Authority of the Agents

In a contract of agency, an agent has the authority to carry on the business on the principal’s
behalf and do every lawful thing necessary for the purpose. it is important that the agent
must commit his actions within the scope of his jurisdiction.

1. Actual Authority

• Definition:

It is the express authority from the principal allowing the agent to enter into obligations
(contracts) on his behalf.

Or;

It is when a principal directly tells the agent that they have the authority to take certain
action.

Note:

It can be specific instructions to do so or generally included in the agent's job duties.

• Liability:

The principal is liable for all the acts done by the agent which are usual or incidental to a
particular purpose or thing.

- Examples:

1) The usual or customary authority in which the agent who is employed in the trade,
profession, business, or place that has the authority to work according to its usual
customs unless this has been expressly negatived by the principal.

2) Power of Attorney.

2. Implied Authority

• Definition:

The authority that is based on the agent's reasonable understanding of the principal's
instructions.

Or;

It is the authority of an agent to do acts that are reasonably incidental to and necessary for
the effective performance of his duties.

Note:

1. This could only be applied to disclosed and partially disclosed principals.

 2. The implied authority never applies to act on behalf of an undisclosed principal.
3. It shall be incidental.

- Examples:

1. An agent employed to sell a horse has an implied authority to give a warranty that
the horse is healthy.
2. Party A owns a shop and visits the shop occasionally.

Ahmed manages the shop, and he is in the habit of ordering goods from Party C in the name
of Party A for the purposes of the shop, and of paying for them out of party A’s funds with
party A’s knowledge.

Here, Ahmed has an implied authority from party A to order goods from Party C in the name
of Party A for the purposes of the shop.

3. Apparent Authority

Definition:

It is the power of an agent to act on behalf of a principal, even though not expressly or
impliedly granted.

Or;

It is the power to act on another person's behalf, assuming other conditions exist.

Note:

There are certain elements that are necessary to establish apparent authority.

1) Reasonable belief:

The third party has every reason to believe that you have the power and authority.

- Examples:

Often this is evidenced with company logos, like if you wear a company shirt and have
company business cards.

2. Expected authority:

You as an employee (agent) of the company (principal), are expected to act on their behalf
to meet customer needs.

This involves doing any and everything to ensure an optimal customer experience.

3. Power to act on another’s behalf:

As an employee (agent) of the company (principal), you automatically have the ability to
transact on their behalf.
- Example:

You might visit a car dealership and negotiate with an associate who puts a deal and offers
you a SAR 5000 discount, but the next day when you return, you find out that the deal is
invalid because the associate was only a mechanic employed by the dealer, who did not
have the authority to write and close a deal.

He was simply covering the sales floor as a result of a shortage of employees, but you (the
third party) believed that the mechanic (the agent) had apparent authority to sell you a car
on behalf of the dealership (the principal).

Apparent Authority vs. Implied Authority

In the apparent authority:

The person's conduct gives the impression that they are allowed to act in the principal's
interest while he has not been authorized at all.

In the implied authority:

The agent has been already authorized either fully or partially.

4. Ratification Authority

• Definition:

The act of approving an unauthorized commitment by an official who has the authority to do
so.

Or;

It is to approve a legally binding act that would not otherwise be binding in the absence of
such approval.

Note:

The approval shall come from an authorized person.

- Example:

When some person does some acts on behalf of another person, without his knowledge or
authority, and such other person subsequently ratifies the acts done on his behalf.
Duties of Agents Towards Principals Part
Definition of Duty:

A task or action that one is required to perform as part of his job.

A moral or legal obligation or responsibility.

How can we apply this definition on the agency relationship?

What does the duty of agent mean?

It means the required actions or obligations from the agent.

The agent has 7 duties towards principals:

1. Following the principal’s instructions.

2. Acting in the best interests of the principal and using the care & skills.
3. No conflict of interest.
4. No secret profit.
5. Duty of confidentiality.
6. Duty to account.
7. Duty not to delegate.

Following the Principal’s Instructions

- The agent is appointed to facilitate or negotiate a transaction or an action on behalf of the

principal, the agent owes a duty to act in the principal’s best interests within the agent's
authority.

and,

- The agent is bound to conduct the business of his principal according to the principal's
directions and keep himself within the confines of his authority.

• In the absence of directions, the agent must follow the custom which prevails in
businesses of the same kind and where the agent conducts such businesses, and he
must make it good to his principal to avoid any loss.

Example:

An agent was instructed to warehouse his principal’s goods at a particular place. He placed
a part of them at a different warehouse which was equally safe. But the goods were
destroyed without negligence.

Here, the agent is held liable for the loss.

Any disobedience or departure from the instructions makes the agent liable

for the loss.

• In the absence of instructions, business customs must be followed.

Example:

The customs of trade require that goods should not be sold on credit or in return for a
negotiable instrument, the agent should not do so. If he does so, he would be liable to the
principal for any loss resulting from the transaction.

• Why?
Because the agent acts under the principal’s control and for the principal’s benefit.

Also, he has a duty to act within his actual authority and obey the principal’s reasonable
instructions for the agency's business.

