The UAE Federal No. 18 of 1981 on Commercial Agency Law (as amended by the Federal Laws No. 14 of 1988 and No.2 of 2010) ( the “CAL” ), the main legislation on commercial agencies in the United Arab Emirates stipulates the following requirements:
Under the Commercial Agency Law the following protection is provided to the agent and to some minor respect also to the principal:
Article 23 of the CAL stipulates that no one may be allowed
to import into the UAE any goods, which
are the subject of a registered commercial agency in the name of a party other
than the agent without the prior consent of the agent. The UAE customs authorities
are not permitted to clear the importation of products through parties other
than the registered agent without the prior approval of the Ministry and the agent. Customs authorities are authorized
to detain imports at the port or in
the warehouses until a decision in
connection with the concerned dispute is reached.
Article 5 of the CAL provides that the principal may either use the services of one agent for the whole UAE or the services of one agent in each or in several Emirates. Hence the principal and the agent are protected against parallel imports of any goods, which are subject to the registered agency agreement.
However, according to Article 7 of the CAL the agent is entitled to “a commission on transactions which the principal concludes himself or through another person in the agent’s territory, even if such transactions are not concluded as a result of the efforts of the agent”
The new amendment incorporated in Federal Law no. 2 of 2010 re-instated the Commercial Agency Committee (“The Committee”); however it took some time before the Committee became operational. On 10 April 2011, H.H Mohammad Bin Rashid Al Maktoum, the Vice President of the UAE and Ruler of Dubai issued Decree No. 3 of 2011 (“The Decree”) Establishing the Committee of Commercial Agency and its role is to review any dispute pertaining to any commercial agency registered with the Ministry of Economy.
In accordance with Article 3 of the CAL only the commercial agency which entered in the Register are recognized and may be heard in case of dispute.
The disputes arising between the agent and the principal
may be referred to the Committee for the Settlement of Disputes of Commercial
Agencies in accordance with Article 28 of the CAL. The said Committee will
attempt to mediate disputes and to assist the parties in reconciling their
differences rather than permitting termination.
In addition, Article 6 of the CAL stipulates that “the courts of the UAE shall be competent to consider any dispute arising from the performance of the contract between the principal and the agent, and any agreement to the contrary shall not be recognized”.
a) Protection of the Agent
In accordance with Article 8 of the CAL a termination and/or non-renewal of a commercial agency agreement is only possible, if there is a serious reason for such termination. Hence a termination by the principal will only be regarded as valid, if the agent does not comply with his contractual obligations and such violation of the obligation is serious enough to justify a termination.
Article 9 of the CAL further stipulates that “if an agency is withdrawn at an inopportune time or for any reason not attributable to the agent, the principal may be required to provide compensation for losses incurred. And in the absence of proof that the agent committed a fault justifying a non–renewal, the principal’s refusal to renew an agency agreement after expiry of its original term shall constitute an abusive exercise of rights entailing appropriate compensation.”
However as the amount of compensation is not provided for in the law, the calculation of possible damages depends on the duration of the business relation, the proper performance of the agreement, the proper execution of the contractual obligations, the actual cost sharing, the contractual agreements and the actual damages he incurred because of the termination of the agency. Even if the compensation is usually calculated on a multiple of the average yearly profit and the same applies in case of a non-renewal after the expiry of a limited agency agreement, the amount remains also at the discretion of the Court.
b) Consequences of a Termination/Non-Renewal
Appointment of New Agent
An agency is only deemed legally terminated, if the registration in the Commercial Agency Register is deleted. As long as the commercial agency is not deleted it is still in force. Unless a dispute is settled and the registration is deleted the principal may not appoint or register a new agent according to Article 8 of the CAL.
Attachment of Goods
If the principal during a pending dispute with the commercial agent imports goods in circumvention of the legally existing commercial agency agreement through a third party without the approval of the agent, the goods can be attached by the customs or other competent authorities when entering the country in accordance with Article 23 of the CAL. The goods will only be released after obtaining approval from the Ministry of Economy and Commerce, and the agent or after the dispute has been finally settled by the Court.
In accordance with Article 3 of the CAL “no person shall be engaged in business of commercial agencies in the UAE unless his name has been recorded in the Register of Commercial Agents maintained in the Ministry. “ In case a person takes the risk to distribute products or provides services without being registered, which is a common practice in the UAE, he/she shall realize and accept that “no claim related to the commercial agency will be recognized or heard” as per Article 3.
If the agency agreement is registered the agent has a very strong position to negotiate a settlement for compensation in case of termination. The proceedings with the Committee for the Settlement of Disputes of Commercial Agencies or with the court might take long time and in the meantime the principal can not deliver his products to the UAE and therefore loses his position in the market. Whereas the agent, who is not restricted to trade, may start a new business with competitive products.© MarinaFox, 2011