The Authority of Agents in Saudi Arabia

Subject: Law
Pages: 7
Words: 5860
Reading time:
20 min
Study level: College

Overview

This chapter will explore a number of viewpoints on the authority of an agent of UPICC and Commercial Agents Regulation in the Kingdom of Saudi Arabia. Firstly, the introduction provides a summary describing a systematic exploration of the The Commercial Agency Act. then, it anlysis that nature of Authority of an Agent of the authority of agent between Saudi commercial agent’s regulation and the UPICC. Additionally, the concept of agents acting and their authority will also be reviewed. Then, this chapter discusses the termination of authority of the authority of an agent determine the success or failure of activities. The analysis of the limitations of the authority of an agent in the two sets of principles will address all of these issues.

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The Commercial Agency Act ?

Many studies have been devoted in recent years to the question of the international contracts concluded between a State or a State-owned agency act and a foreign company for a number of reasons: those reasons are social and economic, as well as legal. Hesselink, Rutgers and Scotton and Veldman define that the Commercial Agency Act ” the commercial agents main task consist of prospecting of market, attracting customers, promoting the sale or purchase of product and negotiation the terms of contracts which will be concluded between the principal and customer or seller”.

However, Difficulty has arisen in determining the precise manner of the authority of an agent where difference and similarity are involved. It is stated that in some organizations, usually there are limits to a person’s authority. And this person is generally constrained by the possibility of non-compliance, even in the leader of organizations whose orders are generally followed.

Commercial Agency Act was defined as “Agency law may be divided into internal and external aspects. The former addresses the relationship between principal and agent while the latter considers the relationships between the third party on the one hand and either or both of the principal and agent on the other”. For purposes of this definition, thus, commercial agents will generally include distributors (who buy and resell products for their own account) and franchisees.

Laws Applicable of Authority Of An Agent

Laws Applicable Of UPICC

In 1983, the Geneva Convention of the International Agency Sale of Goods was established to harmonise and unify agency law by taking into account the law of agency in different jurisdictions, because international soft law aimed at promoting harmonization between the law and the agency had not yet been successful. Of course, there are significant departures required to establish agency between the 1983 Convention and the 2004 UPICC work on agency. On the other hand, UPICC bears a strong resemblance to articles of the 1983 Geneva Convention.

The PICC apply an authority to a contract, to derive from some law that allows their choice and thus their application. Thus, , the agency of UPICC was one of the additional topics that were nominated for inclusion in the second edition of UPICC of International Commercial Contracts, and the Working Group decided to prepare a second edition of UPICC regarding the treatment of agencies and these were completed in 2004.

There are ten articles in Chapter 2, Section 2 on the authority of an agent under UPICC as follows:

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  • Article 2.2.1 (Scope of the Section)
  • Article 2.2.2 (Establishment and scope of the authority of the agent)
  • Article 2.2.3 (Agency disclosed)
  • Article 2.2.4 (Agency undisclosed)
  • Article 2.2.5 (Agent acting without or exceeding its authority)
  • Article 2.2.6 (Liability of agent acting without or exceeding Its authority)
  • Article 2.2.7 (Conflict of interests)
  • Article 2.2.8 (Sub-agency)
  • Article 2.2.9 (Ratification)
  • Article 2.2.10 (Termination of authority.)

Article 2.2.1 (Authority of agent)“2. Authority to contract stated that:

“The Section deals only with agents who have authority to conclude contracts on behalf of their principals. Intermediaries whose task it is merely to introduce two parties to one another with a view to their concluding a contract (e.g. real estate agents), or to negotiate contracts on behalf of a principal but who have no authority to bind the principal (as may be the case of commercial agents) are outside the scope of the Section”.

Therefore, the UPICC defines agents as those who have the right authority to arrange contracts consistent with their rules. This person or party is an intermediary tasked merely to introduce two parties to one another with a view to their closing a contract. Thus, the definition is the same for both principles and regulations but the problem arises because the UPICC has published a new edition of Article. 2.2.1, Authority of agent.

