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Kuwait starting to bloom with projects

‘Laws of agency bit more unique in GCC region’

By Ahmed Al-Naqeeb Arab-Times Staff KUWAIT CITY, Dec 10, 2014:

With the government’s development plan soon to be in progress, and the Kuwait National Assembly pushing for development and reform, Kuwait is starting to bloom with projects, which means similar to the AlJaber stadium and the new Central Bank headquarters, tenders for other major projects are being floated and both foreign and local companies are scrambling with their bids. Of course, tenders mean contracts, and contracts mean abiding to the law, and law means lawyers. For local companies, the process of signing a contract with the government is not as complex as it is with a foreign company, as they are going to need a Kuwaiti entity as their agent or representative, and the laws of agency, are a bit more unique here in the GCC region as opposed to the rest of the world. Shedding light on the subject, one of the senior lawyers at the Al-Markaz Law Firm Nazih A. Hameed asserted that when it comes to governmental tenders and the fact that there is a deadline for everyone to submit their bids, foreign companies tend to act swiftly, and although there are numerous means to approach the matter, appointing a local partner as an agent is the most expeditious manner to comply with the local laws. Disputes As a practitioner in the field of law since 1997, Nazih clarified that the essential role of an agent is to act as a vehicle, through which the foreign principal can conduct its commercial activities, and since this is a business structure, in some cases the magnitude of the capital involved, opens room for disputes. For example, as the business progresses and incomes rise, the agent

sometimes requests an increment on his percentage from the revenue, or in some cases an increase in his fees, and considering he is the local agent, he possesses the capability of hindering the business, which is a factor that the foreign principal must consider. Nazih pointed out that throughout the GCC countries; the laws on agency tend to protect the local agent, and the common seems to be that only a local can act as an agent, and in the case the foreign principal decides to terminate the contract or reject its renewal, the local agent is entitled to compensation. “The reason behind this security, that the agency laws provide, is to insure the balance of the economic benefits and protections to both the foreign principal and the local agent,” explained Nazih as he noted that even when the foreign principal drafts a contract that prevents the local agent from claiming compensation, and despite the agent agreeing on such forfeiture, he is still going to be

deemed to be entitled to claim compensation provided that he has not violated any terms of his engagement. The Kuwaiti laws on agency stipulate that any article or provision in an agency contract that attempts to prevent the local agent from seeking his statutory right of compensation is void, provided that he has not committed a default, “even if the agent voluntarily agreed not to claim compensation,” added Nazih. This is where lawyers come into the picture, for if they are representing the foreign principal, they are going to work towards maneuvering out of paying the compensation by of enforcement of the terms of the contract, and insist on alternative forums for dispute resolutions such as arbitration, for the simple reason that Kuwaiti courts are very respectful to an agreement on arbitration. On the other hand, if they are representing the local agent, they usually advise them to, barring any unreasonable provisions, agree on all the articles and provisions in the proposed contract, because at the end of the day, Kuwaiti law has a blanket application over the agency contract and the agent will be entitled to seek compensation, as long as he has not committed any breaches. Furthermore, when asked if representing a local agent is easier than representing a foreign principal, considering the laws of agency is to their advantage, Nazih stated that the matter is not that simple, for in some cases, contracts and agreements are drafted in such a way that the compensation factor is avoided, “then there is really no way out” he added. In these cases, lawyers always try to direct the litigation in a manner that the interpretation of the contract would be relied upon rather than the literal meaning of the contract, or just use certain legal formulas and maneuvers to deal with the matter at hand. Nazih continued that while it appears that the law protects the rights of a local agent fiercely, it does not mean that there are unreasonable remedies granted to a local agent in the sense that, “it doesn’t necessarily mean that it protects you from a bad bargain.” The laws of agency in Kuwait and other GCC countries tend to protect the local agent, but it does not mean that the rights of the foreign principal are disregarded, for there are restrictions imposed on the agent, “like the agent’s inability to represent more than one foreign principal in the same field” Nazih noted. The law provides a fair balance between interests of the parties, in addition to the fact that Kuwaiti courts retain international jurisdiction over agency agreements. Some foreign principals might feel bound and restricted by the statutory rights that the agents have, but the law grants them the freedom in terms of regulating and operating the business, making it worth this little restriction.