Amendments to the Commercial Agencies Law took effect in mid-2014

The Commercial Agency Law (Sultani Decree 26/1977, CAL) was enacted to provide a means for foreign principals to sell goods and services in Oman without a local presence, while providing protection to the investment made by Omani agents. Prior to the amendments, the CAL was protective of Omani agents with regards to renewal and termination of agency agreements.

Agent Compensation

When a foreign principal terminated or did not renew an otherwise viable, profitable agency without showing a specific legal cause for doing so, the agent could claim compensation for the loss of the agency under the protective provisions of Article 10 of the CAL. Article 10(b) of the CAL characterised as a misuse of rights requiring the payment of compensation, “the refusal by the principal to renew a commercial agency contract if the agent proves that his business activities have clearly led to success in distributing and promoting the products of the principal”. Thus, in the absence of being able to prove a fault by the agent, Article 10 of the CAL created a statutory obligation on the principal to renew the commercial agency or pay the agent “appropriate compensation”.

In recent times it has become difficult for local agents to be get compensation for non-renewal or termination. Since Oman acceded to the WTO in 2000, the policy, environment and interpretation of the CAL by the courts have changed. The courts are reluctant to award large damages for non-renewal/termination of agency arrangements, even when they have strong cases.

The repeal of Article 10 of the CAL made by Sultani Decree 34/2014 reflects this WTO inspired policy change. With the repeal of Article 10 arguably the parties to commercial agency agreements are now free to decide the terms of renewal and termination of those agreements. However, this is subject to the retention of Article 18 of the CAL, which states 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). It seems that the term “suitable compensation” which used to be linked with Article 10 will need to be interpreted differently. It leaves some uncertainty hanging over the repeal of Article 10.

Principal Sales

Decree 34/2014 also repealed Article 7 of the CAL. Article 7 prohibited the foreign principal from selling or distributing its products, goods or services itself or through a third party in the sultanate other than the agent and compelled the principal to pay the agent the profit or commission in the agency contract if it breached the prohibition. Clearly, the repeal of Article 7 intends to remove the protection granted to agents against direct sales by foreign principals or intermediaries. Principals are at liberty to sell directly to customers in Oman and may also sell through other non-agent merchants, without any liabilities towards the registered agent. The registered agent will now be in a disadvantaged position in that it is still under a statutory obligation to provide the original manufacturer’s guarantee and after sale services as required by the CAL, which other non-agent sellers will not have.

The second part of Article 5 has also been repealed. It gave power to the minister of commerce and industry to ban the import of goods that were the subject matter of a registered agency, if the principal cancelled the agency without acceptable reasons. However, Article 5 had become ineffective since Oman acceded to the WTO, as it contradicted the sultanate’s international obligation not to place bars on the freedom of contractual trade with WTO member countries. Article 14, which allowed the Council of Ministers to determine the number and kinds of agencies permitted for each agent, was replaced with a provision requiring the council to determine the number and types of agencies permitted to each agent to prevent domination by a sole agent. Such decisions will prevent registration of agency contracts from exceeding the ceilings imposed.