However, Brown argue that, the law is redundant and in a statement of the ‘regulation’ this radical concept first appeared in 1935. Furthermore, he estimated that it would be unfortunate that some laws, in full-blown form, have been with us for a much longer time. Thus, in the United States laws in respect to the opinion of some rules have been adopted by Congress and constructed “by the renewal of the statute interpreted. However, Howard argue that “The resulting ten articles in the UNIDROIT Principles bear a strong resemblance to articles of the 1983 Convention, although there are certain significant departures”.

As a result, It might a main source of the difficulty in determining the effect to be given or some of the laws of the countries is the so-called ‘Rule of renewal’

Laws Applicable Of Saudi Law Of Commercial Agencies

The Saudi Law of Commercial Agencies was established in 1962, by Royal Decree No.M/11 as amended, the Commercial Agency Regulations, although before that Saudi Arabia had many separate regulations for their laws. In addition, other laws regulating commercial agents are Royal Decree No. 11 (“Decree No. 11/1962”)

With the help of Allah,
On behalf of His Majesty the King,
We, Faisal bin Abdul-Aziz Al Saud,
Deputy King of Saudi Arabia,

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After reviewing Article 19 of the Law of the Ministers Council, issued upon the Royal Decree no. 38, dated 22/10/1377H (corresponding to 12/5/1958),

And based on the Ministers Council’s Resolution no. 89, dated 13/2/1382H

(15/7/1962), and based on what has been presented by the Prime Minister,

Hereby Decide the Following:

  • Endorsing the formula of the Law of Commercial Agencies herein enclosed”.

King’s Signature.

Recent regulations governing the connection with foreign contractors and Saudi agents were issued under Royal Decree no. M/11, dated 20/2/1382H (corresponding to 22/7/1962). As well, it dictated the relationship between a commercial agent and foreign principal. Commercial agencies are subject to various governmental practices and contracts of the Ministry of Commerce of Saudi Arabia which are applicable to “commercial agency” relationships. Moreover, the Saudi Commercial Agencies Act requires a foreign person doing business in Saudi Arabia to have a Saudi partner or agent. (This is a critical concept and one that deserves expansion).

Saudi Arabia the Commercial Agency Regulations are respected by scholarly Islamic law. According to the consensus of scholars, Muslims in the tenth century stated that the door of establishing new regulations closed, so Islamic jurisprudence should resign itself to the inevitable outcome of its self-imposed terms of reference.

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This action aims to assist the sale of goods and services by commercial agents in the Kingdom of Saudi Arabia. Moreover, these principals help establish a company in the KSA licensed to carry out the activity of franchising, provided that it satisfies a number of conditions. Commercial contract arrangements in Saudi Arabia can minimize the seller’s exposure to various Saudi Arabian laws and commercial risks. As a result, the authority of an agent might be clear on face value and in most cases has occasioned no difficulty in practice.

However, a definite problem has arisen when comparing a provision of UPICC and Saudi commercial agent regulations. From this moment, corporations can act only through the agency of human beings. For this reason, a comparative decision between the UPICC principal and Saudi commercial agent regulations will often exist.

Analysis of Laws Applicable To an Agent: A Comparison between UPICC and Saudi Arabian Legislations

Table 1: Similarities and Differences between UPICC and Saudi Arabia Legislation in Relation to Laws Applicable to an Agent

Similarities between the Laws
  1. Both UPICC and Saudi Agents act as intermediaries.
  2. Under both UPICC and Saudi Arabian laws, it is noted that agents can appoint sub-agents.
  3. Under both UPICC and Saudi Arabian laws, agents are expected to work to their level best to meet the expectations of foreign investors.
  4. In both UPICC and Saudi Arabian laws, agents are required to develop direct and exclusive relationships with foreign principles.
Differences
UNIDROIT SAUDI ARABIA
  1. It is noted that an agent can be a citizen of any of the 63 member states.
  1. An agent can only be a Saudi Arabian citizen.
  1. An agent can be granted authority by express or implied means.
2. The authority of an agent in Saudi Arabia is made clear on face value.

