L . C . C

Subject: Legal Report about the difference between (Agency contract & distribution contract) according Egyptian law. Section One : the Parties' obligations First: The Commercial Agency Contract The Egyptian legislator set several obligations for the Parties of both the Commercial Agency Contract and the distribution Contract, as follows: Article 151 of Trade Law no. 17 of 1999 states that: 1-“The Agent shall follow the instructions of the Principal, if the Agent contravenes them without acceptable justification, the Principal may refuse the deal.” 2-“If no instructions are given by the Principal concerning the deal, the Agent shall delay its conclusion and ask for the instructions from the Principal, unless delaying the deal will cause harm to the Principal, or if the Agent was delegated to work without instructions from the Principal.” Furthermore, Article 158 of Trade Law no. 17 of 1999 states that: 1- “The Agent shall notify the Principal of the deals he concludes for his account.” 2- “The Agent shall submit to the Principal, at the time agreed upon between them or according to trade practices or previous dealings between them, an account of the works that have been concluded for his account. This account shall conform to truth. If it comprises premeditatedly untrue or incorrect data, the Principal may refuse the deals connected with these data, in addition to his right to claim compensation. The Agent shall not receive a pay for these transactions.” Meanwhile, Article 186 of Trade Law no. 17 of 1999 states that: “The Agent shall maintain the rights of the Principal, and to take all protective measures necessary to preserve these rights, and shall provide his principal with the data and information concerning the status of the market in the area of his activities.” As per the abovementioned articles, the Egyptian legislature imposed on the Agent full compliance with the instructions of the Principal, in the exercise of his work, and that the Agent must abide by the selling prices determined by the Principle as well as the methods of advertising and marketing, Moreover, the Agent must provide and upon the principle’s request a report on the state of the market. Main office: 81 Osman's building -Mustafa Elnahas St- Nasr city - Cairo - Egypt. Tel: +202 23828815 Mob: +2 01111157717 Email: info@Lcceg.com www.Lcceg.com Note: These Articles are considered supplementary rules, not mandatory one, whereby the contracting parties may agree on what is contrary to it. Second : The Distribution Contract With regards to the Distribution contract, being classified as a form of the selling and supplying contracts, the Egyptian Legislature did not state any special legislations in this regards, as the relation between the distributor and the principle, is practically limited to an agreed deal to sell or distribute limited quantity of predefined products . Consequently, In the distribution contracts, the distributor does not represent the principle in their legal relationship with third parties, the distributer is restricted to resell and distribute the products in exchange for a profit that may be predetermined and may not be specified ”. Article 103 of Trade Law no. 17 of 1999 states that: “Parties may agree on forcing the buyer not to reduce the price below a specified limit in the resale process, if the sold item is a commodity protected by a registered trademark distinguishing it. The court may issue a ruling invalidating, if the product is a commodity necessary for popular consumption”. In accordance with the abovementioned provision, the distributor is considered a purchaser of the principle’s products, and the latter has the right to oblige the distributor not to reduce a certain price at the resale. The contract remains the only standard regulating for the legal relationship between the Principal and the distributor. Note: These Articles are considered supplementary rules, not mandatory one, whereby the contracting parties may agree on what is contrary to it. Section two : Exclusivity (non-competition) First : The Commercial Agency Contract The Exclusivity is one of the most important issues to which commercial agents are concerned, the Agent always seek to obtain an exclusive right to represent the Principles within a certain geographical area without any competition from others Agents. Therefore, commercial agents always try to establish a condition in the Commercial Agency Contract that obliges the Principle not to appoint any other competitive agent in the same territory. Main office: 81 Osman's building -Mustafa Elnahas St- Nasr city - Cairo - Egypt. Tel: +202 23828815 Mob: +2 01111157717 Email: info@Lcceg.com www.Lcceg.com Therefore, the Egyptian legislator organized the exclusivity in the commercial agency contracts, as follow: Article 179 of Trade Law no. 17 of 1999 which states that: “The principal shall not have to recourse to more than one agent in the same area and for the same branch of activity. and the agent shall not represent more than one Principle exercising the same activity in the same area, unless otherwise agreed explicitly by the two parties.” Thus, the