Overview of Commercial Agency Law in Bahrain
Corporate Commercial / Bahrain
Law No. 10 of 1992 as amended and it’s Implementing Regulations (the “Commercial Agency Law”) plays a vital role in regulating commercial agency agreements in the Kingdom of Bahrain.
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Sohaila Abdul RahmanSenior Counsel,Corporate Commercial
Hiba AbidTrainee Solicitor,Banking & Finance
Law No. 10 of 1992 as amended and it’s Implementing Regulations (the “Commercial Agency Law”) plays a vital role in regulating commercial agency agreements in the Kingdom of Bahrain. It not only protects trade relationships and promotes economic growth but also provides a framework for governing agency relationships and outlining the rights and obligations of the parties involved. With its emphasis on fairness and transparency, the Bahrain Commercial Agency Law has greatly contributed towards the development of Bahrain’s business sector and has helped facilitate international trade partnerships.
The law defines a commercial agent as an independent intermediary who sells, purchases, or distributes goods and services on behalf of a principal. It outlines the rights and obligations of both agents and principals, ensuring fair treatment and transparency in their business dealings.
Registration: The Commercial Agency Law encompasses several key provisions that govern commercial agency relationships. One of its essential aspects is the requirement for registration with the Ministry of Industry and Commerce (“MOIC”). This registration ensures that parties involved in commercial agency agreements adhere to the law's provisions and helps protect the interests of all stakeholders. It is important to note that if the requirements of the Commercial Agency Law are not met and consequently or otherwise the agreement is not registered, the Commercial Agency Law would not apply to the agreement between the parties. This would not render the agreement unenforceable, however any such agreement would be governed by the general applicable laws of Bahrain, particularly the Civil Code.
An agent is obligated to act in the best interests of the principal and exercise due care and diligence in performing its duties. An agent must adhere to the principal's instructions, maintain confidentiality, and avoid conflicts of interest. On the other hand, the principal must provide the agent with the necessary resources, information, and authority to carry out their duties effectively. A principal is also responsible for compensating the agent for its services as agreed between the parties.
The law stipulates that a written agreement must be in place, clearly defining the scope of the agency relationship, including but not limited to the following:
name and nationality of the parties (the principal and agent);
details of good or services which form part of the arrangement;
details of the territory covered;
type of business and commercial activities;
term and duration of the arrangement;
domicile of both parties;
brand name and trademarks covered; and
any other terms and conditions agreed upon between the agent and the principal provided that they do not conflict with the provisions of Commercial Agency Law.
Termination: Furthermore, the Bahrain Commercial Agency Law provides comprehensive protection to commercial agents. It prohibits principals from terminating an agency agreement arbitrarily and without significant cause. In case of termination, the law entitles agents to fair compensation for the loss of the commercial agency relationship, considering factors such as the agency's duration, investment, and efforts made by the agent. The success of a compensation claim for an agent will be subject to evidence that the principal’s products have increased in sale and their refusal to renew the agency will prevent the agent from enjoying profit of such success.
Exclusivity: The Commercial Agency Law recognizes the concept of exclusive agency, where the principal grants the agent the exclusive right to represent and distribute their products or services in a specific territory or market segment. The parties are free to agree on exclusive or non-exclusive commercial agency arrangement. In case of non-exclusive agency, more than one local agent can have the relevant commercial agency agreement registered before the MOIC.
Public Interest: The interests of the public must be protected when determining the consequences of the agency relationship. As such, termination of the agency relationships shall not lead to a ban on importation of goods into Bahrain. Hence, a principal will remain under an obligation to supply products into Bahrain, either through a new distributor or as a second distributor, regardless of pending court proceedings in relation to agency agreement. The terms of the agency agreement will determine whether the principal may be able to appoint another distributor. Where the agent does not wish to allow the principal to appoint another party as an agent, they may take preventive measures through the Court.
The introduction of the Commercial Agency Law has had a significant impact on the business landscape of the Kingdom. By establishing a clear legal framework, it has instilled confidence in foreign investors and facilitated the formation of international business partnerships. The law creates stability and predictability for commercial agents, principals, and distributors, promoting a favorable environment for business growth.
Moreover, the Commercial Agency Law has played a crucial role in attracting foreign direct investment (FDI) into Bahrain. International companies seeking to establish a commercial presence in Bahrain can rely on the legal protections provided by the law. This, in turn, has helped diversify the economy and promote economic growth by encouraging foreign businesses to set up their operations in the country.
The Bahrain Commercial Agency Law is a vital piece of legislation that fosters trade relationships, protects the interests of commercial agents, and promotes economic growth. With its comprehensive framework and emphasis on fairness and transparency, the law has strengthened the business environment in Bahrain by attracting foreign investors, facilitating international partnerships, and promoting market accountability.
The law has improved market transparency and accountability through the registration requirement, which enables the government to monitor commercial agency activities and ensure compliance with legal provisions. This oversight helps prevent unfair practices, such as unauthorized agents or unauthorized distribution of goods and services, thereby fostering a fair and competitive business environment.
The law's existence serves as a testament to Bahrain's commitment to creating a favorable business climate and the development of an economy that is both competitive and welcoming to foreign businesses.
For further information,please contact Sohaila Abdul Rahman and Hiba Abid.
Published in January 2024