Similarities between the laws applicable to the authority of an agent under UPICC and Saudi Arabian legislations

Under both UPICC and Saudi Arabian Law of Commercial Agencies, agents or distributors are people who have the authority to make business contracts. They act as intermediaries between two parties who wish to finalise their contract deals. The two parties may be an investor and their local contact. In addition, in both UNIDROIT and Saudi commercial regulations, agents have the authority to sign up sub-distributors. The sub-agents perform tasks that the chief agent cannot handle under certain circumstances. For example, when contracts are many and the main agent cannot handle them alone, they may contract other parties to help finalise them. However, the sub-agent operates under various regulations. For example, their undertakings must be within the scope of the agency area. They are not supposed to go beyond the jurisdiction of what is authorised by the main agent. In addition, the main-agent remains liable for statutorily enforced commitments towards clients. The liability cannot be sub-contracted.

In both UPICC and Saudi laws, agents have the power to carry out all the necessary actions when conducting business. Their clients grant them the freedom to act on their behalf. The reason behind this is so as to meet the objectives set out in their appointment and the tasks assigned. An agent may be deemed as ‘unworthy’ when they fail to meet the needs and expectations of their customers. As a result, the client may decide to terminate the distributors contract.

It is also noted that under UPICC and Saudi Commercial laws, an agent is required to develop direct and exclusive relationships with various stakeholders. Such stakeholders include the producer of business products or the representative of the manufacturer who is located in their state.

Differences between the laws applicable to the authority of an agent under UNIDROIT and Saudi Arabian legislations

Under UPICC laws, an individual of any nationality can act as agent. What this means is that even an immigrant operating in the country can work as an agent. They are only required to obtain the necessary certifications. However, the agent must be from one of UNIDROIT’s member states. Currently, there are 63 nations registered under this statute. An individual or business from any of these nations can act as an agent. Under Saudi Arabian Law of Commercial Agencies, non-Saudi persons cannot play the role of an agent in the kingdom. The individual must either be a natural or a legal citizen of the country for them to be certified. The capital of the organisations is another important consideration. To this end, they are expected to be completely Saudi Arabian. To this end, all board members, directors, and the people authorised to sign documents on their behalf must also be citizens of the kingdom.

Under the UNIDROIT statutes, an agent can be granted the authority to operate through express or implied means. In addition, it is not mandatory for power to be given in or evidenced by writing. The authorisation can be proved or expressed in various ways. An example is through verification by witnesses. However, the case is different in Saudi Arabia. Under the laws of the country, the authority of an agent must be made clear on face value. For example, distributors must be properly registered by the Kingdom’s Commercial Registry. In addition, they are required to submit their listing agreements for registration by the Ministry of Commerce and Industry. To this end, agents are required to make the submission within three Hijra months from the date of agreement. Failure to register with the ministry results in hefty fines and penalties for the distributors. However, even when they fail to register, their authority and agreement are not rendered invalid.

The Concept Of The Authority Of An Agent

The Concept Of Section 2.2.1: The Authority Of An Agent Of The UPICC

In this section, the concept of UPICC and the Authority Agency of the Saudi Arabian Commercial Agencies Act is examined. Firstly, the concept of UPICC provides that the authority which governs the agent or person, be concerned with the legal relations of other intermediaries to connect its principal in relation to another party, particularly where the principal has a contract with a third party. The authority of an agent under UPICC focuses on the outside relations between the principal or the agent on the one hand, and the third party on the other. It is also concerned with the internal relations between the principal and the agent. Thus, this chapter provides a brief summary of three divisions:

  1. It governs the authority of a person (“the agent”) to affect the legal relations of another person (“the principal”) by or with respect to a contract with a third party, whether the agent acts in its own name or in that of the principal.
  2. It governs only the relations between the principal or the agent on the one hand, and the third party on the other.
  3. It does not govern an agent’s authority conferred by law or the authority of an agent appointed by a public or judicial authority.

UPICC considers the authority of an agent as the ability to operate on the concluded contracts. And its purpose is to establish at a universal level a general contract rule that helps parties when they have agreed to apply a contract: this section is relevant to the principle, whether active or passive. Moreover, UPICC is more limited to the agency that created the application of the will of principle.

According to Article 2.2.1(Scope of the Section) it does not govern an agent’s authority conferred by law or the authority of an agent appointed by a public or judicial authority.

Thus, the agent’s authority is not governed by the rules of a public or court authority. This can be taken to indicate that the agent authority of UPICC is irrelevant in similarity or practice with respect to company law. As such this is not an issue, although the view of the authority of an agent of UPICC may be incalculably complex.

