FNC approves changes to trade agency law

Abu Dhabi: The Federal National Council (FNC) on Tuesday approved changes to the Trade Agency Law, setting up a committee to look into disputes over commercial agencies.

The changes also stipulate preventing the foreign principal from terminating or refusing to renew the agency agreement without there being "justifiable cause".

Under the changes, a new agency may not be registered in the name of another agent, regardless of whether the previous agency agreement provides for a fixed term.

New agency may only be registered if the previous agreement was terminated by both the principals and the agent or there being ‘justifiable cause', approved by the Commercial Agency Committee, to be set up by the Cabinet.

Members of the House demanded that the term "justifiable cause" be determined so that no one may misuse it. Amer Al Fahim, a member from Abu Dhabi, said these justifiable causes must be specified in the agency agreement.

UAE courts have, in the past, interpreted "justifiable cause" to include: (1) gross negligence; (2) impermissible dealing with competitive products/services; (3) assignment of the agency under a management agreement; (4) breaking the legal conditions relating to agent; for example where the agent is no longer an entity wholly-owned by UAE nationals, and (5) failing to meet agreed sales targets. Increasingly, the termination of registered agency agreements is completed through settlement agreements negotiated between the parties.

Sultan Bin Saeed Al Mansouri, Minister of Economy, said the committee will look into disputes over commercial agency and submit recommendations to his ministry, which approves or refuses them. "Parties to the agency agreement will retain the right to resort to the court," he said.

Members of the legislature voiced concern over protection afforded to certain influential principals, who seek termination of an agency against the interests of local agents.

Al Mansouri allayed their fears: "We discourage any such practices and our role is to protect rights of both the agent and the principal. This is why we introduced changes into the law."

Generally, the principal will need the express permission of the UAE agent to terminate the agreement regardless of whether the agency agreement provides for a fixed term.

About the statute

Once the agreement is registered, the Commercial Agency Law affords certain statutory protections to the agent that cannot generally be circumvented. These protections include:

(1) The agent's entitlements to commissions on all sales within the specified territory, whether or not the agent actively participated in these sales.

(2) The agent's right to prevent import of goods subject to the agency where the agent is not the consignee of such goods, and

(3) The right to compensation, as addressed herein below.

The Federal Law No 13 of 2006, which amends the Commercial Agency Law, allows the agency agreement to automatically expire at the end of the term (unless otherwise agreed by the parties). The new law still prohibits a new commercial agent from being appointed unless the registered agency agreement under which the agent was appointed has expired without renewal, been terminated by mutual agreement, or been terminated pursuant to a final judgement de-registering it.

When the Ministry receives a request for de-registration of a commercial agency from the principal, it will forward that request to the agent and ask for a reply. In cases where the agent accepts deregistration, the ministry will de-register the commercial agency from its record.

However, in cases where the agent contests the principal's request for deregistration, the ministry will give the agent reasonable time, to be determined at the discretion of the ministry and on case-by-case basis.