Worldwide: An Overview Over Agency Laws In The Gulf

Last Updated: 2 August 2017
Article by Heinrich Köllisch

Guiding Principle

Thinking of the Gulf as a region of individual yet closely linked countries requires a special comparative view over the legal situation in various areas of law. Agency legislation in particular is in constant focus of attention throughout the Gulf. This article shall briefly review the agency laws of five Gulf Countries. It will provide an insight into parallels and differences and clarify, that despite similarities a successful market penetration may require different legal approaches in the different Gulf countries.

A. Introduction

Many businesses of foreign investors in the Gulf area would not be as successful as they are today without the support of a trade agent. In turn, Gulf countries have seen a promising opportunity for their citizens to partake in foreign investment activities by regulating the institute of trade agencies in their national legislation. Though commonly guided by the aforementioned principle, details of regulating trade agencies in the respective trade agency laws took different shapes. For businesspersons, who see the Gulf as a region and who consider to invest in a number of Gulf countries, it is of vital interest to know what concessions the appointment of a local trade agent may require.

The following article shall thus sheds light on the Agency Laws of the Sultanate of Oman (Oman), the United Arab Emirates (UAE), the Kingdom of Bahrain (Bahrain), the State of Kuwait (Kuwait), and the Kingdom of Saudi Arabia (Saudi Arabia). The laws shall be examined in their contents with regard to the definition of a trade agency, the nationality, formal requirements for the agency agreement as well as exclusivity and territory and the possibility of termination.

B. Definition of Trade Agency

When considering the term "trade agency", reference shall be made to the definitions in the concerned countries' Agency Laws. These definitions may very well differ from one another, as they may differ from the terms used e.g. in the national Code of Commerce or other civil and administrative laws.

Art. 1 of the Omani Law of Trade Agencies defines a trade agency as every contract based on which, a producer or a provider, outside the Sultanate, obliges himself to a merchant or more, or a commercial company or more, in the Sultanate, to sell, promote or distribute goods products and services. Regardless if he acts as an agent representative or medium for the producer or original provider who is not legally present in the Sultanate in consideration for profit or commission.

Art. 1 of the UAE Federal Law No. (18) of 1981 Concerning Organizing Trade Agencies defines a Commercial Agency as the representation of a principal by a trade agent for the distribution, sale, offer or provision of a commodity or service inside the UAE against a commission or profit.

In accordance with Art. 1 of the Bahraini Legislative Decree No. 10 of 1992 a Commercial Agency means: representing a principal in the distribution of goods and products or displaying them for sale or trading purposes in consideration of profit or commission or providing facilities of any kind whatsoever including overland travel, shipping or airline agencies, tourist and travel agents service, insurance, printing, publishing, press, publicity and advertising agencies and firms and any other commercial activities to be specified by an order of the Minister for Commerce.

Art. 1 of the Kuwaiti Law 13 of 2016 to organize Commercial Agencies includes a definition of Commercial Agency: As any agreement through which anyone – lawfully permitted – to entrust to a merchant or company in the state, to sell or promote or distribute goods or products or provide services as an agent or distributor or franchisee or licensee or the primary importer, in lieu of profit or commission.

The Saudi Law 11 of 1382 H does not provide an independent definition of Commercial Agencies.

C. Nationality Provisions

All Agency Laws require the trade agent to be a national of the respective country.

A special differentiation has to be made regarding legal persons i.e. companies. In Oman (Art. 3), Bahrain (Art. 14) and Kuwait (Art. 2), they have to have national shareholders, who hold a percentage of not less than 51%. In Saudi Arabia (Art. 1) and the UAE (Art. 2) companies that work as trade agents have to be 100% owned by nationals with shareholders being restricted to natural persons only in the UAE.

Bahrain further explicitly states in its Agency Law that a trade agent must have its head office in Bahrain (Art. 14). Saudi Arabia stresses that any company acting as trade agent must have a board comprised purely of Saudi citizens and all signatory authorities have to be given to Saudi nationals only (Art. 1).

D. Formal Requirements

All countries have a number of formal requirements for the agreement itself as well as the formality of registering the agreement with the competent authorities.

With regard to the format of the agreement, the Saudi Law does not contain any provisions. The UAE only requires a written and notarized agreement. In all other countries format and contents of the agreements are further outlined in the law, such as names and nationalities of the parties have to be mentioned (Oman Art. 6 b 1, Bahrain Art. 3 a, Kuwait Art. 3 1). Also the objects or services to which the agency applies (Oman Art. 6 b 2, Bahrain Art. 3 b, Kuwait Art. 3 2), the area or territory of the agency (Oman Art. 6 b 3, Bahrain Art. 3 c, Kuwait Art. 3 4) and the term of the agency (Oman Art. 6 b 3, Bahrain Art. 3 d, Kuwait Art. 3 5), as well as the rights and obligations of the parties .(Oman Art. 6 b 2, Kuwait Art. 3 4, Bahrain Art. 3 b) must be mentioned.

Oman further states that the agreement and all its amendments have to be in written form and attested by the Omani Chamber of Commerce and Industry, when concluded in Oman or in the way outlined in executive regulations, when concluded abroad (Art. 6 a). Furthermore, Oman requires that the agreement must be concluded between the producer or the original distributor of the objects or services (Art. 6 c).