As a result, corporations do not rely on, and are prevented from, imposing a limitation on the authority agency of the UPICC. It also does not conflict with the rules of authority for officers and parents. Hence, the authority of an agent under UPICC will concentrates on the relation between the principal and the person or third party that suffered as a consequence of the agent’s lack of authority, rather than the internal relationship between the principal and agent.

Moreover, the rights and duties of principal and agent will be governed by other applicable laws – so called ‘commercial agents’ which respect their agreement and may provide mandatory rules for the protection of the agent. The new edition (2010) of UPICC of international commercial contracts is devoted to principles with respect to agency authority.

The Concept Of Saudi Arabia’s Commercial Agencies Act

In contrast, the concept of agency authority in the Saudi Arabian Commercial Agencies Act includes the conventional agency representation and commercial promotion for compensation, distribution, and franchise according to Royal Decree no. M/30, dated 10/8/1400H (corresponding to 23/6/1980) Article:

  1. Without prejudice to any further laws, the Commercial Agencies Law, issued under the Royal Decree no. 11, dated 20/2/1382H (corresponding to 22/7/1962), and its amendments shall be applied to all those contracting with producers, and those speaking on their behalf in their country when doing business; they may be agents or distributors, including all forms of agency and distribution.
  2. Currently, the appointment of the Kingdom of Saudi Arabia’s commercial agent regulations has generally retained the traditional use of agents regarding international contracts between a State or a State-owned agency and a foreign company. And the reference point of the agents is the KSA.

Therefore, the theory of an agent may affect the purposes of the Saudi Arabian Commercial Agencies’ Act, and includes both the expediting agent and the procuring agent.

  1. Expediting agent: assists in obtaining documents and similar for his foreign principal.
  2. The Procuring agent: assists his principal in acquiring the trade of goods or services.

Agency authority in the Saudi Arabian Commercial Agencies’ Act is not limited to a formal agent who represents his principal according to a general or special attorney. In fact, the power to bind his principal is common.34 In the Authority Agency part of the Saudi Arabian Commercial Agencies’ Act, there are 8 sections:

  1. Definitions and activities permitted
  2. Nationality requirements
  3. Relationship with principal
  4. Private sector procurement
  5. Public sector procurement
  6. Registration requirements
  7. Affirmative obligations
  8. Penalties.

Also, according to Article 2 of M/32:

Without prejudice to any further laws or decisions regarding maintenance and spare parts, the agent or distributor shall be committed to:

  1. Permanently securing the spare parts requested by consumers, as regards the Products targeted by the agency, and securing other spare parts within a reasonable duration, according to the implementing regulation.
  2. Providing the necessary products, and ensuring the manufacture quality, as well as the compliance with the conditions usually put forth by producers, on an ongoing basis, throughout the agency period, in addition to another year following the date of agency expiration, or the date of designating a new agent, whichever is earlier, in accordance with the implementing regulation.

Thus, this article pertaining to agency authority in the Saudi Arabian Commercial Agencies’ Act, such as Distribution and Spare Parts, that imposes substantial requirements on Saudi agents and distributors, certainly results from the unsuccessful experiences of many Saudi consumers of foreign manufactured equipment which are a consequence of the lack of adequate local preservation, provision, and spare parts.

Thus, this is in contrast to the article regarding the authority of an agent of the UPICC, and the Saudi Law of Commercial Agencies does not provide for specific articles or provisions so it applies a general set of rules. In addition, the Saudi Law of Commercial Agencies will govern agent authority according to the rules relevant to some categories. These various categories of both agencies are treated differently because of the underlying purpose of UPICC goals which entail conclusion of the contract when agreed, while the Saudi Law of Commercial Agencies is reserved for national general merchant and trading activities.

Moreover, under commercial agent regulations in the Kingdom of Saudi Arabia, Decree No. M/2/1978 showed that a foreign contractor who does not have a Saudi familial connection must have a Saudi agent. This decree relates to many activities for contractors, architects, engineers, and design consultants entering into contracts with the Saudi Arabian government.

On the other hand, in Saudi Arabia agents must be used in government contracts and agreements with government organizations such as Saudi Arabian Airlines (SAUDIA), General Petroleum and Mineral Organization (PETROMIN).

