Disputes under UAE Agency Law

With the recent development and expansion of new markets, the products can be exported to a foreign country across a commercial agency. Federal Law Number 18 of 1981 (the UAE Agency Law) define commercial agency law as ‘any disposition whereby an agent represents an international company to allocate, vend, tender goods or services within the UAE for a charge or profit. In the commercial agency agreement, there are two parties: – Trade

• Agency (Agency): Means representation of the Principal by an agent for distribution, Selling, display, or the rendering of a commodity or service in the State, against a commission or profit (Article 1); and –
• The Principal: Means the producer or manufacturer inside or overseas, or the exporter or distributor authorized by the producer, provided in this case the producer does not practice the marketing functions by himself (Article 1).

However, the legal framework applied in UAE for commercial agencies is hugely advantageous for the Principal’s agents and disadvantageous.

Federal Law Number 18 of 1981

 In UAE, commercial agents’ activities are ruled by Federal law Number 18 of 1981. The agency agreements must satisfy three (3) essential conditions:

1. Exclusivity: according to article 5 of the UAE Agency Law, the commercial agent must be given for one of the seven (7) Emirates. The exclusivity could apply to multiple Emirates.
2. Emirati Nationality: the practice of commercials agencies shall be limited to national individuals or national companies (Article 2).
3. Registration with the Ministry of Economy.

Article 8 of UAE Agency Law state, “The principal, shall not be entitled to terminate the agency contract, unless there is a valid reason for termination, regardless that the period of agency contract is fixed” it means that it is necessary a valid reason for termination of the commercial agency. Frequently valid reasons for termination can be actions of the agent that can damage the Principal’s reputation or any negligence by the agent in the Agency law. There will be compensation payment by the Principal If the agency is withdrawn in a non-convenient time or due to a reason beyond agent control (Article 9). To evaluate the amount of payment of compensations is taken into account: the agent’s net profit, the agent’s efforts endorsing the services of the Principal, and the duration of the agency agreement. On the other hand, if a dispute arises between the Principal and the agency, the UAE Agency Law established a commercial agencies committee responsible for regulating these disputes. In April 2011, Decree Number 3 of 2011 Establishing the Committee of Commercial Agency, its role is to review any dispute relating to any commercial agency registered with the Ministry of Economic. According to article 27, the commercial agencies committee is confirmed by a representative of the ministry, a representative of the municipal council in each concerned Emirates, a representative of the members of the board of director of the chamber of Commerce and Industry in each concerned Emirate, a representative of the municipal secretariat and a representative of the chambers of Commerce and Industry Union in the State.

Arbitration in the Commercial Agencies Dispute

Article 6 of the UAE Agency Law state that “The commercial agency contract shall be deemed for the mutual interest of the contractors, the States courts shall be competent to adjudicate any dispute arises from its execution between the principal and the agent, any agreement to the contrary shall be annulled,” in other words, if a dispute arises, it is necessary to approach dispute resolution Lawyers and it shall be heard by UAE courts so they would not be allowed to arbitrate any potential dispute. Arbitration is an alternative way for dispute resolution outside the court process, and the UAE signed the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention). But if article 6 is mandatory, how is it possible that in some commercial agreements, the arbitration is conceivable? For example, in the Case 362/2019 Commercial Cassation, the judge explained that the exclusive jurisdiction of UAE courts provided in Article 6 of the Commercial Agencies Law is “conditional upon the dispute being related to the commercial agency itself in terms of its existence, its scope and the extent to which its provisions are complied with, determining the area it covers, or when the dispute relates to its being, or hanging on to its survival or its continuation or determining who should practice it according to its definition in the law or the non-compliance with its obligations or its execution principles,” put in another way the arbitration is possible when it is not related to the terms of the agency, its area or its continuation; it means that the conflicts related to agent’s commission, the arbitration is possible.

Compensation

 As we mentioned before, compensation will be payable to the agency if the agency is withdrawn at a non-convenient time or due to a reason beyond the agent’s control (Article 9). It is necessary to take into account the Civil Transactions Law. Article 954 determines that agency agreement can only be terminated upon achievement of what is delegated, upon the termination of the fixed time, or the decease of the Principal or the agent. However, what happens if it comes to the liquidation of the Principal? The UAE Supreme Court’s Decision Number 232 of 2008 (commercial section) stated that if a principal in an agency agreement goes into liquidation, the agency contract will arise to an end and will not be valid anymore. During the liquidation, the court will put a liquidator who will review the company’s account. If there is a fault by the Principal’s side, there will be in place the payment of compensation.