COMMERCIAL AGENCY LAW IN THE UNITED ARAB EMIRATES
The United Arab Emirates Federal Law No. (18) of 1981 Concerning the Organization of Trade Agencies (as amended) (“Agency Law”) governs commercial agency agreements that have been registered with the UAE Ministry of Economy. However, only those arrangements which meet certain criteria set out in the Agency Law are capable of registration pursuant to that law and hence are subject to its provisions. There are many unregistered commercial agency arrangements in the UAE which are governed by other UAE legislation including the UAE Commercial Transactions Law and the UAE Civil Code.
Agency is widely defined in the Agency Law as the “representation of the principal by an agent for the purpose of distribution, selling, display or rendering of a commodity or service in the United Arab Emirates against a commission or profit” and therefore covers a broad range of agency, franchise, distribution, commission and other representative arrangements.
The parties to a registered agency agreement may not contract out of the provisions of the Agency Law nor agree on a foreign law to govern such arrangement.
With regard to unregistered agency agreements, where UAE law is applied there are certain provisions of the UAE Civil Code and the UAE Commercial Transactions Law that cannot be contracted out of (for example, provisions providing for potential claims by agents in the event of termination). However, there may be methods of having foreign law apply to unregistered agreements.
Regardless of any provisions to the contrary in a registered agency agreement, registered agents will be entitled to claim compensation in the event of termination, even if such termination occurs in accordance with the terms of the agreement itself. Whether such a claim will be successful, and the extent of compensation that may be awarded as a result of such claim, will be determined by a number of factors. These include the circumstances surrounding the termination (for example, whether it was for breach by the agent or simply as a result of notice being given by the principal and, if for breach by the agent, the nature of the breach), the period of the agency relationship prior to termination, the profitability of the agent’s business and the expenditure incurred by an agent in establishing the agency business.
Unregistered agents are still entitled to seek compensation in the event of termination under the UAE Commercial Transaction Law and the UAE Civil Code, even if terminated in accordance with the terms of the agreement and regardless of any provision to the contrary in the agreement. The same factors as mentioned above will be considered by the UAE courts when determining whether any compensation should be awarded and, if so, to what extent.
In either case, court appointed experts are usually used to determine compensation amounts.
The Agency Law provides that registered agents are entitled to commission for deals made by the principal itself or through others in the area covered by the registered agency arrangement.
UAE laws do not specifically refer to concepts of “post-termination commission” or “pre-termination commission” and entitlement to commission is respect of specific transactions would be determined by reference the provisions of the relevant commercial agency agreement itself (or the provision of the Agency Law mentioned above in the case of registered agents).
With regard to “back commission”, the UAE Commercial Transactions Law does contain a provision which states that the agent shall be entitled to remuneration for transactions concluded or “for those whose non-conclusion is due to the principal’s act, unless the contract stipulates otherwise”.
Choice of Law and Jurisdiction
The UAE courts will assert jurisdiction over, and apply UAE law to, arrangements that are registered under the Agency Law, regardless of any governing law and jurisdiction/arbitration clause.
Generally speaking, the UAE courts will also assert jurisdiction over unregistered agreements and, if they do, will apply UAE law regardless of any contrary governing law agreed to in the agreement. However, if the agreement provides for arbitration, on the basis that the UAE is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitration Awards, the UAE courts may refuse to hear disputes regarding such agreements but instead refer the dispute to arbitration.
Restraint of trade clauses are allowed, both with regard to the period during any agency arrangement after the termination of any such agreement, provided their scope is reasonable. However, the UAE courts do not grant injunctive relief and any action for a breach of such clause would need to be an action for damages which can be shown to have resulted from any such breach.
Fox Williams LLP would like to thank Al Tamimi & Company in Dubai for its contribution to this page.