Paradoxically, this differentiation will become apparent from an examination of the article structure of the UPICC, and the wording of the Saudi Law of Commercial Agencies. It may ultimately prove to be a further improvement with a provision being incorporated in identical form in the two instruments, which may mask a difference in scope. Offers that the concept of the authority under UPICC does not govern an agent’s authority granted by law, or the authority of an agent agreed by a public or judicial authority.

Analysis of the Concept of Authority of an Agent: A Comparison between UNIDROIT and Saudi Arabian Laws

Table 2: Comparative analysis of the concept of authority of an agent between UNIDROIT and Saudi Arabian laws

Similarities between the two Legislations
  1. Under both UNIDROIT and Saudi Arabian laws, agents are required to aid business parties in acquiring important documents needed to carry out their operations.
  2. Under both UNIDROIT and Saudi Arabian laws, foreign business principals have the authority to ratify the acts of their agents.
  3. Under both UNIDROIT and Saudi regulations, agents are required to provide the required products and maintain the quality of their manufacturing processes.
  4. Under both UNIDROIT and Saudi Commercial laws, the actions of agents have impacts on legal business owners and other third parties.
Differences between the Two
UNIDROIT Saudi Arabia
  1. Any person from the member state can work as an agent for government contracts and organisations.
  1. Non-Saudi citizens cannot work as agents for government contracts and organisations.
  1. Laws are concerned with the legit business owner, the agent, and the third party.
  1. Commercial laws are concerned with the foreign principal and agent only.

Similarities between UNIDROIT and Saudi laws with regards to the concept of authority of an agent

According to the UNIDROIT and Saudi Commercial laws, an agent is charged with the responsibility of aiding foreign principals to acquire documents needed to run business operations in the new state. In addition, the representative helps their appointee to sell and buy goods and services. In addition, under both UNIDROIT and Saudi regulations, the principal has the right to sanction the operations of their agent. The party can do so in instances where the individual acting as an agent operates without their authority. Upon ratification, the conduct of the distributor has effects that are similar to those brought about by actions carried out by an agent with authority.

According to UNIDROIT and Saudi commercial laws, agents are required to provide the necessary products and maintain the quality of processes. In addition, the distributor must act in accordance with the provisions set by the foreign principal. They are required to operate in this manner until their term as agents comes to an end. Under both UNIDROIT and Saudi regulations, an agent who works within the scope of authority only affects the legal relations between the foreign principal and the third party. The reason behind this is because the agent is not bound to the third party by any laws. The distributor is only bound to the third level stakeholder in circumstances where they enter into a contract in the name of the legit business owner. In such cases, the main principal is revealed to the third party in the later stages of the deal.

Differences between UNIDROIT and Saudi laws in relation to the concept of authority of an agent

Under UPICC regulations, agents from any UNIDROIT member state can act as an agent in government contracts and organisations. The reason behind this is because the laws are simplified and do not have a lot of restrictions. However, in Saudi Arabia, agents who are not citizens are not granted such privileges. As a result, it is mandatory for principals to contract the services of a Saudi agent.

It is also noted that UPICC laws are primarily concerned with the relationship between the foreign principal, the agent, and the third party. The third party is the stakeholder who incurs damages in cases where the agent is working without authority. However, in Saudi Arabia, the commercial regulations vary significantly. The laws are concerned with the intrinsic relationship between the two parties. The Kingdom of Saudi Arabia’s commercial agent regulations impact on the agents the same way they affected them during the traditional era.

Termination Of Authority

Termination Of The Authority Of An Agent Under The UPICC

There are normally cases and permanent obstructions that under UPICC mean termination is needed for the benefit of the parties.

The first problem encountered is the authority of an agent, according to some conditions according Article 2.2.10 (Termination of authority) and scope of the authority of the agent. It is useful to find what terms are applicable to the contract. UPICC has a very particular meaning for termination.

According to Article 2.2.10 (Termination of authority) comment stated:

Grounds for termination not covered by the present article: There are several grounds on which the agent’s authority may be terminated; revocation by the principal, renunciation by the agent, and completion of the act for which authority had been granted, loss of capacity, bankruptcy, death or cessation of the existence of the principal or the agent, etc…

Firstly, it detailed that UPICC has terms in place in case of termination of authority where each party might claim compensation of whatever it takes, provided any type of the form has been unfairly implemented. In addition, UPICC make an allowance for recovery for an unlimited number of cases”.

