The UAE Commercial Agency Law – 5 Key Takeaways for the healthcare sector

In December 2022, the United Arab Emirates issued a new commercial agency law. Federal Law No. 3 of 2022 Regulating Commercial Agencies (Commercial Agency Code) (“CAL”) came into effect in June 2023 and replaces the previous commercial agency law (Federal Law No. 18 of 1981). 

For foreign principals specializing in the manufacture of healthcare/beauty products and who are looking to expand into the United Arab Emirates, we have set out 5 of the more significant changes contained in the CAL.

Foreign principals may be permitted to conduct business without a local agent in limited circumstances

Manufacturers of healthcare/beauty products who wish to conduct sales and distribute their products in the United Arab Emirates may be allowed to conduct a commercial agency business itself, and without the involvement of a local agent if:

1. if it does not have a commercial agent appointed in the United Arab Emirates; and
2. no agreement has been previously registered in the United Arab Emirates. 

This, however, is subject to Cabinet approval, who will make its decision based on the Minister of Economy’s recommendation. The Cabinet may also impose conditions and limitations on its approval.  This may become helpful to the principal in relation to prevention of parallel imports, but it remains to be seen how this may work in practice.

Clearer grounds for termination

There are five ways to terminate a commercial agency agreement under the CAL:

1. Upon expiry of the contract term, unless the term is renewed by the agreement of the contracting parties;
2. By the will of either the foreign principal or the local agent based on the terms and conditions of the commercial agency contract;
3. By agreement of the contracting parties before the end of the contract term;
4. Upon the issuance of a final court judgment to terminate the commercial agency; or
5. Any other case mentioned in the CAL.

This is a major departure from the termination concepts under the previous commercial agency law, which only allowed termination by agreement of the parties or by court order. Under the previous commercial agency law, the expiry date of the commercial agency contract was not a factor entitling non-renewal or termination.

What happens if the commercial agency contract is not renewed by the foreign principal?

If the foreign principal does not want to renew the registered commercial agency agreement beyond the expiry date (i.e., the foreign principal wants to cease its appointment of the registered local agent to serve as its distributor of the healthcare/beauty products), it is possible for the foreign principal to give notice to the local agent of its intention not to renew either: (i) one year before expiry of the term of the commercial agency contract, or (ii) before the lapse of one half of the term (whichever is less). 

However, it is important for the principal to note that the agent may have the right to claim compensation from the principal for the damage incurred by the agent as a result of the expiration and non-renewal of the contract.

Dispute resolution via arbitration

The parties can agree to have their disputes resolved by way of arbitration, which will take place in the United Arab Emirates unless the parties agree otherwise. This is another departure from the previous commercial agency law, which provided that any arbitration provision was deemed canceled.

What happens to existing commercial agency agreements?  

For commercial agency agreements in existence before the issuance of the CAL, items (a) and (b) in the above-mentioned grounds for termination will not apply to existing commercial agency agreements until 2 years after the date the CAL comes into force. This means that items (a) and (b) will apply to existing commercial agency agreements from June 2025 onwards.  

This is extended to 10 years (after the date the CAL comes into force) for commercial agencies that have been registered with the same agent for more than 10 years, or commercial agencies in which the volume of the Agent’s investment exceeds 100 million UAE dirhams, which affords protection for long-term and or large value commercial agents.

Conclusion

Manufacturers of healthcare/beauty products looking to expand into the UAE market by appointing a local distributor who will serve as its registered commercial agent will need to be aware of the implications that the CAL will have on their agreements. Importantly, manufacturers are reminded that to the extent of any inconsistency between the CAL and any terms and conditions set out in their agreements, the provisions of the CAL will prevail.