ARTICLES & UPDATES

At Abdul Razzaq and partners law firm, we do our best to ensure that our clients, whether foreign or Kuwaiti receive all the information they need before starting their business here in Kuwait. We also handle the legal work required to establish a foreign company on Kuwaiti soil and address all the legal issues that might arise during the establishment or dissolution of the companies.

Our law firm has specialist lawyers in this field who know the Kuwaiti laws and regulations and have helped hundreds of local or foreign business owners establish their business here successfully and hassle-free. 

Law No. 13 of 2016 Regulating Commercial Agencies (the “Agency Law”) was published on 13 March 2016. It supersedes the previous law and sets forth the regulatory and legal framework to be utilized in the organization of commercial agencies. The Agency Law is intended to be read alongside Law No. 68 of 1980 (the “Commercial Law”).

The Commercial Law permits a foreign principal to carry out business activities in Kuwait by means of a distributorship contract with a local merchant under which the latter undertakes to distribute the principal’s products in Kuwait. While the Commercial Law distinguishes between agencies and distributorships and provides the basic framework for regulating commercial agencies together with compensation provisions consisting of the right to claim for early termination and/or non-renewal upon expiration. Article 286 of the Commercial Law states that if the appointed distributor is the sole distributor, then in accordance with Kuwait law, the exclusive distribution is deemed to be an agency contract.

The most salient articles in the Agency Law address antitrust provisions, the ability to appoint more than one agent or distributor (in accordance with Article 273 (1) of the Commercial Law), and resolving disputes pursuant to an arbitration clause.

Summarizing the key changes in the Agency Law are the following:

The definition of a Commercial Agency has been explicitly addressed in Article 1 of the Agency Law as ‘an agreement whereby the party holding the legal right entrusts a merchant/company in the State of Kuwait to sell, promote or distribute goods/render services in his capacity as an agent, distributor, franchisee or licensee of the product or the original supplier against a profit or commission.’

A principal can appoint more than one agent/distributor.

The import or supply of any goods or products is no longer confined to the respective agent or distributor, irrespective of exclusivity and rights to use the trademark, provided that the party importing or supplying them complies strictly with the terms and conditions of the Agency Law. We deduce that this provision permits parallel distributing even if the distributor is exclusive and includes the right to use the trademark.

The Agency Law restates the registration requirement. Article 6 requires the registration of agency agreements stating: that the existing Commercial Agencies Register in the Ministry shall continue to operate, in which all the accepted commercial agencies are to be registered in accordance with the provisions of the new law. Any commercial agency, not lodged on the Commercial Agency Register, shall not be considered valid and shall not be eligible to be heard by a court of law.”

The Ministry of Commerce and Investment no longer allows agency registrations at the Commercial Agency Register after the passing of two months from the date of signing the agreement, and accordingly, any claim that may be brought under the agreement shall not be eligible to be heard by a Kuwaiti Court.

Under Article 20 of the Agency Law, the courts are likely not to hear any disputes brought by an agent/exclusive distributor if there is a provision subjecting the exclusive distributorship agreement to foreign arbitration as well as foreign governing law, given that Kuwait is a signatory to the New York Convention regarding enforcing foreign arbitral awards. Alongside governing the agency/distributorship relationship from a procedural perspective, the Agency Law also contains much of the substantive content in this subject area.

Article 9 of the Agency Law stipulates that an agency may be re-registered in the Commercial Agencies Register under the name of a new agent on the occurrence of any one of the following events:

• a. the agency registered previously is terminated amicably between its parties
• b. the agency registered previously is revoked by an executable court judgment.
• c. the agency registered previously is terminated according to its duration specified in the agency contract.

The principal may not terminate the contract without a breach on the part of the agent; otherwise, the principal shall be obliged to compensate the agent for the damage sustained to the agent as a result of this termination. Every agreement to the contrary shall be invalid.