Egyptian legislator granted the contracting Parties the freedom to agree on the exclusive condition of the agency. However, if the contract does not state any clause regarding the exclusivity in the contract, thus the exclusivity is abolished. Note: These Articles are considered supplementary rules, not mandatory rules, whereby the contracting parties may agree on what is contrary to it. Second : The Distribution Contract Accordingly, and with regard to the abovementioned, distributors and agents always seek to obtain the exclusive rights of the Principle to deprive others of their competition with the same products. And also, the Principle is keen on exclusivity to prevent the agent or distributor from selling and marketing any products competing for his products. However, according to the legal nature of the contract of distribution of products as a sale contract or Contract of Supply The Egyptian legislator did not state a specific rule with regard to the exclusivity, except in Article 188 of the Trade Law No. 17 of 1999, which states: “No agreement shall be made on preventing the supply demanding party from contracting with other than the supplier on the purchase of goods or services subject of the contract, except for a period not exceeding five years from the date of the contract, whatever the privileges the supplier shall determine for the demanding party. All agreement on a longer period shall not be renewed except after its expiry, and it shall only be for once, and with express agreement.” This article specifies the inability of the principle to obligate the distributor to compete only for a period of five years only, and it is not permissible to agree on any period of more than five years, and if a condition is specified in the contract beyond that period, this condition is void. Main office: 81 Osman's building -Mustafa Elnahas St- Nasr city - Cairo - Egypt. Tel: +202 23828815 Mob: +2 01111157717 Email: info@Lcceg.com www.Lcceg.com Note: this Article is considered a mandatory rule, and any agreement contrary to this rule is absolutely null and void. Section 3: The minimum duration of the Contract Subsection 1: the Agency contract: According to the freedom of contracting concept , the contractual parties have the right to determine the duration of the contract , or even to conclude the contract as an indefinite one, however the Egyptian Legislature has legislated Article 181 of the Trade Law no. 17 of 1999, states that : “ If in the deed it is stipulated that the contract agent shall erect a building for display, stores for the commodities, or repair or maintenance installations, the term of the contract shall not be for less than five years.” Accordingly, and with regard to the abovementioned Article, the Egyptian Legislature has stipulated that the duration of the agency contract should be not less than 5 years, however the Parties may agree to classify the contract as an indefinite on as it is legally acceptable in such type of contracts. Note: this Article is considered as a mandatory rule, and any agreement contrary to this rule is absolutely null and void. Second: the Distribution contract: With regards to the Distribution contract, being classified as a form of the selling and supplying contracts, the Egyptian Legislature did not state any special legislations in this regards, as the relation between the distributor and the principle, is practically limited to an agreed deal to sell or distribute limited quantity of predefined products . Consequently, the legislature did not impose any legal restriction regarding the determination of the duration of the distribution contract, and the parties shall have the right to agree on any duration without being obliged with a minimum one. Section 4: Confidentiality First: the Agency contract: Whereas, the confidentiality is a priority in the commercial field, the agent and the principle are keen to agree on restrictions which govern the confidentiality of the Main office: 81 Osman's building -Mustafa Elnahas St- Nasr city - Cairo - Egypt. Tel: +202 23828815 Mob: +2 01111157717 Email: info@Lcceg.com www.Lcceg.com information in the contract, therefore the Egyptian Legislature has governed this issue by legislating Article 187 of Trade Law no. 17 of 1999, states that: “ The contract agent shall not disclose the secrets of the principal to which he will have access on the occasion of implementing the agency task, even if this takes place after the end of the contractual relation”. In such context, the Egyptian Legislature was only assuring on the concept of not disclosing the principle‘s confidential information, however, Article 187 did not state a limited period for such restriction, which means that this obligation is in perpetuity, on the other hand, the legislature did not legislate any Article which oblige the principle not to disclose its agent’s confidential information, unless otherwise agreed between the parties. Note: this Article is considered as a mandatory rule and any agreement contrary to this rule is absolutely null and void. Second: the Distribution contract: As we have mentioned before, that there is no