HASSAN SHAD –
This article provides an overview of the amendments introduced in 2014 to the Commercial Agency Law of Oman, Royal Decree No 26/77 (OCAL).
As a result of the 2014 amendments to OCAL, the original agent protective provisions were replaced with a more balanced set of provisions favouring both the principal and the agent. As the legal landscape of the commercial agency law of Oman has changed, it is important for Omani agency businesses to appreciate the scope of the amendments to OCAL, appreciate how the amendments impact their rights, and to strategize on how best to leverage protection for their business interests.
The amendments to OCAL in 2014 should be appreciated in the context of the Competition Protection and Monopoly Prevention Law issued in the same year by Royal Decree No 67/2014 (Competition Law).
The Competition Law, as the name indicates, is designed to restrict monopolistic trade practices and to create a level playing field where businesses of all types and sizes can thrive, unrestricted by the threat of abuse of their rights by dominant players in the market who, through unfair trade practices, can derive an undue economic advantage.
It may be noted that even prior to issuance of the Competition Law and amendments to OCAL in 2014, OCAL allowed foreign principals to appoint multiple agents or distributors on a non-exclusive basis for the territory of Oman.
However, further to amendments to OCAL in 2014, there has been a further attempt at ‘balancing’ of the rights of agents vis-a-vis foreign principals, arguably with a view to encouraging foreign investors to establish agencies in Oman without being hampered by restrictive pro-agent legislation.
The following are the amendments to OCAL that have changed the original nature the agency laws of Oman from being pro-agent to one that is more balanced in favour of both principal and the agent:
Article 5 of OCAL — now deleted — allowed the Ministry of Commerce and Industry (MoCI) to prohibit the import of goods (subject of an agency) if the principal cancelled the agency without an acceptable reason.
Article 7 of OCAL — now deleted — prohibited the principal, during the term of the agency, from selling or disposing of goods or services itself or through an intermediary, other than through the agent. If there was an infringement of this rule, the agent could claim profit or commission from the principal (as agreed upon in the agency agreement) on the deal concluded by the principal itself or through the intermediary, even if the agent had no effort in such deal. In other words, post deletion of Article 7 of OCAL, an agent or distributor can no longer claim commission or profit derived by the principal from parallel imports done by the principal through third parties.
The most important amendment to OCAL was the deletion of Article 10. Article 10 defined the concept of “abuse of rights” by the principal or agent and enabled the aggrieved party to claim compensation from the other party if there were an abuse of its rights. Abuse of rights specified in Article 10 included the following: (i) termination of an unlimited agency contract by either party to an agency contract, without the aggrieved party committing a breach that justified termination of the agency; (ii) refusal by the principal to renew the term of the agency contract after its expiry if the agent could prove that the agent’s activity (efforts) 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 (unless the principal could prove that the agent had committed a breach that justified the principal’s refusal to renew the contract); and (iii) if the agent renounced the agency suddenly without justifiable cause to the detriment of the principal.
The above Article 10 of OCAL clearly offered important statutory protection to Omani agents against termination of their agency or distribution business unless the principal could establish compelling and recognized grounds for the termination. In other words, Article 10 of OCAL, provided Omani agents with the legal basis to “ring fence” themselves against premature termination of the agency business and seek automatic renewal of the agency contract from time to time.
Although the statutory protections under OCAL — originally designed for the benefit of Omani agents — have been removed, Omani agents should consider maximizing leverage for protecting their business interests through proper contractual negotiation and ensuring that essential contractual provisions are included in their commercial agency contracts with foreign principals. The next in the series of articles on this subject will shed some light on this aspect. (This is the second part of a series of articles on Oman Commercial Agencies Law. Hassan Shad is General Manager of ARAB Advocates and Legal Consultants, Muscat)