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Commercial Agency Law in Saudi Arabia

Unveil the complexities of commercial agency regulations in Saudi Arabia and the legal framework under Islamic law. Learn about key provisions, agreements, and enforcement mechanisms.

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Commercial Agency Law in Saudi Arabia

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  1. Commercial Agency Law in Saudi Arabia Dr. Stephan Jäger, Amereller Rechtsanwälte Annual IDI Conference 2009 Barcelona, June 12/13, 2009 Amereller Rechtsanwälte

  2. Saudi Arabia is different! • No Civil Code • No (comprehensive) Commercial Code • Rudimentary civil procedure laws (in commercial matters) • New York Convention signed and ratified, but not applied • No legal provisions on substantive commercial agency law • No publication of court decisions Amereller Rechtsanwälte

  3. Legal Framework • Islamic Law (Shari‘a) • (Royal) Regulations, in particular Commercial Agency Regulations • Analogy of codifications of other Arab countries • Contractual Agreement Amereller Rechtsanwälte

  4. Shari‘a - I • Sources • Qur‘an • Sunna (tradition of life of prophet Mohammad) • Ijma‘ (consensus on interpretation of Qur‘an and Sunna) • Qiyas (analogy to earlier accepted principles) • Various „Schools“ • Complilations • Ottoman (Hanafi) Mejelle of 1877 • Saudi (Hanbali) Majalla of 1981 (no legal authority in KSA!) Amereller Rechtsanwälte

  5. Shari‘a - II • Basic principles • No ‚riba‘ („interest“) • No delay interest • No interest on loans • No ‚gharar‘ („aleatory profits“) • No gambling etc. • No ‚hypothetical‘ damages, e.g. lost profits Amereller Rechtsanwälte

  6. Shari‘a - III • Agency („wikala“) • Article 1449 of the Mejelle: „‘Wikala‘ is for someone to put business of his on another, and to make him stand in his own place in respect of that business“ • Article 1494 of the Mejelle: „A wakil for sale, without restriction, can sell the property of his principal for a small price, i.e. for a price, that he has seen fit“ • Article 1521 of the Mejelle „The principal can dismiss his wakil from the wikala. But he cannot dismiss him if the right of another is pending.“ Amereller Rechtsanwälte

  7. Commercial Agency Regulations - I • Definition „Anyone who contracts with a manufacturer or his representative in his country for commercial activities, whether as agent (‚wakil‘) or distributor in any kind of agency or distributorship (against remuneration)“ • Commercial agency only by Saudi nationals • Registration required • Penalties for non-compliance • Obligation to provide spare parts, maintenance and warranty to consumers Amereller Rechtsanwälte

  8. Commercial Agency Regulations - II • Minimum content of contract • Written form • With manufacturer or representative in his country • Obligations of parties towards each other and towards consumer • Information on identity of parties • Subject matter and territory of the agency • Term of the agency and renewal mechanism • Termination mechanism • … „and any other provisions that is in accordance with the regulations in force in the Kingdom“ Amereller Rechtsanwälte

  9. Ministry of Commerce Model Agency Agreement - I • 16 provisions: • Appointment for „solicting and negotiating the conclusion of transactions and their performance“ • Territory: Entire Kingdom of Saudi Arabia or specific territories • Term, with automatic renewal unless terminated 3 months prior to end of term • Obligation on principal to provide spare parts, maintenance and warranty during term and one year thereafter • Commission as percentage of value of products sold Amereller Rechtsanwälte

  10. Ministry of Commerce Model Agency Agreement - II • Agent‘s right of compensation for damages suffered under the contract or „commercial custom“ in the following cases: • Termination by principal at an „inconvenient time“ or without reason for which the agent is responsible • Refusal by principal to renew the contract on expiry of ist original term, if the agent is able to prove that his activity resulted in an apparent success in the promotion of the products or in the increase of the number of customers and the agent will lose profits or commissions as a result of such refusal to renew, unless the principal is able to prove that his refusal to renew is justfied by important reasons • Violation of any provision of Commercial Agency Regulations by principal • Local or international arbitration • Application of Saudi laws Amereller Rechtsanwälte

  11. Ministry of Commerce Model Agency Agreement - III • Provisions are not mandatory: • Exclusivity may be excluded • Compensation in case of termination may be waived • International arbitration • Foreign law • But: practical issues! Amereller Rechtsanwälte

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