This article is written by Rahul Kumar who is pursuing a Certificate Course in Arbitration: Strategy, Procedure and Drafting from LawSikho.
Arbitration in the United Arab Emirates (the UAE) was governed by Article 203-218 of the Civil Procedure Code (Federal Lakw No. 11 of 1992). However, the Civil Procedure Code did not comprehensively regulate arbitration in the country. Therefore, recently in 2018, the UAE has enacted the much anticipated Federal Law No. 6 of 2018 (the Arbitration Law) which is heavily based on the United Nations Commission on International Trade Law (the UNCITRAL) Model Law on International Commercial Arbitration. The Arbitration Law under Section 60 replaced and superseded Article 203-218 of the Civil Procedure Code. The new Arbitration Law comprehensively governs arbitration conducted in the UAE (Article 2) including ongoing arbitration even if the arbitration agreement was executed before the enactment of the Law (Article 59).
However, the parties have been given the freedom to agree on the application of the provisions of another Arbitration Law except where such agreement would be contrary to the public order and public morality of the State (Article 2). Further, Article 4(2) of the Arbitration prohibits arbitration of matters which are not submittable to conciliation.
Even before the enactment of the Arbitration Law, commercial agency disputes have been considered to be not arbitrable in the UAE by virtue of Article 6 of the Federal Law Number 18 of 1981 (the Agency Law). The Agency Law exclusively deals with commercial agency contract in the UAE. It is pertinent to note that commercial/trade agency is one of the most prevalent methods for foreign companies to conduct business in the UAE. In this contractual arrangement, a foreign company contract with a local company or individual (agents) to sell its products or services across the country. Eventually, the foreign company forgo the expensive requirement of establishing a subsidiary company in the country and leverage the valuable local knowledge, experience, and network of the agent.
Commercial/Trade Agency has been expressly defined as “the representation of the Principal by an agent for the purpose of distribution, display, selling, or the rendering of a commodity or service in the State, against a commission or profit” under Article 1 of the Agency Law. Despite the huge market of commercial agency in the UAE, the jurisprudence on arbitrability of commercial agency dispute is confusing. Therefore, the present article examines the arbitrability of commercial agency dispute in the UAE.
Confusing statutory regime
Article 4(2) of the Agency Law prohibits the arbitration of matters which are not submittable to conciliation. The prohibition under the said provision is vague as it does not provide any guidelines to determine which matters are not submittable to conciliation and consequently are not arbitrable. Thus, it can be said that the Arbitration Law neither expressly allows nor expressly prohibits the parties of a commercial agency from referring to arbitration to resolve any commercial agency dispute.
Thus, it becomes relevant to analyse specifically the Agency Law to determine whether commercial agency disputes are arbitrable. A registered agent under the commercial agency enjoys various privileges such as the exclusive right to seek commission on all sales that are made within the defined territory in the UAE, regardless of whether the agent contributes to such sale (Article 7), the protection from termination or non-renewal of the agreement (Article 8), the right to restrict the principal from replacing the agent with a new agent (Article 9) and the right to prevent any unauthorized parties from importing the principal’s product into the defined territory (Article 23). Apart from the said substantive privileges, the protectionist approach of the Agency Law extends to dispute resolution as well.
Article 6 of the Agency law empowers the State courts to adjudicate any dispute arising from the agency contract between the principal and the agent. However, there is a slight conflict within the provisions of Article 6 of the Agency Law. For convenience, Article 6 of the Agency Law can be divided into two parts. The first part states that “the commercial agency contract shall be deemed for the mutual interest of the contractors.” With a contrary tone, the second part states that “the States courts shall be competent to adjudicate any dispute arising from its execution between the Principal and the Agent, any agreement to the contrary shall be annulled.”
The language of the first part advocates neutral treatment of the principal and the agent. On the other hand, the second part has a protectionist approach towards the agent as it mandates the adjudication of any dispute by the States courts only. Commercial agency agreements mostly involve big corporate giants as the principal and small-scale entities or individuals as the agent. Such power disparity between the parties may result in an unfair trade agreement tilted in favour of the principal.
Therefore, the legislator might have an intention to protect the interest of the agent by referring to any disputes arising from the agency agreement to national courts only. The national courts may consider the vulnerability of the agent and protect the interests of the agent as per the favourable provisions of the Agency Law.
Article 28 of the Agency Law requires the Parties in a commercial agency contract to first approach the Commercial Agency Committee (the Committee) before filing a case before any State court. Thus, the Committee has the original jurisdiction to adjudicate any dispute arising from the agency contract. However, the decision of the committee may be appealed before the competent court within 30 days of the decision of the Committee.
