Commercial agency contracts are agreements between Principal and agent. They distribute, sell, or provide services for the principals’ products or services in the UAE. The New Agencies Law (UAE Federal Law 3 of 2022 regulating commercial agencies) regulates these contracts. The law grants rights and protections to the agents, such as exclusivity, commission, and compensation for termination or non-renewal. The law requires that a valid Commercial Agency requires a written and documented contract between the Agent and the original Principal, and a registration of the Commercial Agency in the Commercial Agencies Register.
However, the principal or the agent may want to terminate the contract before its expiry date. This could happen due to poor performance, breach of obligations, or mutual consent. In this article, we will discuss the three ways to terminate a commercial agency contract in the UAE. Article 267 of the UAE Civil Code provides these ways:
- By mutual consent of the parties;
- By an order of the court; and
- Under a provision of the law.
What is a Commercial Agency Contract?
A commercial agency contract is an agreement between a Principal and an agent. The agent promotes and sells the principal’s products or services in a specific market. The agent gets a commission based on the sales they make for the principal. Principal is the producer or manufacturer owning the commodity or service inside or outside the state. Whereas, an Agent is the natural or legal person to whom, under the Commercial Agency contract, the representation of the Principal is entrusted.
Different countries have different laws that regulate commercial agency contracts. For example, in the UAE, there is a new Commercial Agencies Law (Federal Law No. 3 of 2022 Regulating Commercial Agencies) that changes the previous law (Federal Law No. 18 of 1981, as amended). The new law affects how commercial agency agreements are registered and terminated in the UAE.
How to Terminate Commercial Agency Contract?
There are three ways to terminate a commercial agency contract in the UAE:
- By mutual consent of the parties
This is the easiest and most friendly way to end a commercial agency contract. It means that the principal and the agent agree to stop their contractual relationship and resolve any pending issues, such as payments, inventory, or customers. The parties can also agree on the terms and conditions of the termination, such as the effective date, the notice period, and the compensation (if any).
The parties should write and sign a document that confirms their mutual consent to terminate the contract. They should also inform the Ministry of Economy and ask to cancel the registration of the commercial agency contract from its records.
- By an order of the court
This is another way to end a commercial agency contract. It may be necessary when one party wants to terminate the contract but the other party does not agree or cooperate. For example, if the principal wants to end the contract because of the agent’s breach of obligations, such as not paying, not following instructions, or not meeting sales goals, but the agent does not accept or challenges the termination.
In these cases, the party that wants to terminate the contract must sue the other party and prove that there is a valid and important reason for termination. The court will then review the evidence and decide whether to approve or reject the termination request. The court may also award damages or compensation to either party, depending on the situation and merits of the case.
Termination by court order may be a long and expensive process, as it involves legal fees, court fees, expert fees, and possible appeals. Therefore, it is wise to get legal advice before starting or defending a court action for termination.
3. Termination under a Provision of the Law
The third way to terminate a commercial agency contract is under a provision of the law. This means that there is a specific legal rule that allows or requires one party to terminate the contract in certain situations. For example:
- The New Commercial Agencies Law (Federal Law No. 3 of 2022 Regulating Commercial Agencies) allows either party to terminate the contract before its term based on its terms. The party must serve a notice to the other party at least one year before the termination date or half of the contract term, whichever is less.
- The UAE Civil Code allows either party to terminate a contract for force majeure events that prevent its performance or make it excessively burdensome. Force majeure events are unforeseeable and unavoidable events that are beyond the control of either party, such as war, natural disasters, epidemics, or government actions.
The parties should document the termination under a provision of the law in writing and notify the Ministry of Economy for cancellation of registration.
Seek Assistance of Private Notary Dubai
A drafting lawyer at Private Notary Dubai can assist with commercial agency contract in the UAE by providing the following services:
- Drafting and reviewing the commercial agency contract to ensure that it complies with the UAE law and protects the interests of both parties.
- Advising on the registration and renewal of the commercial agency contract with the Ministry of Economy, which is mandatory for the contract to be valid and enforceable.
- Negotiating and resolving any disputes or issues that may arise between the principal and the agent, such as commission, termination, compensation, exclusivity, etc.
- Representing the principal or the agent in any litigation or arbitration proceedings that may arise from the commercial agency contract.
Private Notary Dubai is a law firm that specializes in legal drafting services in Dubai and across the UAE. Whether you need a commercial agency contract, a memorandum of association, a power of attorney, or any other legal document, Private Notary Dubai can draft it for you in a timely and professional manner. Contact Private Notary Dubai today and get your legal documents done right.
Hassan Humaid Al Suwaidi is a UAE Citizen and the founder of the firm HHS Lawyers. He has a vast experience of 20 years of dealing with high-value and complex notary requirements. Hassan has been involved in some of the largest legal settlements in the UAE and is commended for his ability to attain the most favourable outcomes for his clients.