One of the areas of greatest uncertainty for foreign investors seeking to do business in the United Arab Emirates (UAE) is the commercial agency arrangement. The UAE Commercial Agency Law, UAE Federal Law No. 18 of 1981 (the “Law”), has gone through several changes, and was recently amended again to re-tighten controls over the termination of commercial agency agreements. This latest revision (Federal Law No. 2 of 2010, the “Amendment”) represents a return to the original spirit and tenor of the Law, and substantially changes how commercial agency agreements are treated in the UAE.

Background

A commercial agency is defined in the Law as “the representation of a principal by an agent on the distribution, sale, offer, or presentation of commodities or services within the State [United Arab Emirates].” According to the original language of the Law, an agent must meet the following requirements: (i) the agent must be a UAE national or be a company that is wholly owned by UAE nationals; (ii) the agency arrangement must be exclusive with respect to territory or product; and (iii) the agency relationship must be registered. In the Law’s original version, termination of a commercial agent was extremely difficult, and foreign principals often times found themselves unable to terminate an agency relationship in the UAE.

The Law was amended in 2006 to roll back the protectionist nature of commercial agency arrangements in the UAE. Specifically, the 2006 amendments provided that a commercial agency agreement with a fixed term will automatically terminate at the end of the term. Furthermore, both principals and agents were permitted to seek damages that resulted from a breach of the commercial agency agreement.

Provisions of the New Amendment

The Amendment enacted earlier this year takes the Law back to its original iteration and reinstates many of its original provisions. Key changes are as follows:

The Amendment creates a special commercial agency committee to review all disputes arising out of any registered commercial agency arrangement. This committee serves as the appropriate initial forum for dispute resolution for commercial agency arrangements. Decisions handed down by this committee may be challenged before the Abu Dhabi civil courts, but appeals must be made within a specified time limit.

The Amendment’s most significant reversion back to the original language of the Law provides that foreign principals will be prevented from terminating or refusing to renew commercial agency agreements without providing “a material reason justifying its termination or non-renewal.”

New Importance for Termination Provisions

As a result of the Amendment, the termination provisions included in a commercial agency agreement in the UAE once again have become extremely important. Specifically, it is advisable to expressly indicate what will be considered a “material reason” for termination or non-renewal of the agreement.

The legal landscape relating to commercial agency arrangements in the United Arab Emirates has never been a static one. The Amendment serves as the most recent example of this fact. Holland & Knight understands that commercial agency arrangements are widely utilized by foreign principals to do business in the UAE. Our attorneys are well versed in preparing and structuring these agreements and follow the development of UAE laws closely. We welcome your questions regarding these arrangements.