Navigating the Termination of a Commercial Agent in the UAE

Feb 24


Hassan Mohsen Elhais

Hassan Mohsen Elhais

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The termination of a commercial agent can be a complex process, particularly in jurisdictions like the UAE where specific laws govern such relationships. International companies often expand their reach by partnering with local distributors or commercial agents, and understanding the legal framework in these situations is crucial. The UAE Agency Law (Federal Law Number 18 of 1981, as amended) outlines the rights and obligations of both parties in an agency agreement. It is essential for foreign entities to weigh the pros and cons before entering or dissolving such partnerships. Corporate lawyers in Dubai have demystified the UAE Agency Law to aid companies in making informed decisions when appointing or terminating a commercial agent.

Understanding the UAE Agency Law

A commercial agent in the UAE enjoys exclusive rights within their jurisdiction. Under the Agency Law,Navigating the Termination of a Commercial Agent in the UAE Articles they are entitled to commissions from sales and have the authority to halt imports at customs during disputes. These provisions protect agents who have invested considerable effort in cultivating a market for the principal's products. However, the law also allows for termination of the agency contract under certain conditions, and courts have occasionally sided with principals in disputes over non-performance.

The Legal Framework for Termination

The Ministry of Economy (MOE) in the UAE has the power to terminate agency agreements for justifiable reasons. A landmark case that illustrates this involved the Federal Supreme Court Case 811 of 2017 and Federal Supreme Court Case of 814 of 2017. In this instance, two principals terminated their contracts with an agent due to poor performance and breach of contract. Despite the agent's failure to meet obligations, the termination process was challenged based on Article 14 of the Agency Law, which requires a meeting within 60 days of termination to discuss reasons and allow for the agent's defense.

Court Decisions and Their Implications

  1. Court of First Instance Judgment: The agent's request to cancel the new agent's registration was denied, and the MOE's decision to terminate was upheld.
  2. Appeal Court Ruling: The Appeal Court overturned the First Court's judgment, but did not approve the deregistration of the new agents.
  3. Supreme Court Verdict: The Supreme Court supported the Appeal Court's decision, and the agent's breach of contract was confirmed by expert analysis.

Compensation Claims and Legal Outcomes

The agent sought AED 600 million in compensation, but the courts rejected the claim based on the agent's own faulty actions that resulted in losses for the principals. A decade later, the agent filed new lawsuits, which were dismissed on various legal grounds, including res judicata (a matter already judged) and statutory limitations.

Key Takeaways for Foreign Companies

The case underscores the importance of performance in agency contracts. The UAE courts confirmed that non-performance could negate an agent's right to compensation, despite the protective measures in the Agency Law. Foreign companies are advised to consult with lawyers in Dubai before terminating contracts with commercial agents to fully understand the potential consequences.

Interesting Stats and Facts

  • The UAE's Agency Law has been a subject of debate and reform discussions, with proposals to make it more balanced for both agents and principals.
  • According to the UAE Ministry of Economy, there are thousands of registered commercial agencies in the country, indicating the significance of agency relationships in the UAE's economy.

Foreign companies must navigate the complexities of the UAE Agency Law with care and seek legal counsel to ensure compliance and protect their interests during the termination of a commercial agent.