Friday, August 29, 2014

Spotlight on Amendments to Commercial Agencies Law of Oman

In July, Oman’s Commercial Agencies Law (“CAL”) was amended by virtue of a new law, Royal Decree 34/14.

It is one of the most significant changes in Omani law in recent times.

The main significance of RD 34/14 is that it has cancelled the previous Article 10 of CAL.

Article 10 was heavily relied upon by any Omani agent whose agency contract was governed by Omani law.

Put simply, Article 10 superseded any contractual provision to the contrary. A foreign principal could only terminate/not renew its Omani law agency contract without having to pay compensation if the registered Omani agent in question had materially breached the agency contract.

In other words, even if the agency contract allowed for termination on, say, 30 days’ notice, this provision was negated by Article 10. The Omani Courts habitually took the view that - unless there was a material contractual breach by the registered agent - any termination was unjustified, and thus the agent’s Article 10 right to statutory compensation from the principal was triggered.

Pursuant to Article 10, it was common for the Omani Courts to award terminated registered Omani agents two or three years’ net profit derived from the agency in question, plus reimbursement of any expenditure in respect of capital items which were rendered wholly redundant due to the agency termination.

Obviously, foreign principals were very wary of Article 10 of CAL, seeing it as tying them to their agents, even if they thought the latter were under-performing and there was a contractual basis for termination.

As a consequence, foreign principals have, for a long time, tried to enter into agency contracts with Omani entities which refer to a non-Omani applicable law, coupled with an arbitration clause. The reason for this is because CAL has always stated that the Omani Courts will decline jurisdiction if the agency contract is governed by an arbitral clause.

Many foreign principals have thus been able to avoid the ambit of Article 10 by combining a non-Omani governing law with an arbitral clause in the agency contract.

However, depending on the view taken by the Omani Courts, now that Article 10 has been deleted, foreign principals will no longer need to worry about this aspect of CAL.

The other changes arising from RD 34/14 are as follows:

  1. The Minister of Commerce & Industry no longer has the power to ban imports of a foreign principal’s products. Previously, His Excellency could do so if he thought a principal had unjustifiably terminated an agent. However, to the best of our knowledge, this power had never been exercised.

  2. Article 7 of CAL has been deleted. This provision had previously required overseas manufacturers and suppliers – apart from those dealing in weapons, ammunition and military equipment - to only do business in Oman via an appointed agent. The upshot of this deletion is currently unclear. In our view, overseas manufacturers and suppliers will still need a valid legal presence in Oman to do business in Oman. This deletion may, therefore, be an attempt to encourage more overseas manufacturers and suppliers to set up their own legal entities in Oman.

  3. Finally, Article 14 of CAL has now been amended, such that if there is a monopoly which negatively affects supply and demand, and causes unjustified rises in prices, the Council of Ministers are empowered to determine the number of allowed agencies for each agent.

The view of the relevant Ministry – the Ministry of Commerce & Industry – is that the new law comes into immediate effect and applies to all current agency contracts governed by Omani law.

It will be interesting to see whether RD 34/14 creates a number of Omani Court cases.