special legislations which govern the Distribution contract, and it is governed by the general legal legislations, which govern the selling and supplying contracts as well, correspondingly the confidential information, which is disclosed in accordance with this contract is governed by the general restrictions of the Commercial Law. Furthermore, Article 66 of Trade law no. 17 of 1999 states that: 1) “All act contravening the customs and norms observed in commercial dealing, shall be considered an illegal competition. In that shall be included in particular, the encroachment on a third party’s trademarks, his commercial name, the letters patent, or his industrial secrets which he possesses the right to invest, and instigating the workers in his trading store to divulge his secrets, or quit working for him, and also all act or claim that results in causing confusion to the trading store or his products, or in weakening the confidence in its - owner or those in charge of its management, or in his products”. 2) All illegal competition shall force its perpetrator to compensate the harm ensuing there from. The court shall, in addition to the compensation, have the power to pronounce a ruling ordering the removal of the harm and the publication of a summary of the sentence at the expense of the judgment debtor in a daily newspaper”. Main office: 81 Osman's building -Mustafa Elnahas St- Nasr city - Cairo - Egypt. Tel: +202 23828815 Mob: +2 01111157717 Email: info@Lcceg.com www.Lcceg.com Accordingly, and with regards to the abovementioned Article, disclosing the commercial secrets is considered as an act of illegal competition which oblige it’s perpetrator to pay compensation to the damaged party. However, it is preferable if the principle and the agent agreed on detailed provisions to govern the Confidentiality of the distribution contract. Note: this Article is considered a mandatory rule, and any agreement contrary to this rule is absolutely null and void. Section Five: Compensation in case of termination of indefinite contract. First: The commercial Agency contract: Exception from the general rules that grant contractors the right to terminate indefinite contracts at any time so as not to turn those contracts into eternal contracts, the Egyptian legislator came by virtue contrary to the general rules and it is only for the indefinite commercial agency contract, where the legislator in Article 188 of Trade Law No. 17 of 1999 states that: “1- The contract agency deed shall be concluded in the common interest of the two parties. If the contract 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 agreement to the contrary of that shall be null and void”. “2- 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”. Consequently, and with regard to the abovementioned, The legislator's desire to protect the commercial agent appears in the first paragraph of the previous article which stating that the principal is obliged to compensate the agent in the case of the principal terminate the indefinite contract and without any fault by the agent. Meanwhile, it is obvious that the Egyptian law obliges the principal not to terminate the agency contract as long as no fault has been established by the agent, otherwise the principal must compensate the agent. It is obvious from the second paragraph that the legislator considered the agent as the weakest party where the agent did not have to pay compensation in the case of terminating the indefinite agency contract, unless the termination was at an inappropriate time or without an acceptable excuse. The legislator did not require that the agent prove the fault of the principal until he exempts himself from the compensation as stated in the first paragraph, but only that there is an acceptable excuse for termination. Main office: 81 Osman's building -Mustafa Elnahas St- Nasr city - Cairo - Egypt. Tel: +202 23828815 Mob: +2 01111157717 Email: info@Lcceg.com www.Lcceg.com Note: this Article is considered a mandatory rule, and any agreement contrary to this rule is absolutely null and void. Second: Distribution contract: This contract is subject to the general legal rules governing the commercial sale contract and the supply contract, although the content of the sales, distribution and supply contracts is more closely related to the determination of the agreed quantities of the contract with clear delivery dates to be complied with, however the Egyptian legislator has addressed the idea of not determine the duration of the distribution contract of goods. Where the Article 116 of the Trade Law No. 17 of 1999 states that: “3- If no term for supply is agreed upon, either party may terminate the contract at any time providing he shall notify the other party of a suitable date therefore”. Therefore, the legislator did not stipulate conditions to be observed to terminate the indefinite distribution contract except the necessity to notify at an appropriate time. The legislator did not impose on the principal to prove the distributor's fault for his exemption from compensation, it shall be sufficient that no damage has been established as a result of termination of the