Compensation upon Termination of Agency & Distributorship Agreements

Merna G. Saad 26 Apr 2016 4909 Views

Foreigners’ business activities are frequently conducted in Egypt by appointing an intermediate commercial agent or an authorized distributor by means of Commercial Agreements. Prior to the effective date of the new Commercial Code, Egyptian Commercial Agency Law was more liberal in comparison with many other jurisdictions. Commercial agency agreements in Egypt could be limited in time and, as a rule, the matter of compensation for termination was to be decided by the mutual consent of both parties.

• Commercial Agreements under the Egyptian Law:

An agency agreement is an agreement by which the fiduciary relationship between the Principal and Agent is set out as well as the role of each party.  Agency Agreements are governed by Agency Law No. 120 of 1982 and the Egyptian Commercial Law No. 17 of 1999 which defined the Commercial Agent as any natural or juristic person who has continuous authority to sell or purchase goods on behalf of another person (the principal), or to negotiate and conclude the sale or purchase of goods on behalf of and in the name of that principal. Such an agent shall be registered at the Commercial Agents’ Registry, which issues a certificate confirming the registration and the agent shall be Egyptian or a 100% Egyptian owned company.

Distributor is the person who sells products in the country on its own account. In other words, a distributor shall buy the products directly from the foreign supplier or from the foreign supplier’s agent and re-sell such products with profit. There are no specific laws governing distribution. Such type of contracts is governed by the general provisions of the Egyptian Civil Code and the Commercial Code. And it is not required for a distributor is to be registered as the agent as long as the distributor does not carry out marketing activities on behalf of the foreign supplier.

Despite the fact that in some occasions, a foreign supplier might appoint both an agent and a distributor, which is common. The agent would carry out the marketing on behalf of the foreign supplier as well as the importation process, and the distributor(s) shall buy from the agent and re-sell for their own account.

• Compensation upon Termination of Disputes:

Termination of commercial contracts in Egypt is subject to different laws and regulations, as follows:

1. Commercial Agency Law:

Neither the Commercial Agencies Law nor any other special legislation in Egypt limits a foreign company’s right to terminate a commercial agency agreement as stated in (Article 13) Bis of the Commercial Agency Law that either parties shall have the right to terminate the contract at any time according to the procedures set forth in the contract. However, Compensation shall be due only if the contract was terminated without prior notice or in an untimely manner. If the contract is for a specific period, compensation shall not be due unless its termination was based on serious and acceptable reasons. On the other hand, Principals shall not terminate the indefinite agency contracts without any default occurred in the execution of the contract, therefore the principal is obliged to compensation of any damages that might affect the agent in consequence of the dismissal thereof and any agreement to the contrary shall be null and void.

 Commercial Code:

The Commercial Code focused on the general legal framework between the commercial agent and the principal, and regulates the liabilities and obligations for both parties of the contract. As stipulated in Article 188 of the Commercial Code No.17 of the year 1999 that Agency Agreement is concluded for the mutual interest of the parties, and that the principal therefore may not solely terminate the contract except in the case of breaching that might occur from the agent. The Agent under the Agency Agreement is defined to be a commercial agent who is entitled to continuously undertake, promote, negotiate and conclude transactions in favor of and for the account of the principal. If the principal terminates the contract and the agent has not committed any violation, the principal may be obliged to compensate the agent for the loss suffered by the latter as a result of such termination.

In case that the Principal did not prefer to renew the contract and According to Article 189 of the Commercial Code, the agent shall be  entitled to “compensation that is to be  determined in court in the following cases:  

• Agent did not commit any fault  in carrying out the agreement,
• Agency activities have successfully promoted the products covered by the agreement or in increasing the number of customers.

As for the process of determining the compensation the Egyptian Legislator stated in Article 189 that the compensation shall be considered according to the damages and harms caused to the agent and the agent’s efforts in promoting the sales of the product as well as increasing the number of the customers.

1. Ministerial Decree No.362 of the Year 2005

A Decree from the Minister of Trade No. 362 of the Year 2005, obliged the foreign principals who have ongoing disputes with local commercial agents to settle such disputes amicably. It stated that the principal shall not appoint any other agent agreements unless the due compensation to the terminated commercial agency agreement is settled. In case that  the terminated agent has failed  to notify the competent authority with a copy of the writ of its court action or request for arbitration within 60 days of initiating such action or arbitration, there is no restriction on the registration of a new agent.

• Dispute resolutions and Governing Laws:

Conflict of Laws under the Egyptian Judicial System is regulated by the Egyptian Civil Code that recognized that the parties to an Agency Agreement are to be governed by Foreign Law as stipulated in Article 19 that the law of the State where there is common domicile for contractors, if there is one, shall apply to contractual obligations. If the contractors have different domiciles, the law of the State, where the contract was entered into, shall apply. These rules are applied if the contracting parties have not agreed otherwise or it is indicated from the circumstances that another law is intended to be applied.

As per the Procedural Law in Civil and Commercial Matters it is stated that the Egyptian courts shall have the jurisdiction over cases raised upon a foreigner who has domicile or residence in the Republic, If the case is related to financials located in the Republic or an obligation which arose or was executed or it was intended to be executed therein or if it is related to bankruptcy declared therein.