Secondly. UPICC do not hold the non-performing party liable for foreseeable losses. As a result, it makes allowance for this limitation in cases in which performance was intentionally or grossly negligent. Moreover, UPICC compensation should be made in money whenever reasonable. Thus, termination of the agency contract gives rights to parties to govern their contract and they have other rights in specific cases; this becomes an issue if the parties agreed to UPICC.

The second problem such as Article 2.2.2(Establishment and scope of the authority of the agent) stated that : “the principal’s grant of authority to an agent may be express or implied.

Of course, the establishment and scope of the authority of the agent provides that the principle has some significant provision and offers to grant authority to an agent that may be expressed or implied. That will have the obvious advantage of UPICC providing a contract all parties. and this point parties can conclude short-term or necessary contracts.

However, it argue that UPICC has a general rule: Effects of termination. According to Article 7.3.5: (Effects of termination in general):

  1. Termination of the contract releases both parties from their obligation to effect and to receive future performance.
  2. Termination does not preclude a claim for damages for non-performance.
  3. Termination does not affect any provision in the contract for the settlement of disputes or any other term of the contract which is to operate even after termination.

Thus, it has been stated that this effect of termination in general does not mean that return has to take place as a result of termination. It is, therefore, distinguishable from avoidance where restitution has to take place as a general rule. It is also a relative provision that will grant a party the right to automatically claim damages against agents.

Finally Garro argue that in general termination takes place when parties decide to end their contractual obligations. This could be a flexible way to terminate a contract, as parties mutually agree to do so under their contract. The Termination for the authority of an agent is the same as that of UPICC.

Termination Of Commercial Agents Regulations In KSA

Saudi Arabian Commercial Agencies’ Act determining the overall strategic direction and management to the terminated commercial agent, have generally been limited to party, actual and readily quantified damages.Saudi Commercial Agencies’ Act presides over the contracting parties who may agree on the automatic renewal of the contract, or are presented with a situation consisting of termination of the agreement.

According to rticle 1

“Without prejudice to any further laws, the Commercial Agencies Law, issued under the Royal Decree no. 11, dated 20/2/1382H (corresponding to 22/7/1962), and its amendments shall be applied to all those contracting with producers, and those speaking on their behalf in their country when doing business; they may be agents or distributors, including all forms of agency and distribution”.

Stovall explain that “Under Saudi Arabian law, contractual parties are generally free to negotiate the terms of their commercial agency, including the grounds upon which the agreement expires or may be terminated”. Thus, the parties have the right to decide to terminate unless they expressly agree to renew the agreement. Also, Subsequently, parties commonly feel free to assign the contract of their commercial agency including agreement termination, or one which may be terminated. It is also known that the Saudi Arabian courts have not the reward to a terminated commercial agent; In addition, this leaves open the possibility of a serious abuse of rights.

Under Commercial Agencies Law under Section 2 Registration Provisions: Article 6 stat that

“No one shall do the tasks of the commercial agent unless enrolled in the register prepared for that purpose in the Ministry of Commerce and Industry. The registration application must be submitted within three months from the validation of the agreement”.

However, it is normally under the Agent’s Regulations that the principal cannot assign a new agent without the registration of the previous one being issued before the records of the KSA Ministry of Commerce.

Consequently, when the authority of the agent is expressed, it means the renewal of the agreement or the right to terminate the contract when there is delay in that performance. It is considered necessary to decide whether time is of the essence for parties in the contract.

Thus, Agency regulations require a completion certificate before the Saudi agent can be register and paid; this is in order to avoid heavy penalties for violation of Royal Decree M/2, such as loss of license for the agent and withdrawal of the foreign company’s privilege of doing business.

Hence, the effectiveness of a contract will be determined by considering the general features of the contract and the surrounding circumstances. It is normally held that time is of the utmost importance in what is described as a mercantile transaction. For example, a mercantile transaction is described as one in a fluctuating market or a market in which prompt delivery or payment is necessary to keep the wheels of commerce turning.

