United Arab Emirates: An Overview Of UAE Agency

Law
Last Updated: 15 August 2011
Article by Mark Gilligan and Douglas G. Smith
UAE Agency law impacts upon many different aspects of commercial life in the
United Arab Emirates. The governing law, Federal Law No. 18 of 1981 ("the Agency
Law"), is extremely broad and captures commercial activities ranging from a classic
principal/agent relationship to franchising and distribution agreements. The Agency
Law is a framework which serves to champion the rights of the local commercial
agent, normally at the expense of the (typically foreign) principal.
The Commercial Agents (Council) Regulations 1993 ("Regulations") promulgated
under the Agency Law recognise that commercial agents are often in a relatively weak
position when contracting with principals, and for this reason the regulations seek to
impose certain restrictions on the actions of principals whilst conferring benefits on
agents. The Regulations are in favour of protecting UAE Nationals with the persons or
entities able to qualify as commercial agents being very narrowly defined.
Commercial agency is defined as the "representation of a principal by an agent for
distribution sale display or provision of a commodity or service in the state in return
for commission or profit". This very broad definition is further clouded with a narrow
qualification on who may actually carry out such activities.
Commercial agency activities in the UAE may only be carried out by UAE Nationals
or companies wholly-owned by UAE Nationals. Once agency is granted and
registered with the UAE Ministry of Economy, the termination of an agency
relationship by a principal can be extremely difficult to effect and in most cases such
terminations result in significant compensation awards in favour of the local agent.
Exclusivity
Article 5 of the Agency Law stipulates that a commercial agency must be granted for
a specified exclusive territory within the UAE, namely one of the seven Emirates.
Exclusivity can also apply to multiple Emirates or the whole of the UAE.
Nationality
Only UAE Nationals or companies wholly owned by UAE Nationals are entitled to
carry out commercial agency activities in the UAE. This is a strict provision of the
Agency Law.

Registration
Any commercial agency covered by the Agency Law must be registered in the
Commercial Agencies Register maintained by the Ministry of Economy in the
relevant Emirate or if for the entire UAE with the Ministry of Economy in the federal
capital, Abu Dhabi. An agreement must be signed before a notary public (and attested
if signed outside the UAE).
Form of Agreement
Under the Agency Law commercial agency agreements must be in writing in order to
be deemed valid.
Termination
The Agency Law, initially enacted in 1981, has gone through numerous changes. The
changes have gone back and forth between favouring the rights of the agent or those
of the principal with the most recent legislative changes in 2010, coming down firmly
on the side of the local agent.
This is particularly evident in the current law relating to termination. Under Article 8
of the law, notwithstanding the written terms of the agreement, no termination of or
failure to renew a registered agency agreement is effective in the absence of a "valid
reason" for termination as accepted by the Commercial Agencies Committee which
was created to administer the law or with the express agreement of both parties.
The legislation is silent on what qualifies a "valid reason" for termination, however
based on our experience and the most common rulings of the courts we believe that
"valid reason" may include:

Failure by the agent to meet specified sales targets

Where actions of the agent damage the reputation of the principal or its
products or services
Where the agent partakes in activities that compete with the products or
services of the principal
Any breach of the agency law by the agent

Compensation
Article 9 of the Agency Law governs the payment of compensation to the agent upon
termination or non-renewal of an agency agreement. As with termination under
Article 8, the exact calculation of a compensation payment is not set out in the

Agency Law, however, the following are often taken into consideration in establishing
compensation awards:

The duration of the agency agreement

The demonstrable efforts of the agent in promoting the products or services of
the principal; or
The net profit generated by the agent, being the value of the contract

Importation of products
The Agency Law provides that a principal may not import any products covered by
the agency agreement either directly or indirectly through another agent whilst the
agreement covering the relevant product/s is registered with Ministry of Economy. If
a principal does do this, they will be liable to compensate the registered agent for
commissions earned.
Commercial Agencies Committee
The Commercial Agencies Committee ("the Committee") was created under the 1981
legislation as the first port of call for any party wishing to resolve a dispute relating to
the Agency Law. The Committee was disbanded under the 2006 amendment but was
subsequently reintroduced in 2010. Under the current legislation, the Committee has
full powers of investigation, including the ability to appoint experts and the ability to
apportion the costs of a hearing between the parties. In order to be binding, the
Committee must rule on disputes within 60 days of receiving a complaint from either
party to an agreement. Parties can also appeal the decisions of the Committee before
the UAE Courts.
Competence and Jurisdiction of the UAE Courts
Under the Agency Law agency activities may not be performed within the UAE
except by commercial agents registered with the Ministry of Economy. Furthermore,
the UAE courts are effectively barred from hearing cases relating to un-registered
agency agreements. The effect of Article 3 leaves parties with limited recourse where
agency agreements are un-registered.
This article is an overview of what is a relatively complex law and underscores the
need for both principals and agents to seek expert advice prior to entering into
commercial agency activities in the UAE.