Oman Commercial Agencies Law: Maximising safeguards

As the agent protective provisions under Agency Law of Oman, Royal Decree No 26/77 (OCAL) were deleted following amendments to OCAL in 2014, Omani agents and distributors must maximize protection of their business interests through contractual means.
It is common for agents and distributors to receive detailed agency contracts from foreign principals either on or about the time of the award of the agency contract or around the time when the agency comes up for renewal. Even in circumstances where this is not the case, it is advisable to draw up detailed agency contracts that set out the rights, duties, obligations and responsibilities of the parties towards one another.
OCAL makes provision for an agency contract to be entered between the parties to the agency and for it to be registered at the Commercial Agencies Register maintained at the Ministry of Commerce and Industry, Oman. Such contract is a private agreement between the parties and all terms and conditions under it are enforceable contractually so long as they do not conflict with the OCAL.
In addition to other contractual terms and conditions that may be necessary or required on a case to case basis, as a minimum, Omani agents and distributor must consider inclusion of the following terms and conditions in agency or distribution agreements:
The subject-matter of the agency must be set out in detail with a view to ensuring that all product or services covered in the agency are spelled out in the agency agreement. Foreign principals typically like to have the right to amend the scope of the products and services under an agency from time to time. If that is the case, the agency contract must contain suitable provisions to the effect that no amendment to the original products or services would prejudice the duties and obligations of the agent or distributor owed to consumers under the Consumer Protection Law of Oman, Royal Decree 66/2014 (CPL).
The term or duration of the agency must be clearly spelled out in an agency contract. Typically, agency agreements received from foreign principals are made to appear as “fresh” or “new” agreements being entered between the parties to dispel the notion that the parties have been in a relationship for a certain period. To counter this, to the extent possible, the agent should argue that as the parties have been in a relationship for certain number of years, the agency contract should not be made to appear as a fresh/new agreement but rather that it is a continuation of an existing relationship and hence should appear as such.
The termination provisions in an agency agreement received from a foreign principal typically weigh heavily in favour of the foreign principal. The foreign principal is interested in maximizing contractual leverage to terminate the agency and this is further strengthened by the deletion of Article 10 of the OCAL in 2014 which enabled an agent to claim compensation from the foreign principal if there were an abuse of its rights. (Abuse of rights included circumstances such as termination of an unlimited agency contract by principal without the agent committing a breach that justified termination of the agency and refusal by the principal to renew the term of the agency contract after its expiry if the agent could prove that the agent’s efforts had led to an evident success of the agency and promotion of sales of products of the principal, and that the refusal of the principal to renew the contract would deprive the agent from the benefits expected as a result of the agent’s efforts etc.
To counter this, it is advised that the agency contract should define as to what are the circumstances that constitute or rise to “material breach” and what are the remedies available to the parties in those circumstances. It is very important for agency contract to provide that in circumstances of material breach, prior to the principal being entitled to terminate the agency, the agent would be notified of the existence of a “material breach”, the agent provided with the opportunity to rectify or cure the material breach provided it is capable of being cured or rectified, and only once the above steps have been completed, the principal can terminate the agency.
In light of the amendments to OCAL in 2014, agents are also advised to consider alternative governing law and jurisdiction for their agency contracts other than Omani Law and Omani Courts. Governing law of certain jurisdiction is more “pro-agent” or “agent friendly” than OCAL and if foreign law and jurisdiction has been proposed by foreign principals (which is normally the case), Omani agents should be open to exploring whether such proposed foreign laws and jurisdiction would suit their business interests better and if so, to agree to the same.

HASSAN SHAD

hassan.shad@arab-law.om

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