Commercial Agency Contracts in Egito

In Egypt, commercial agency contracts are governed by Law No. 120/1982 (the “Commercial Agency Law”) as well as Law No. 17/1999 (the “Trade Law”), which regulate the commercial agency business and the commercial mediation activities. They define the main rights and obligations of an agent and of the company/person represented by the agent.

In addition, to the extent that it does not contain specific provisions, Law No. 131/1948 (the Egyptian “Civil Code”) applies, in cases where there are no clear provisions in the afore-mentioned laws. Furthermore, the Civil Code provides specific regulations for contracts in which standard terms and conditions are used. There are some general provisions which regulate the relationship between the parties in the different contracts.

Article 1 of the Commercial Agency Law defines the commercial agent as follows:

“For the purposes of this law a commercial agent shall mean any natural or juridical person who ordinarily, without being bound by an employment contract or service - rendering contract, offers bids, concludes purchase sale or lease or renders services in the name and for the account of producers, merchants, distributors or in his om name but for the account of any of these people.

The commercial mediator shall mean, for the purposes of this law, the person whose activity shall be confined-even if he executed only one transaction, to looking for a contractor or negotiating with such a contractor to convince him to conclude a contract and also any person who shall carry out an operation of commercial mediation agency even if he is not accustomed to such operations and only carrying it for once or if this person has concluded an employment contract with the manufacturer, the merchant or the distributor.“

Based on this definition, we will differentiate between the following: agents and distributors. It is important at the outset to understand the basic differences between them. The most fundamental distinction lies in the fact, that an agent arranges sales for the manufacturer to the customer, but never takes title to the goods; title passes directly from the manufacturer to the customer. On the other hand, a distributor buys goods from the manufacturer. After that, he resells them to the customer. This divergence in the structure of the transactions makes a difference in how each sort of representative is paid, in addition to, essentially, the legal governing framework and the consequences thereof.

Employed sales representative

The employed sales representative receives instructions concerning working hours, itinerary, and customer visits. As an employee, he brings or closes business deals on behalf of his employer. In contrast to an agent, he cannot decide freely over his working hours and his activity. As remuneration, he usually earns a fixed wage which is often supplemented by a success-based commission. The Commercial Agency Law then applies to the part of the commission of his remuneration accordingly.

Commercial broker

The commercial broker professionally closes business deals on behalf of someone else. In contrast to the agent, however, without being permanently and contractually entrusted with it. He does not have a permanent contract with an employer and thus, he is not obliged to constant customer care and to arrange business deals. Art. 206 of the Trade Law stipulates that the broker must record all the transactions concluded in his pursuit in his books as well as keep them from the documents related to them. He is also obliged to give them true copies when requested from these books the provisions of the commercial books.

Commission agent

In this sort of agency, the agent undertakes to conduct an act on behalf of the principal by selling goods on his behalf but at his own account.

Distributor

The distributor typically buys goods based on a contract with a manufacturer/supplier and then resells them on his own behalf and on his own account. If the distributor has similar rights and obligations as the agent and he is integrated into the sales organization of the manufacturer or supplier, commercial agency law can partly apply correspondingly, for example, regarding the justification of the distributor’s claims for compensation (see Trade Law).

Franchisee

An existent long-term agreement insures extensive mutual rights and obligations between franchisor and franchisee. The franchisor usually provides the franchisee with a business concept of distributing goods or services under a consistent business name and often with further specifications relating to corporate identity, for which the franchisee must pay a franchise fee. The franchisee, in contrast to the agent, however, acts on his own behalf and on his own account. There is no specific law on franchise. The applicable law, however, is usually the law that has the closest relationship to the provisions of the franchise agreement, which is generally the Trade Law or the Commercial Agency Law.

