General Overview
Agency/distributorship agreements in Oman are governed by Law of Commercial Agencies promulgated by RD 26/77 and the amendments thereto (“CAL”) contained in RD 73/96, RD 66/2005, and RD 34/2014.
Article 1 of CAL defines a Commercial Agency as “any agreement whereby a manufacturer or supplier outside Oman assigns one or more merchants or commercial companies in Oman to sell, promote or distribute goods and products or supply services whether in his capacity as an agent, representative or intermediary for the product of the original supplier who has no legal presence in Oman, against a profit or commission.”
Ownership
Omani companies intending to act as agents of a foreign principal must be established under Omani law and they must have in their objects the right to import, trade and undertake commercial agency business. Such companies must be based in Oman and the minimum shareholding of an Omani national in a company undertaking agency business in Oman remains at 51%, as per the CAL. The MOCI, as a matter of policy, has commenced also allowing Omani companies with foreign shareholding of up to 70% to be permitted to act as agents in Oman for a foreign principal.
Registration of Agency Agreement
Article 11 of CAL sets out the procedures required to be completed for registration of an agency/distributorship agreement with the Commercial Agencies Department (“CAD”) at the MOCI. The conditions for registration of a commercial agency are as follows:
- Any person intending to act as a commercial agent in Oman must first complete the registration of his agency in the Register of Agents and Commercial Agencies before proceeding to act as a commercial agent. The MOCI has developed standardized forms to be completed and submitted for registration of an agency agreement with the MOCI
- The agency will only be deemed to have come into existence from the date of its registration in accordance with the provisions of the CAL. Any agency which is not registered will not be recognized as a matter of Omani law and no case concerning the same may be entertained by the Omani courts
Failure to register an agency agreement pursuant to Article 11 of the CAL would render it unenforceable before the concerned authorities and the Omani courts, and the agent could be held liable for payment of penalties for non-compliance with CAL when operating an agency business in Oman in the absence of a registered agency agreement.
Termination
As previously discussed in the August 2014 issue of our Client Alert, the latest amendment to CAL vide RD 34/2014 has deleted Article 10 which set out the grounds under which an agency agreement could be terminated or not renewed for a further duration.
Previously, agency agreements governed by CAL could not be terminated without cause and by simply giving the agent sufficient notice. In the event of termination without justifiable cause, a foreign principal would be required to pay compensation equivalent to the average of commissions /profits received by the agent over the last three to five years.
In light of the foregoing changes to CAL, the agency / distribution contract between the principal and agent can now clearly set out the conditions for termination of such contract as agreed between the parties. Article 18 of the CAL further provides that the courts shall decide all matters and disputes between agents and principals regarding the agency contract and may decide on appropriate compensation depending on the commercial and local practices unless the parties choose arbitration.
Therefore, in the event of a termination in accordance with the conditions stipulated in the contact, the Omani courts would need to take into account the terms and conditions as set out in the agency / distribution contract when upholding the termination. However, since the amendment to Article 10 is relatively new, we cannot opine with any degree of certainty as to how the Omani courts might decide such cases.
Article 15 of CAL allows a principal to request the MOCI to cancel the registration of an agency agreement upon its expiry, provided the agent has been given at least three months’ notice before the expiry of the agreement of the principal’s intent not to renew the agreement. According to Article 15, failure on the part of the principal to give such a notice would result in the agency agreement being renewed automatically for the same time period which was stipulated therein for its duration notwithstanding that the contract might provide for a shorter period by which the principal must give notice of its intent not to renew the agreement.
