UAE Commercial Agency: Terminating Legacy Arrangements

The UAE's commercial agency regime has gone through significant reform, including the Federal Law No. 3 of 2022 Regulating Commercial Agencies, effective 15 June 2023. While the new law introduces more flexible grounds for expiry and termination of registered agencies, many long-standing arrangements remain protected by a framework that preserves the agent‑protective rules of the repealed Federal Law No. 18 of 1981.

Article 9 of the new law permits termination upon expiry and non-renewal or in accordance with agreed contractual terms. However, Article 30 suspends these provisions for a defined class of legacy agencies for a two‑year period from the effective date and, more substantively, continues the 1981 regime for a decade for agencies that meet specific criteria. In practice, any commercial agency that was registered before 16 June 2023 and either has been in place for more than 10 years or has involved agent investment exceeding AED 100 million remains governed by the old law until 16 June 2033.

For these legacy agencies, principals cannot rely on the 2022 law's more flexible termination rules. Instead, early termination or non-renewal is only permissible for a material reason, typically determined by the Commercial Agencies Committee or the courts. Absent such a reason, unilateral termination is unlawful under the 1981 law, and the registration remains in force.

Where a principal seeks to end a legacy agency without a qualifying material reason, several immediate consequences follow. First, termination will be treated as invalid and the Ministry of Economy will not de‑register the agent without either mutual consent or a Committee finding of material reason. The registered agent's exclusivity persists, and attempts to appoint a new agent or channel parallel imports can be blocked under the 1981 framework. Second, civil liability exposure is material. The prejudiced party, often the agent, may seek compensation for loss of commissions, reimbursement of sunk investments in market development, and reliance or reputational damages. UAE jurisprudence confirms that tribunals have broad discretion to quantify such awards, commonly with reference to expert assessments of average annual profits, goodwill and relationship duration. Third, while Cabinet Decision 89/2023 introduces administrative fines under the 2022 law, those penalties apply prospectively to agencies governed by the new regime; legacy relationships remain subject to the historical framework.

Given the transitional protections, termination by convenience or non‑renewal is not available to principals for qualifying legacy agencies. Termination by mutual consent remains theoretically possible, but commercial realities often limit that avenue. The primary lawful path is termination for a fundamental (material) reason, supported by robust evidence and advanced through the Committee process. Where the Committee upholds termination or de‑registration, the Ministry will update the register accordingly. If compensation issues are intertwined, the Committee may address liability while leaving quantum to the courts.

For principals managing legacy arrangements through the transition, disciplined planning is critical. Objectives should focus on securing de‑registration cleanly, minimising compensation risk, preserving supply continuity and compliance, and limiting reputational disruption. This typically requires meticulous documentation of performance issues, contractual breaches and commercial impacts, aligned with a clear evidentiary strategy before the Committee. A structured approach strengthens negotiating leverage and improves prospects in any subsequent adjudication.

The UAE's reforms promise greater flexibility in due course, but for legacy agencies the 1981 law's protections remain determinative until 2033. Principals should calibrate their approach accordingly, balancing legal strategy with operational continuity while the transitional regime remains in force.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.