Recording in the register of commercial agents and mediators shall not be affected except after fulfilling the following conditions:

Natural Persons

• He shall be of Egyptian Nationality. If he has acquired the Egyptian nationality, a period of at least ten years shall have elapsed as of the date he acquired the Egyptian Nationality, 
• He shall be fully qualified. 
• He shall be of good reputation, not sentenced in connection with a felony or was liable to a freedom restricting penalty because of a crime of dishonor, dishonesty or any of the crimes stipulated in the present law or in the laws of importation, exportation, foreign exchange, customs, taxes, supply, companies or trade unless he has been rehabilitated. 
• He shall not have been declared bankrupt, unless he has been rehabilitated. 
• He shall not be a civil servant nor works in any of the local government units, public organizations or the public sector companies and units. As regards to the former officials of such organs, two years at least shall have elapsed after quitting service due either resignation of any disciplinary reason.
  
• He shall not be a member of the People's Assembly, the Shura Council or any Municipal Councils nor shall be dedicated to political work. Such prohibition shall be valid during the period of his membership or dedication unless he has been practicing such activity before his membership or dedication. 
• He shall not be a relative of first degree to a person occupying a political position or a person of the categories stipulated in the preceding item.
• He shall not be a first degree relative to any of the principal officials of the State occupying the post of director general or those of higher portions, or those occupying the same positions from among the members of purchase, sale and adjudication committees or in any of the bodies referred to in item (E) above.

Companies

• The Company's head office shall be in Egypt.
• Acting as an agent or carrying out commercial mediation operations shall, according to the company's articles of incorporation or statutes, be among its purposes.
• The company's capital shall be completely owned by Egyptian partners provided that ten years shall have elapsed, in case they have acquired the Egyptian nationality.
• In case the partner is a juridical person, it shall be of an Egyptian nationality and most of its capital shall be owned by Egyptians, otherwise ten years at least shall have elapsed since they acquired the Egyptian nationality.
• All partners, managers or members of the board of directors of joint stock companies, as the case may be, must fulfill the same conditions as stipulated in the item “Natural Persons”. 
• The capital in case of partnerships shall not be less than twenty thousand pounds (LE. 20,000) and this shall be proven by the last balance sheet submitted by the firm to the Taxation Authority for the previous financial year, or the firm may otherwise submit a certificate issued by one of the accredited banks proving the deposit of the said amount in case the company has already started its activity.

The Public sector companies shall be exempted from the provisions stipulated in items (c.) and (d.) above in case the importation operation shall be related to their activity. Limited liability companies shall, in the application of the provisions of the present law, be treated in the same way as partnerships.

The following procedures shall be adopted regarding recording in the register of commercial agents and mediators (art. 4):

• The contract of commercial agency or mediation, as the case may be, shall be submitted, provided such contract shall detail the nature of the work of the agent or mediator, the responsibility of the contracting parties, the percentage of commission agreed upon, and the conditions of its payment, in particular the currency for payment.
• As regards the foreign companies or the bodies issuing the agency, the contract shall, in addition to the preceding conditions, be notarized by the concerned chamber of commerce or the official body replacing such chamber and shall be ratified by the competent Egyptian consulate. The contract shall also stipulate an obligation on part of the foreign company or body to provide such consulate with every agreement including any amendment to the contracts data. 
• The foreign company or body shall not have as a trade agent one of the companies belonging to the public sector unless such agency contract has not yet terminated.
• The Commercial Agencies Law requires that all commercial agency agreements be registered in the Commercial Agents Register. However, unlike the commercial agency laws in some Middle Eastern countries, the Egyptian Law does not explicitly state that unregistered agreements will be considered null and void or unenforceable.
  

Nothing in the Commercial Agency Law or the Trade Law prevents the parties from applying foreign Law to the agency contract. Article 19 of the Civil Code states the following:

„The contractual obligations are governed by the domestic law if the domicile is the same for both parties, and, if there is no common domicile, by the law of the country where the contract is concluded. This rule is not applicable if the parties have agreed on another applicable law or that another applicable law results from the circumstances.“

Therefore, the parties may agree on foreign law; however, such law should not contradict Egyptian public order (ordre public) and the parties should note that the compensation of the contract’s agent, due to an unjustified termination by the (foreign) principal, is of public order. In addition, the parties shall abide by the registration requirements stated in the Commercial Agency Law, otherwise, the agent may be subject to penalties as stipulated in the mentioned law.

