Headnote

Arbitration – Commercial agency agreement – Public policy

Summary of facts

The Petitioner entered into a contract with the First Respondent, appointing them its service agent in the UAE. The agency agreement, which was registered, contained an arbitration clause. Upon the expiry of its term the Petitioner notified the First Respondent of its intention not to renew the agency agreement. The Petitioner then brought a Commercial Action (No. 1839-2010) against the Respondents seeking to terminate its service agency agreement with the First Respondent and have the First Respondent pay AED 2,058,000 as compensation with interest. The Petitioner further sought an order that the Second Respondent remove the agency from its records and allow the Petitioner to appoint another service agent. The Court of First Instance upheld the claim for cancellation and removal, but dismissed all other claims. The First Respondent appealed (Appeal No. 296-2011). The Court of Appeal quashed the ruling of the Court of First Instance and ruled the action barred on the basis that the agency agreement contained an arbitration clause. The Petitioner appealed to the Court of Cassation.

Held

The Court of Appeal decision was overturned.

The litigation process is part of public policy and where the law prescribes distinct steps for the litigation process, they must be followed. The Court of Cassation may, on its own motion, take up matters of public policy involving the issues on appeal, in accordance with Article 178 of the Civil Procedure Law. Article 6 of Law No. (18) of 1981 on commercial agencies, as amended by Law No. (14) of 1988, Law No. (13) of 2006 and Law No. (2) of 2010 provides that a registered commercial agency agreement shall be deemed to be for the joint interest of the contracting parties and the UAE courts shall rule in any disputes which may arise between the principal and the agent due to its implementation. Any agreement to the contrary (such as an agreement to arbitrate) shall be void.

Judgment

It is well settled that the litigation process is part of public policy and where the law prescribes distinct steps for the litigation process, then they must be followed. The Court of Cassation may, on its own motion, take up matters of public policy involving the issues on appeal, in accordance with Article 178 of the Civil Procedure Law. Article 6 of Law No. (18) of 1981 on commercial agencies, as amended by Law No. (14) of 1988, Law No. (13) of 2006 and Law No. (2) of 2010 provides that the commercial agency agreement shall be deemed to be for the joint interest of the contracting parties and the UAE courts shall rule in any disputes which may arise between the principal and the agent due to its implementation. Any agreement to the contrary shall be void.

In other words, the UAE Courts shall, by law, have and exercise jurisdiction over disputes arising from the performance of commercial agency agreements between the agent and the principal as well as the power to vitiate any agreement otherwise. This includes the parties’ agreement to arbitrate so long as the commercial agency agreement is registered in the commercial agencies register.

The parties’ dispute essentially revolves around the issues of termination of the service agency agreement and compensation. The agency agreement is registered on the commercial agencies register and contains an arbitration clause.

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Thus, Article 6 of the aforementioned law is applicable since the litigation process is a matter of public policy. Accordingly, it should follow that the arbitration clause is void and that the UAE courts have jurisdiction over the dispute concerning the performance of the service agency agreement with what consequences that would entail under that law, so long as the agency is registered. In upholding the arbitration clause and ruling the action barred, the Court of Appeal has erred in law and its decision will be overturned.