- Commercial agents can be either registered (meaning they are registered with the Ministry of Economy) or unregistered.
- A registered commercial agent enjoys considerable statutory protection. The position for an unregistered commercial agent will differ depending on the strength of the agency contract.
- We can determine whether or not the agency agreement has been registered quickly and cost effectively.
- Proceed with caution – rash action taken at the outset of a potential dispute can compromise later solutions and escalate the dispute unnecessarily.
- Commercial agents should not be confused with national service agents (commonly referred to as a “sponsor” of a branch of a foreign company). National service agents will be considered in a forthcoming article.
What is a commercial agent
A commercial agent represents a foreign company or principal to “distribute, sell, offer, or provide goods or services within the UAE for a commission or profit” (Article 1 of the UAE Agency Law - Federal Law 18 of 1981, as amended).
A motivated commercial agent can be an invaluable asset for a foreign business in the UAE. They know the market, know how to promote goods or services in the market, may have an existing distribution network and will often be incentivised by the agency agreement to maximise sales.
If certain requirements are met (including the agent is a UAE national or wholly owned by UAE nationals; the contract is signed before a UAE notary; the contract is exclusive and is for a defined territory (the Territory) it is possible for the commercial agent to register the contract with the UAE Ministry of Economy. Once registered, the Agency Law applies to the agency contract.
The Agency Law provides protection for an agent, including:
- Protection against termination and non-renewal. Notwithstanding the terms of the contract, it will either not be possible to terminate the agreement (unless by mutual consent) or the agent may be entitled to significant compensation on termination.
- The agent will be entitled to commission on all sales for registered products or services in the Territory (whether it made the sale or not).
- The agent will be entitled to block registered products from entering the Territory, restricting a foreign company’s ability to distribute the product in the UAE through any other channels.
- What are the common issues around commercial agencies
Unfortunately, we come across agency disputes all too often. The most common issues that we see are:
- A foreign company chose an agent when it was a new entrant to the market. The agent seemed right at the time, but subsequent knowledge of the market highlights various deficiencies in the agent’s offering. This leads the foreign company to decide it wishes to change its agent.
- A foreign company has various different agencies for different product lines (possibly because of mergers or acquisitions) and wants to streamline its arrangements and cut costs.
- The foreign company decides the agent simply isn’t doing enough to market its product.
- The foreign company thinks it struck a bad deal and is aware of cheaper options.
- Compliance issues mean that the current agent is no longer viable.
Steps to take if you are considering changing your commercial agent
The first step is to establish whether or not the agency agreement has been registered and the agent has the protection of the Agency Law. This will help determine what your position is and inform any strategy going forward.
If you are considering changing your agent or want to check whether your agency agreement is registered, for a fixed fee we will search the commercial agencies register and provide you with the result of the search and a report on the key implications. We can also provide comprehensive advice and guide you through the termination process.
For further information please contact James Fox