Therefore, a combined reading of the Arbitration Law and the Agency Law indicates that although the parties can execute an arbitration agreement under the Arbitration Law for resolution of their dispute arising from the agency contract, however, the Agency Law empowers the agent to unilaterally drag the principal before the Committee followed by national courts claiming that they have the exclusive jurisdiction to resolve such dispute and any agreement to the contrary is null and void.
Thus, the statutory regime may confuse the principal in determining whether to execute an arbitration agreement with the agent in the first place. Secondly, even if it executes an arbitration agreement, what would be the validity of such an agreement.
Apart from the confusing statutory regime, the judicial decisions have also failed to lay down a clear and consistent jurisprudence over the arbitrability of commercial agency disputes. Several judicial decisions have ruled that the parties cannot arbitrate the commercial agency disputes by virtue of Article 6 of the Agency Law, irrespective of the presence of any arbitration agreement between the parties in this regard. It has been noted that commercial agency contracts are sensitive in nature and have an effect on the economy and trade of the country, thus the legislator has conferred exclusive jurisdiction to national courts to adjudicate such disputes. Eventually, it has been often reported that commercial agency disputes are not arbitrable in the UAE.
However recently, a decision of the Court of Cessation slightly deviated from the jurisprudence developed by earlier decisions of the courts. In this case, the principal executed a transaction for the sale of vehicles to a government without involving the agent. When the agent learnt of this transaction, he claimed commission from the principal as per the agreement. On the principal’s refusal to pay, the agent approached the Commercial Agency Committee claiming his commission from the principal for the said sale. The Committee held that the agent was entitled to the commission and directed the agent to approach the courts to claim his entitlements. Consequently, the agent approached the Abu Dhabi Court to claim his entitlement.
However, the principal challenged the jurisdiction of the court on the ground that the agreement between the parties contained an arbitration clause which provided that all disputes arising from the Agreement shall be resolved through arbitration. The Court held that the defendant had validly invoked the arbitration clause under the Arbitration Law and therefore, the dispute should be resolved by arbitration. Hence, the Agent’s claim was dismissed.
This decision was further upheld by the Court of Appeal (Case 2652/2018 Commercial) and Court of Cassation (Case 362/2019 Commercial Cassation). The Court of Cassation held that disputes concerning the existence, registration and maintenance of commercial agency agreement fall under the exclusive jurisdiction of the national courts. However, the present dispute was concerned with the commission for the sale in the agent’s territory which was distinguishable from the said nature of disputes. In other words, the agent claimed to appoint an expert to determine the entitled amount of commission and request an order to the principal to make the payment. The claim was not concerned with the terms of the agency agreement, its area, or its continuation, thus, the arbitration clause was valid.
Although, the decision of the Court of Cassation was arbitration-friendly, however, it has raised a serious question about the interpretation of Article 6 of the Agency Law. As discussed above, Article 6 of the Agency Law states that the States courts shall be competent to adjudicate any dispute arising from the execution of the agency contract. It is difficult to understand how the agent’s claim for the determination of the entitled amount of commission and request of an order against the principal for making the payment was not related to the agency agreement between the parties.
It is noted that the provisions of the agreement between the parties would play an essentials role in determining the reasonable amount of commission and the liability of the principal to pay such commission. Thus, the claims of the agent arguably had arisen from the execution of the agency contract and therefore, claims fell under the domain of Article 6 of the Agency Law.
Moreover, the framework of the Agency Law indicates the intention of the legislator to protect the interest of the agents. However, the interpretation of the Court of Cassation may undermine the said intention of the legislator as an independent arbitrator may not have a protectionist approach towards the agent. Hence, the interpretation by the Court of Cassation hardly settles the unsettled jurisprudence on the arbitrability of the commercial agency disputes in the UAE.
Generally, when two statutes have conflicting or contradictory provisions, the judiciary resolves those conflicts or contradictions between the statutes by harmoniously construing the contradictory provisions or giving prevailing status to one provision over the other. However, the recent decision of the Court of Cassation has further muddied the water by giving confusing reasonings for upholding the arbitration clause. Such confusion may compromise the arbitration regime in the country and discourage foreign companies to conduct business in the country through a commercial agency agreement.
Thus, it is suggested that either the legislator or the judiciary may take reasonable steps to clarify the validity of arbitration in the commercial agency agreement. There should not be blanket exclusion of arbitration of the commercial agency disputes as it may have an adverse effect on the attitude of the foreign company to conduct business through an agency in the country.
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