On the other hand, in the Authority Agency in KSA, there are some commercial agents who act as temporary agencies for the commerce ministry in the public interest. In Saudi Arabia, out of deference, Arab countries have not enacted any legal “dealer protection” legislation which authorizes a commercial agent to receive additional compensation for non-renewal of contract or termination of a commercial agency. In reality, there are a number of cases where the Board of Grievances has not awarded any compensation to the Saudi Agent where the principal has either not renewed or terminated the agreement.

According to Article 11

“The commercial agency or distribution contract must contain the following information:

  1. Titles and nationalities of the two parties.
  2. Subject and regional scope of the agency, as well as the kind of business, services and goods it implies.
  3. Duration of agency, and the way of its renewal.
  4. Way of termination or expiration of the agency.

The contract might include any other conditions that are not inconsistent with the laws and legislations applied in the Kingdom of Saudi Arabia”

As a result, it estate that a company will not register this unless the contract contains a term regarding “the manner of termination or expiry of authority”. Consequently, as an act of agents and distributors, he should write a contract that will contain all the ‘essential elements’ including the terms for renewal and termination. Because of this, there are many cases where the KSA Ministry of Commerce has refused to register or renew the authority of companies whose contracts do not contain provisions for termination of the agency, particularly given the article pertaining to Registered Companies.

Analysis of Termination of an Agent’s Contract: A Comparison between UNIDROIT and Saudi Arabian Laws

Similarities between the Two
  1. Under both UNIDROIT and Saudi laws, a principal has the authority to terminate the contract of their agent.
  2. Under both UNIDROIT and Saudi regulations, an agent is not entitled to compensation after a contract is terminated or is not renewed.
  3. According to both UNIDROIT and Saudi laws, an agent should be furnished with a notice of termination.
  4. Under both UNDROIT and Saudi laws, termination of contract relieves both the foreign principal and the agent of their duties.
  5. According to Saudi and UNIDROIT regulations, agents and their appointees have the right to agree on contract termination and renewal.
Differences between the Two
UNIDROIT Saudi Arabia
Business principles can immediately appoint new agents after termination. Business parties are required to follow a number of procedures before having the right to appoint a new agent.

Similarities touching on the termination of an agent’s contract

According to both UNIDROIT and Saudi laws, a party can terminate an agent’s commercial contract in instances where the distributor fails to perform the primary tasks as required. Non-performance deprives the appointee the benefits they expected to gain from the contract. The contract can also be terminated when the performance is too late or defective. As a result, the distressed party cannot use the services for the anticipated purposes.

Under both UPICC and Saudi Commercial laws, an agent is not entitled to compensation upon termination of a contract. Saudi courts do not award reimbursement for termination or non-renewal. They can only act in cases where there was a breach of contract or where the agreement stipulated there will be compensation. Generally, lost profits and other substantial damages are not recoverable in the Kingdom of Saudi Arabia. Compensation due to termination is determined on a case-by-case basis. The process is carried out in accordance with Sharia laws and the contract agreement.

According to both UPICC and Saudi Commercial laws, the aggrieved party is required to provide the agent with a notice before the termination of contract. The warning allows the non-performing party to avoid incurring any losses, which may arise from doubt as to whether the displeased client will accept their performance or not. Generally, the notice should be given within a reasonable duration of time. The warning becomes effective once the non-performing agent receives it.

Under UNIDROIT and Saudi laws, termination of contract releases both parties from their duties to effect and receive future performance. The non-performing party cannot be held responsible for foreseeable losses. According to UPICC and Saudi laws on commercial agency agreements, the foreign business parties and the agent can agree on implied renewal or termination of the contract. After the cancellation, it is the foreign company’s responsibility to determine the terms and regulations that will continue to be used.

Differences relating to the termination of an agent’s contract

According to UNIDROIT regulations, business parties can appoint a new agent immediately after the termination of a contract. There are no strict regulations governing the appointment and cancelation of an agency’s agreement. However, under the Saudi commercial regulations, there are various rules that apply to the termination of an agent’s contract by a foreign party. The non-Saudi business partner cannot just contract the services of another party. They must first wait for deregistration of the previous partner. They have to wait for clearance from the Ministry of Commerce and Industry.

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Vogenauer, Stefan, Commentary on the UNIDROIT Principles of International Commercial Contracts (PICC) (Oxford: Oxford UP, 2009).