In Bahrain, the area of business of both parties (Art. 3 e) and trade names and trademarks of the products subject to the agency (Art. 6 f) must be specified. Another mandatory aspect to be included in Bahraini Agency agreements is the trade agent's obligation to provide spare parts to any of the products subject to the agency. The same duty is imposed onto the trade agent by law in the Omani (Art. 9), Kuwaiti (Art. 5) and UAE (Art. 21), even if not specifically mentioned in the agreement. A voluntary arbitration clause must be included in Bahraini agency agreements as well (Art. 3 h). The previous mandatory arbitration rule was largely modified and the arbitration body once established particularly for the termination of unlimited agencies (former Art. 9) has vanished from the law.

A similar body does still exist in the UAE law (Artt. 27, 28). The Ministry of Economy has established a committee to look into any dispute arising from any commercial agency registered with the Ministry (Art. 28).Only such committee decisions can be challenged in the competent court within a period of 30 days. A similar mandatory arbitration body also exists in Oman (Art. 18). Kuwait finally also foresees a way of terminating the agreement (Art. 3 6).

All referenced Agency Laws contain the duty to register an agency with the concerned authorities and the procedures applicable therefore or at least state an unregistered agency as illegal (Saudi Arabia Art. 3, Oman Art. 2, 3 Bahrain Art. 13 a, Kuwait Art. 7, UAE Art. 3). Few of the states have a provision prohibiting courts from taking into account any unregistered agency agreements (Bahrain Art. 13 b, UAE Art. 3).

E. Exclusivity

The UAE has an extremely wide exclusivity system in its legislation, by prohibiting the registry of a commercial agency in the name of another trade agent (Art. 8) and providing, that a principal can have one trade agent for each Emirate at maximum. Bahrain does not include any references to exclusivity. The same applies to Saudi Arabia, where however jurisdiction follows the approach, that agency agreements are not deemed to be exclusive unless this was agreed upon by the parties. A similar approach is in the Kuwaiti law. Art. 4, which states, that the import or distribution of a good shall not be exclusive to the trade agent or distributor and if it were, even with a trademark, all legal conditions must be met. In Oman already the definition of agency (Art. 1) allows for a plurality of trade agents.

F. Territory

All legislations apart from UAE and Saudi Arabia provide for an outline of the territory to which the agency applies. On the other hand, the UAE provides special provisions in Art. 5 limiting the minimum geographical area for a trade agent to a single emirate.

G. Termination

Termination of an agreement can generally be achieved by two means: Either the agreement has a previously set expiry date or it is terminated – either unilaterally or by court.

The legislations of Kuwait (Art. 3 7) and Bahrain (Art. 8) explicitly provide for fixed term agency agreements, whereas Oman and Saudi Arabia remain silent about this point. However, since Saudi Arabia directly applies islamic sharīʿa, the general rule that conditions must be adhered to the most possible extend also applies in Agency Law. Thus, a fixed term agency agreement should well be possible. Another provision can be found in the UAE Law, Art. 8 prohibiting the principal from termination or refusal to renew an agency agreement without a material reason unless referring the dispute to the Commercial Agencies Committee.

With regard to a unilateral termination, Saudi Arabia and Omani Laws do not contain any specific provisions. Again, in Saudi Arabia the termination of an agency agreement is possible, when the termination procedure established in the agreement is closely followed. Bahrain and the UAE have a similar system to each other with regard to unilateral termination: For the principal to terminate, there should be a justified reason and the case should be handled by the specialized committee (UAE Artt. 8, 27, 28 and Bahrain Artt. 10, 9). Kuwait, though providing for a termination procedure in the agency agreement in accordance with Art. 3 6 of its agency law, requires a breach of the agreement from the trade agent in order to give a right of termination to the principal. All mentioned countries give a trade agent the right for damages in case of unlawful termination.

H. Assessment and Conclusion

Agency Laws throughout the Gulf region follow a common pattern with regard to protection of nationals, registration and the desire for a stable agent – principal relationship.

Yet they can differ in size and depth of regulation from a formal aspect. Ironically enough it is the largest Gulf country – Saudi Arabia – that has the shortest agency law; whereas the smallest Gulf country – Bahrain – (being slightly smaller than the City State of Hamburg in Germany) has the most detailed Agency Law.

Also from a content point of view, the balance between the positions of the principal and the trade agent in the established relationship can differ condiderably. Whereas Oman and Kuwait allow foreign minority shareholders to be part of a legal person acting as trade agent, this is impossible in Saudi Arabia and the UAE.

Furthermore, the UAE in core does not allow parallel agents. Though a principal could have up to seven agents in the UAE, they would always have a separate territory. In Saudi Arabia, Kuwait and Oman this is different and having a nonexclusive trade agency is legally acceptable.

It is also virtually impossible to terminate a registered trade agent in the UAE, whereas all other Gulf states – and be it by drafting the agreement for a limited period with a possibility for renewal in Bahrain – there is an option for the principal to change his trade agent.

In conclusion – the legal landscape in several gulf countries does show similarities, but can have significant differences. This implies different ways to establish and act in a principal – agent relationship. In a very strict system, the tendency to be reluctant with registering an agency agreement prevails. In other Gulf countries, the same approach might not be in the patron's interest, because only a registered agency agreement will bring safety as it opens the way to full court jurisdiction.

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.

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