Agency agreements are regulated under the Commercial Agencies Law issued by Royal Decree No. M/11 dated 20/2/1382H (corresponding to July 22, 1962G) (the “Law”) and its Implementing Regulations (the “Regulations’).
The definition of a commercial agent under the Law is wide and covers agents, distributors and franchisees. The Regulations apply to “Anyone who contracts with a manufacturer or his representative in his country for commercial activities, whether as agent or distributor in any form of agency or distribution for profit, commission or facilities of any nature, including agencies for maritime transport, air, or land and any other agencies that would be decided by the Minister of Commerce and Industry”.
The Law provides that only a Saudi national or a wholly Saudi owned entity is entitled to act as a commercial agent in Saudi Arabia and the agreement must be registered with the Commercial Agencies Department at the Ministry of Commerce and Industry.
The Law and Regulations do not provide an agent with a statutory right to compensation upon termination of an agency agreement.
Saudi courts do not typically award compensation for termination or non-renewal, including in respect of “goodwill”, unless there has been a breach of contract, or the contract expressly provides for such compensation. In addition, pursuant to the Shariah (Islamic Rules), lost profits or other consequential damages are not recoverable in Saudi Arabia. Accordingly, compensation upon termination is decided by the Saudi courts on a case-by-case basis and according to the Shariah and the agreement.
The Law does not provide a specific definition of commission. In practice, an agent is entitled to a percentage of the value of products sold, to be agreed upon by parties.
Choice of Law and Jurisdiction
While there is nothing under Saudi law that prevents parties from governing their agreement with a foreign law or referring disputes to foreign courts or arbitration, Saudi courts typically do not respect the parties’ agreement and impose Saudi law if the dispute comes before the Saudi courts.
The Law and Regulations do not require certain restrictive covenants to be stated in the agreement. However, there are minimum requirements for an agreement to be valid for registration which include the following:
1. The agreement must be concluded with the original manufacturer of the products or owner of services that subject of the agency or his representative in his home country directly, without any intermediary outside his country of origin, to be valid for registration; and
2. The agreement must state the obligations of parties towards each other and towards consumers, the subject matter, territory, termination mechanism and include specific obligation on the principal to provide spare parts, maintenance and warranties during the term of the agreement and one year thereafter.
agentlaw.co.uk would like to thank Al Tamimi & Company in Riyadh for its contribution to this page.