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KUWAIT: The Legal aspects of the Unwritten Distribution relationship in Kuwait.

Unwritten distribution arrangements are organized by the Commercial Law no 68 / 1980 (CL) and further recognized by the Kuwaiti courts and legal principles. 

Adib A. DIB - 19.12.16
Country expert

In this regards precedents have been established and settled accordingly by the Kuwaiti court of cassation ,based on the long term non documented relationships between the Principals and the distributors, which usually go back to decades and are being regulated by common industry practice and good faith.

 It is important to note that the new Commercial Agency Law no 13/2016 (CAL) sets out the general rules of the commercial agency setup, where the CAL requires that the commercial agency agreement should be in writing and should meet certain formalities to be registered within the Ministry of Commerce and Industry ,in order for a law suit to be heard and considered valid by the Kuwaiti courts as per Article 6 of the CAL , on the other hand it does not provide further guidance or require explicitly that the distribution agreement should be in writing despite the fact that the new definition of the commercial agency includes the distribution right which means that Article 6 should cover distribution agreement as well.

 It is also noteworthy to mention that CAL should be read in accordance with the related (CL) provisions applied in this regards, which clearly differ between the contract agency and the distribution relationship in terms of registration formalities and requirements .

According to Article 274 of the CL “ The contract agency ‘s agreement shall be established in writing where it shall specify in particular the agency limits, the remuneration of the agent and the area of his activity, besides the duration of the contract if limited and the trade mark of the commodity subject of the contract, if any.

Pursuant to Art 286 of the CL “ Any distribution contract, under which a merchant undertakes to promote and distribute products of any industrial or commercial firm in specific area, provided that he is the sole distributor therein shall constructively be considered a contract agency and consequently it shall be subject to the provisions of Articles 275, 281, 282, 283, 284 and 285 hereof .”

In the light of the forgoing articles the Kuwait Cassation Court adjudicated in many cases that Article 286 intentionally excludes to refer to article 274 which means that distribution contract does not necessitate or require to be framed in writing and distributor can prove his distribution relationship with the principal in any means of evidence in order to be entitled to claim compensation for actual damages and future loss of profits that would have been earned from its efforts in building up such market share and the goodwill contribution in the brand equity .

As a matter of fact, compensation claims initiated by unregistered distributors based on unwritten distribution arrangements may possibly be awarded a compensation, provided that the contractual obligations are observed by the distributors at the time of terminationand ifthe termination occurs without prior notice or at an inconvenient time and without justified reason . Mainly this will find its ground based on article 282 and 284 of the Commercial Code which provide:

Article 282 “ 1) If the contract is concluded for a fixed term, and the principal decides not to renew it upon the expiry of its initial term, he shall be liable to pay the agent a fair compensation as determined by the court even in the existence of contradictory agreement .

2)        The entitlement of such compensation shall be subject to the following :

a)        There is no breach or negligence committed by the agent during the performance of the contract.

b)        That the activity of the agent has built up success, and increasing the number of the customers.

3)        For the assessment of such compensation, it should take into consideration, the damage suffered by the agent and his efforts exerted to promote the brand or increase the number of the customers “.

 

Article 284 “In the event where the principal replaces the contracts agent by a new agent, the latter shall be jointly responsible with the principal for the payment of the indemnities decided by the court to the previous agent whenever it is established that the dismissal of the previous agent was a result of collusion between the principal and the new agent”.

To be in the safe side It is advisable that the contractual parties of any commercial arrangements to set out their rights and obligations in writing whether through a distribution or an agency agreement to avoid any unnecessary and unexpected misunderstanding and controversies .

 

Adib Dib, IDI agency and distribution country expert for Kuwait

 

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