Art. 1 of the Egyptian Arbitration Law (Law No. 27/1994) provides:

“ Without prejudice to the provisions of international agreements in force in the Arab Republic of Egypt, the provisions of this shall apply to all arbitration between parties from public law persons or private law, regardless of this legal relationship around which the dispute revolves, if this arbitration is taking place in Egypt or it is an international commercial arbitration conducted in Abroad and its parties agreed to subject it to the provisions of this law.”

Accordingly, the parties may agree to choose international arbitration. The arbitration tribunal may not render an award violating the Egyptian public order. Otherwise, the award may be nullified by the Egyptian court of appeal.

Expiry

Pursuant to Article 714 Civil Code, unless the parties have agreed otherwise, the agency agreement comes to an end by the completion of the work or by the expiration of the period for which it was given or by the death of the agent or of the principal.

Indefinite Term

Pursuant to Article 163 Trade Law either party to the commercial agency agreement may always terminate.

If the agency agreement is for an indefinite period, the principal shall not end it without the occurrence of a fault by the agent, otherwise, he shall compensate him for the harm caused to him as a result of such removal. All agreements to the contrary of that shall be invalid.

The agent shall compensate the principal for the damage/harm caused to him if he relinquishes the agency at an unsuitable time and without an acceptable excuse. (Art. 188 Trade Law)

Definite Term

If the deed is for a definite term, and the Principle decides not to renew it at the expiry of its term, the agent shall have the right to receive a compensation to be determined by the judge, even if there is an agreement to the contrary.

For such compensation to be payable, the following is stipulated:

a) The agent shall not have committed an error or deficiency in the course of executing the deed.
b) The activity of the agent shall have led to evident success in promoting the sales of the commodity or increasing the number of customers.

“In estimating the compensation due consideration shall be given to the harm and damage caused to the agent and the degree of the benefit accruing to the principal from the agent’s efforts in promoting the sales of the commodity and increasing the number of customers.” (Art. 189 Trade Law)

Like the Trade Law, Article no.13 Bis-3 of the Executive Regulations No. 362/2005 of the Commercial Agency Law stipulates:

„In the event of the principal declining to renew the definite agency contract with no error or default having occurred on the part of the agent in the course of performing the agency contract, the principal shall be obligated to compensate the agent for the damage suffered thereby as a result of this, if the agent's activity had led to obvious success in promoting the commodity or in increasing the number of customers“

If either party terminated a commercial agency agreement according to Art. 163 Trade Law, then “no compensation shall be payable unless the termination of the contract occurs without prior notice or at an inconvenient time. If the contract is for a definite period, its termination must be based on a serious and acceptable reason, otherwise, compensation shall be payable.”

The amount of compensation may either be agreed upon the parties or, in case of dispute, will be estimated by the courts:

“The judge will fix the amount of damage if it has not been fixed in the contract or by law. The amount of damages includes losses suffered by the creditor and profits of which he has been deprived, if they are the normal result of the failure to perform the obligation or of delay in such performance.

These losses shall be a “normal result” if the creditor is not able to avoid them by making a reasonable effort.

When, however, the obligation arises from contract, a debtor who has not been guilty of fraud or gross negligence will not be held liable for damages greater than those which could have normally been foreseen at the time of entering into the contract.“ (Article 221 Civil Code).

Moreover, the judge has to consider the harm and damage caused to the agent and the degree of the benefit accruing to the principal from the agent’s efforts in promoting the sales of the goods and increasing the number of customers as per Article 189 Trade Law and Articles 13 Bis-3 of the Executive Regulations No. 362/2005 of the Commercial Agency Law as mentioned above.