Dubai: Offering clear dispute settlement processes in case of disputes between an international business/brand owner and their ‘commercial agent’ in the UAE is one of the key updates for the Commercial Agency Law. The revised version goes into effect from June 16.
In its major reforms related to businesses and their operations here, the UAE authorities are making sure that enough mechanisms are available when it comes to settling disputes before they have a chance to damage the company’s operations irreparably. There is, for instance, special entities that will hear and deliver verdicts in the emirates when it comes to differences between stakeholders in UAE’s family-owned businesses.
When it comes to the Commercial Agency Law, “The UAE Ministry of Economy has tried to resolve all grey matters in case on an uneasy relationship between principal and their UAE agent,” said a lawyer at one of the leading firms in Dubai. “What the Ministry is doing is try and achieve minimal disruption to the business.”
Ministry will step in directly
In case of a breakdown in ties, the updated Law gives the Ministry of Economy the right to ‘specify exclusive resources’ whereby it will ensure the availability of the products and services related to that particular principal-UAE agent arrangement. This will be done strictly for the short-term.
This is quite a departure from the existing version of the Law, which meant the commercial agent will stop importing, or the principal will stop exporting these items, services, or goods to the UAE.
A major principle of the amended Commercial Agency Law is that it rebalances the relationship between the 'client' and 'commercial agent'. Change in existing commercial agency contracts happens in case of two instances - non-renewal and termination for convenience. Commercial agencies must roll up their sleeves and re-arrange their relationship with the company in these two cases
The new version of the Law offers the parties involved every possible way to arrive at a resolution. “One of the most innovative ideas in the articles in the law is arbitration,” said Hasan Al Kilany, Senior Legal Advisor at the Ministry of Economy. “If there are new disputes between the parties, both can agree to go to arbitration.
“However, this does not apply to existing disputes before the committee or those that have already reached the courts. (But if a dispute arises now, the option of arbitration) is effective immediately - people do not have to wait till June 16.”
International businesses and brand owners thus get far more say in their arrangement with the local partner. There is greater ‘emphasis placed on the parties’ freedom to contract and expanding a principal’s previously limited termination rights,” said Antonia Birt, Partner, Global Commercial Disputes Group at the law firm Reed Smith.
“Vitally, parties will be able to resolve future disputes concerning registered commercial agencies by arbitration. The new law therefore provides additional options for parties to resolve their disputes.”
The business community will therefore welcome the announcement of the modernisation of the UAE’s 1981 Commercial Agency Law. The new law introduces a number of important changes, including providing agents and principals with greater freedom to negotiate the terms of their relationship, with the emphasis placed on the parties’ freedom to contract; and expanding a principal’s previously limited termination rights
More flexibility for international firms
Another far-reaching change will be the provision whereby an international company could consider being the commercial agent for its own products. Yes, there are certain conditions when this applies – but even then, it is quite a step change.
The international firm must have the approval of the UAE Cabinet, and also, there should not have been any UAE commercial agent for its products beforehand.
“This is a significant expansion of the type of entity that can be a commercial agent - and will allow international companies to be in direct control of the sale of their products in the UAE,” said Shahram Safai, Partner at the law firm of Afridi & Angell in Dubai. “UAE citizens and public joint stock companies 51 per cent owned by UAE citizens will also continue to be allowed to be commercial agents under the law.”
There is a significant expansion of the type of entity that can be a commercial agent and also will allow international companies to be in direct control of the sale of their products in the UAE
Arriving at a ‘perfect balance’
What the extensively updated Commercial Agency Law does is provide for a more balanced relationship between brand principal and their UAE partner, current and new ones. The Commercial Agency Law dates back to 40 years, and there have been updates since, but not to this extent.
In the recent past, the UAE has also allowed 100 per cent foreign ownership across a slew of business categories, and reworked the bankruptcy rules. Plus, there were the changes to the family owned business regulations, making for an extensive reworking of rules and regulations to make the process of doing business as smooth as can be possible.
The new Law authorizes the UAE Cabinet to permit international companies to act as agents for its own products provided such international company did not have or had an agent in UAE. This would possibly open doors for foreign companies to explore more opportunities in UAE under the new agency law
Termination of commercial agent ties
The updated Commercial Agency Law also goes deep into how and where an existing arrangement can be terminated.
“Under the previous law, termination of an agency agreement was a formidable task unless mutually agreed by the parties,” said Atik Munshi, Managing Partner at Finexpertiza UAE. “In the new, the termination provisions allow in instances of contract non-renewal, or under termination for ‘convenience’.
“This will not imminently apply - it will be after two years for existing agency contracts and after a 10-year period for contracts already existing with the same agent for the past 10 years. Or where the size of the UAE agent's investment exceeded Dh100 million.
“This change brings about new possibilities though more clarification is desired from the Ministry.
“The new law is expected to trigger more FDI and interest in the UAE economy as well as ensure undisrupted supply of goods and services under a commercial agency agreement.”