contract. Note: This legal provision is considered a supplementary rule, not a mandatory one, whereby the contracting parties may agree on what is contrary to it. Section Six: Compensation in case of non-renewal of definite contract. First: The Commercial Agency Contract All legal systems emphasize the freedom to contract and not to be forced to contract. However, the Egyptian legislator has failed to impose the principle of non-coercion to contract, where he imposed the principal to renew the definite commercial agency contract at the end of its duration. Where the article 189 of the Trade Law No. 17 of 1999 states that: “1- If the contract 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”. “2- For such compensation to be payable, the following is stipulated: A- The agent shall not have committed a fault or deficiency in the course of executing the contract. Main office: 81 Osman's building -Mustafa Elnahas St- Nasr city - Cairo - Egypt. Tel: +202 23828815 Mob: +2 01111157717 Email: info@Lcceg.com www.Lcceg.com 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”. “3- 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 of the customers”. Such stipulation constitutes an obligation on the principal to renew the agency contract upon the expiry of its term otherwise it shall indemnify the agent, not only for the damages that the agent may incur but also to compensate him for the lost opportunity resulted from the privation of his customers and for his efforts, which benefit the principal in the promotion of the products and increasing the number of customers. The only good thing in such stipulation is that the legislator stipulated for loose conditions to entitle the agent this compensation where the agent shall not be proved to be in default, as well as, the agent's efforts resulted in an apparent success in promoting the product and increasing the number of customers. In fact, the Egyptian legislator patronized such stipulation by considering the agent as the weak party in the contract and exaggerated in the agent’s protection by forcing the principal to renew the expired agency contract or to compensate the agent. In addition, the legislator rendered such stipulation as a mandatory rule that the parties may not violate or agree upon the contrary where the agreed upon condition violating such stipulation is considered void and the agent shall entitle a compensation on the nonrenewal of the terminated agency contract. Note: this Article is considered a mandatory rule, and any agreement contrary to this rule is absolutely null and void. Second: Distribution contract: This contract is subject to the general legal rules governing the commercial sale and supply contract. There is no legal provision in these rules that obligates the principal to renew the distributor's contract or to pay compensation in case of non-renewal. Section seven: The obligatory legal jurisdiction First: The commercial agency contract It is obvious now that the Egyptian legislature defines the principal as the weak party in agency contract so the legislature was keen to protect the principal. As an example in article 191 of Trade law no 17 of 1999 which states that : Main office: 81 Osman's building -Mustafa Elnahas St- Nasr city - Cairo - Egypt. Tel: +202 23828815 Mob: +2 01111157717 Email: info@Lcceg.com www.Lcceg.com “ In exception to the jurisdiction rules as prescribed in the procedure code, the court, within the circuit of which lies the location of implying the deed, shall be concerned with examining all disputes arising from the contracts agency deed” The legislature did that on purpose to make it easier for the agent to claim his rights before of the Local judge who is entitled in the same circuit of implementing the contract, and to not put the burden of claiming his rights before a foreign jurisdiction that will defiantly be the principal’s state law. Note 1: this Article is considered a mandatory rule, and any agreement contrary to this rule is absolutely null and void. Note 2: The contractual parties have the right to agree on arbitration clause as a method of settlement of dispute, any arbitration panel chosen by both parties whether it is inside or outside the Egyptian Territory according to the Egyptian Arbitration law no 27 for the year 1994. Second : Distribution contract This contract is subject to the General principles for the legal jurisdiction in the Egyptian law which is stated in article no 55 in the commercial and civil law procedures no 13 of 1986 as follows: “ In commercial matters, the jurisdiction shall be for the defendant’s court or the court which was the agreement executed totally or partially in its circuit.” According to this article claims arising out of the distribution contract may be subject to three courts; The defendant’s court, or the court which was the agreement totally or partially executed or the court which the agreement should be executed in its circuit. Note: These Articles are considered supplementary rules, not mandatory one, whereby the contracting parties may agree on what is contrary to it. For further information please do not hesitate to contact us