting parties;
- Unilaterally by the principal or agent based on the terms and conditions of the commercial agency contract;
- The mutual consent of the principal and agent prior to the lapse of the term of the commercial agency contract;
- Issuance of a final court decision to terminate the commercial agency contract; or
- Any other cases stated in the Law.
- Unless the commercial agency contract stipulates otherwise, the notice period shall be not less than one year before the expiry date or before half of the contract term, whichever is less.
- Either party may submit a detailed report prepared by a specialized professional entity with regard to the settlement of dues, guarantees of non-interruption of after-sales services from the state’s markets, assessment of assets, expected damages, and other details.
Non-renewal of the Commercial Agencies Committee
The party who wishes not to renew the commercial agency contract must send a notice to the other party not less than one year before the expiry date or before half of the contract term, whichever is less unless the contracting parties agree otherwise.
Termination of Existing Commercial Agency Contracts
Nevertheless, the Law does not provide such termination rights to the parties under existing commercial agency contracts. In this respect, According to Article (30) of the Law, the termination related provisions of the Law (more specifically paragraphs (1) and (2) above) shall not apply to commercial agency contracts that are valid at the time of the Law’s issuance until:
- The lapse of 2 (two) years as of the date of enforceability of the Law (i.e., 16 June 2025); or
- The lapse of 10 (ten) years if the commercial agency contract was registered with the same agent for more than 10 (ten) years or where the agent’s investment exceeds AED 100,000,000 (one hundred million UAE Dirhams), such investment amount being determined according to the standards and controls issued by the Ministry of Commerce.
The Commercial Agencies Committee (the “Committee”)
The Committee is tasked with scrutinizing conflicts that emerge between commercial agency parties, who are registered with the Ministry of Economy, noting that any dispute shall be first referred to the Committee for the Court to hear the same. The following summarizes the process of examination by the committee:
- The Committee shall begin examining the dispute within twenty-two (22) working days from the date of submission of the request if the application is complete or from the date of completion of the required documents. The Committee may seek the assistance of experts or competent authorities in accordance with the regulations and conditions specified in its scope of work.
- The Committee shall decide on the appeal request within one hundred and twenty (120) days from the date of submission of the request, otherwise, it is permissible for either party to resort to court within sixty (60) days from the date of expiry of this duration.
- Appeals against the Committee’s decisions are not accepted after the lapse of sixty (60) days from the date of notification of the Committee’s decision. In this case, the Committee’s decision is enforceable.
- It is also worth noting that the commercial agency contract shall continue to be valid until the end of the notice period or the dispute is decided by the Committee, whichever is later.
While the Law may incentivize the parties to enter into an agency contract to conclude an agency relationship for the benefit of both parties, and while this is in line with the provisions of the Law to achieve fairness, it should be noted however that damaged parties pursuant to existing commercial agency contracts would still need to unfortunately make a strategic decision to either continue suffering until the lapse of the periods stipulated under the Law or pay a tremendous amount of compensation to amicably and mutually terminate the same.
GLA & Co is committed to providing legal services and support to businesses operating in the UAE, and with the recent issuance of the Law, it is important for companies to ensure compliance with the new regulations and to understand the legal implications of any agency contracts they may enter into. Our team of experienced lawyers is well-versed in the UAE’s commercial agency laws and can provide legal advice and assistance to clients in matters related to agency contracts, registering, termination, and disputes.