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New Commercial Agency Law in Kuwait

Guiding Principle
The State of Kuwait recently enacted Law No. 13 of 2016 on the regulation of commercial agencies in Kuwait, explicitly overturning the former agency law. The new Agency Law introduces material changes to the principal/agent relationship while many of its articles remained unchanged.

After years of deliberation and research, the Kuwait National Assembly has ratified a new Commercial Agency Law to address the evolving issues and questions that relate to the country’s commercial agencies.
According to the new Commercial Agency Law No. 13 of 2016, the definition of “commercial agency” now specifically includes the terms “franchisee” and “licensee.” Due to the inclusion in the commercial agency definition, franchisees and licensees will now be treated as commercial agents and are expressly subject to any restrictions or requirements as well as the protections of the new law.

The main change of the new law however is the removal of “exclusivity”. Article 2 of Law No. 13 of 2016 dismantles the monopolies of agents, inadvertently created by the “exclusivity” principles of the prior law, by explicitly permitting principals to have more than one agent and/or distributor in the same territory. Moreover, Article 4 of the Agency Law mandates that a local agent can no longer be an exclusive distributor or provider of commodities or goods in Kuwait. Article 4 also allows for the import of goods and services to a territory from any third party, regardless of whether there may have been a registered and exclusive agent for such goods and services. If enforced, this change in the law could have a material impact in the arrangements between franchisees and franchisors operating in the country.

It is worth mentioning that the new law does not differentiate between an agent, a franchisee or a distributor, but all are considered as the same, especially when it comes to the registration with the Ministry of Commerce and Industry. Furthermore, agents will no longer be permitted to bring any kind of compensation cases to the Kuwaiti courts if their agency arrangements are not registered. If they do so, their claims will be dismissed by the Kuwaiti courts.

In order for an agency relationship to exist as a matter of law, Article 6 requires this agency relationship to be registered in the commercial register at the Ministry of Commerce and Industry. Under the previous regime, although registration was required, local courts would still grant the local agent compensation rights even if the arrangement was not registered. This registration obligation is crucial as in theory; courts will now dismiss any claim related to an agency relationship if such relationship is not registered.

In the old law, local agents were entitled to compensation when their principal terminated the agency agreement without proving breach of contract by the agent or refused to renew the agency agreement when it expired without any evidence of material breach. While Law No. 13 of 2016 does not deny a local agent’s right to be compensated under those conditions, it does clarify in Article 6 that only those commercial agencies registered with the Ministry of Commerce and Industry will be considered and heard by the courts of Kuwait.

Finally, the Agency Law imposes affirmative obligations on the agent, which may continue for a period of six (6) months post termination or expiration of the agency relationship if another agent is not properly appointed in that period. Importantly, failing to perform the obligations set out in the Agency Law imposes financial penalties on the party in breach. Care should be taken in drafting all new agency/distributorship agreements and the like to limit the potential liability.

October, 2016 Tarek Jairwdeh
Meyer-Reumann & Partners, Dubai Office
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