“Without local guides, your enemy employs the land as a weapon against you.”
-Sun Tzu, The Art of War
Little did the great Chinese military general, Sun Tzu, know that his guidance on how to wage a war would draw similarities in the today’s commerce and trade economies! Agency law establishes the framework which covers the relationship between a principal and an agent. The principal is generally desirous of establishing a foothold in a new market and hence requires assistance in maneuvering his way forward with the local rules and regulations. This is where the agent comes into the picture. The main obligation of the agent is to augment the business opportunities for the benefit of the principal. Further, an agency is primarily set up by the principal with the intent to tap into a foreign market without having to establish a physical presence in the country. However, it is essential that an agent is appointed upon much deliberation by the principal since the success or failure of an agency relationship often depends on the personal relationship between the principal and his agent.
The Virtue of an Agency
Wealthy investors and multinational giants have always had a soft corner about investing in the Middle East. Generally, agents are appointed and engaged by the principals in order to solicit sales and distribute the goods or services on behalf of the principal. The agent would receive a commission or fixed remuneration for performing his duties on behalf of the principal. However, the principal and the agent is required to adhere to the provisions of Commercial Law Number 13 of 2016 (the Commercial Agency Law) and the Kuwaiti Commercial Code and must be registered in the commercial agencies register of the Ministry of Commerce and Industry (the MCI). Until recently, Law Number 36 of 1964 (the Old Law) was in force and had been applicable to commercial agencies in Kuwait for over 50 years. However, the Kuwaiti National Assembly has observed the necessity of the hour and enacted the Commercial Agency Law in order to overcome the ambiguities regarding the rights of the parties in the Old Law.
Kuwaiti nationals and companies incorporated in the country are the sole entities who are entitled to act as agents in the country. Further, these agents should also be registered and licensed under the commercial agencies register of the MCI. An agent under the Kuwaiti commercial agency structure is entitled to remuneration or commission from the principal for the scope of work executed by him. Moreover, the Commercial Agency Law goes a step further and grants the agent the right to demand remuneration for those transactions which are concluded or even facilitated directly by the principal, or through others in the agent’s territory. Therefore, it could be concluded from these provisions that the agent enjoys better entitlement and protection by the law, as is the case in general with commercial agency laws in most of the GCC countries.
A Consolation to the Principal
Until recently, one could consider the answer in affirmative but the enactment of the Commercial Agency Law while purporting to remain the same in essence, imposes certain stringent obligations upon agents. Article 6 of the Commercial Agency Law stipulates that the courts of the country would only hear and adjudicate commercial agencies which are registered with the MCI. Agents will no longer be permitted to bring compensation cases to the Kuwaiti courts if their agency agreement is not registered and upon doing so; their claims will be dismissed by the Kuwaiti courts. It is imperative to understand that Old Law also provided for mandatory registration of the agency agreement, despite which the Kuwaiti Court of Cassation had ruled that registration was not a condition to a commercial agent’s entitlements under Kuwaiti law including a commercial agent’s claim for compensation upon the principal’s termination or non renewal of the arrangement without just cause. However, it appears that the legislature, in terms of the new provision, wants to impose a strict regime to ensure the conditions are met effectively.
While the Old Law allowed exclusive agencies to be established in Kuwait, article 4 of the Commercial Agency Law has curtailed this privilege granted to agents by disallowing exclusive agencies and permitting principals to have more than one agent and/or distributor in the same territory. The final blow under article 4 comes for the agents in form of a condition which categorically disallows local Kuwaiti agents to be the exclusive agents or distributors of the Principal’s products or services. Moreover, article 4 now allows principals to freely trade with third parties, where the principal can import goods and services in a territory from such third party, regardless of a registered agent appointed for such goods and services.
A bare perusal of the above provisions leads us to the inference that the Commercial Agency Law while protecting the agent also ensures enough safeguard to the principal. However, the real test of a legislature is not when the situation is smooth and the relationship between the parties is copacetic but when the agreement takes a downturn and either party wants to wriggle out of the arrangement.
Survival of the Agents
Kuwaiti law protects an agent with respect to an unfair termination of their services by the principal. The principal is not entitled to terminate the contract, without a material breach on part of the agent. However, the principal would be liable to pay substantial compensation to the agent in the event that the former has exclusively terminated the agency agreement. Moreover, the New Law has also provided that when an agency contract would automatically be renewed if the parties to the contract have not explicitly terminated the same. Further, the agent is entitled to seek a fair compensation if the principal has denied renewing an agency contract at the end of its term. However, the court shall approve the compensation only if the agent is not negligent in the performance of his duties under the agency agreement.
Further, it is imperative to note that the Commercial Agency Law also entitles the principal to receive compensation from the agent for any damages in the event that the latter abandons the agency at an unsuitable time and without any reasonable excuse.
However, the Commercial Agency Law also obligates agents and distributors to continue their duties of supplying, maintaining and repairing the goods of the principal for a period of six months after their agency agreement expires or until a new agent or distributor is appointed, whichever is earlier. The new law has also specified the terms franchisee and licensee under the ambit of the definition of commercial agency. Ergo, franchisees and licensees are also treated as commercial agents and are expressly subject to the obligations and entitlements under the Kuwaiti law.
Greetings to the New Law!
Moving away from the well protected framework the agent was sheltered under the Commercial Agency Law now imposes certain stringent conditions upon the agent. Though the local agents may be dissatisfied by the newly enacted Commercial Agency Law, it is surely welcomed by the foreign investors in the region. Nevertheless, the agencies undertaking activities pertaining to licensing and franchising must notice and adhere to the new obligations that are imposed thereon. However, the commercial market of the country will have to wait for the proposed ancillary regulations in order to ascertain the ambit of the recently enacted Commercial Agency Law.