• There are exceptions to the duty to obey instructions:

1. A forced agent do not need obey his principal's order to continue to act as an agent.

2. Agents generally have no duty to obey orders to behave illegally or unethically.

Thus:

A sales agent shall not follow the directions to misrepresent the quality of the principal’s
goods.

Neither, the professionals such as attorneys and accountants are not obligated to obey
directions that conflict with the ethical rules of their professions.

Acting in the Best Interest of the Principal and Using the Care & Skills

o - The agent is appointed to facilitate or negotiate a transaction or an action

on behalf of the principal, the agent owes a duty to act in the principal’s best
interests within the agent's authority.

and,

o - The agent is bound to conduct the business of his principal according to the
principal's directions and keep himself within the confines of his authority.

Definition:

To act so as to benefit somebody.

Why should the agent act in the best interests of the principal?

Because the Best Interests are a statutory principle, which is a legal requirement for all
Decisions Makers to apply it when making decisions on behalf of a principal.
How to act in the best interest?

In order to act in the best interest of the principal, you have to to act with due care and skill
in performing the duties.

If the principal suffers any loss owing to the agent’s want of care or skill, the agent must
compensate the principal for such loss.

No Conflict of Interest

Definition:

A conflict of interest occurs when an entity or individual becomes unreliable because of a

clash between personal interests and professional duties or responsibilities.
Or;
An individual has multiple interests and uses his official position to exploit his position for his
own direct, unique, pecuniary, and personal benefit.

Example: An attorney and a client; an attorney is representing a new client in an

employment dispute with their employer, but that attorney also represents that employer.
Therefore, the interests of the attorney and the employer conflict with the interests of the
present client.

• Attorneys have a duty to represent the interests of their client(s).

• In the event that the attorney has two or more clients, these duties can conflict. It is
impossible for the attorney to fulfill both at once.
• If an attorney has both the plaintiff and defendant in a given case as clients,
advocating on behalf of one will inherently be advocating against the interests of the
other.

Can the agent compete with his principal?

The agent may not compete with the principal regarding the agency business and not
assist the principal’s competitors, so long as he remains an agent unless otherwise
the principal agrees.

Thus, an agent employed to purchase specific property may not buy it himself if the principal
desires it.

No Secret Profit

Definition of Profit:

The benefit, advantage, or pecuniary gain secretly accruing to the agent from its actual
responsibility.

• The common law requires that an agent should not make any profit or acquire any
benefit in the course and the matter of his agency without the knowledge and
consent of his principal.
 • Such profit, generally known as secret profit, is not restricted to money but may
include anything of value.

Q: What are the requirements for the profit to be legal for the agent?

Liability:

An agent who has made a secret profit is liable to account to the principal for such
profit in addition to any other remedies available to the principal for the agent’s
breach of duty.

Examples:

1- Use of property:

An agent who uses property entrusted to him by the principal to make a profit for
himself and without the principal’s consent is in breach of his duty not to make a secret
profit.

2- Use of position

3- Use of information or knowledge:

An agent who acquires information or knowledge that the principal has employed him to
collect or discover or which he has otherwise acquired for the use of his principal should not
make use of the same for his personal gain.

However, the duty not to make a secret profit may be discharged if the agent makes full
disclosure of all the relevant facts to the principal and the principal consents to the making
and retention of such profit by the agent.

If the estate agent makes use of this information, which he is appointed to obtain on behalf
of the purchaser, and acquires that property himself without disclosing the same to the
purchaser and makes a profit by reselling it, the estate agent will, among other things, be in
breach of his fiduciary duty not to make a secret profit.

However, the duty not to make a secret profit may be discharged if the agent makes full
disclosure of all the relevant facts to the principal and the principal consents to the making
and retention of such profit by the agent.

Q: Can the agent profit out of his duty after the agency relationship is
terminated?

The agent cannot use the principal secret profits he has made in the agency's course, even
after the agency relationship terminates.

Unless, the principal approves it.

Duty of Confidentiality

Definition:

Preserving authorized restrictions on access and disclosure, including means for protecting
personal privacy and proprietary information.

Owing to the fiduciary relationship between a principal and his agent, the agent shall not
disclose any information concerning the principal or any confidential information entrusted to
him by the principal to any third party in the absence of the principal's consent.

Confidential information entrusted to an agent includes any information which is not readily
available to the public. Information readily available to the public will usually include
information kept at government departments and open for inspection by the public, such as
the Land Registry, Companies Registry, and the Birth and Death Registry.

Q: Can the agent disclose the principal's confidential information after the
agency relationship is done or terminated?

Even if the agent has ceased to act for the principal, the agent should keep confidential any
information concerning the principal or any confidential information entrusted to him unless
the principal consents to the disclosure or unless the information have ceased to be
confidential.

However, an agent has implied authority to disclose information concerning the principal if
doing so is necessary for the agent to carry out the duties entrusted to him by the principal
or if it is a governmental requirement.

For example:

An estate agent may disclose to the appointed solicitors of the purchaser (the estate agent's
principal) such information relating to the purchase as will enable the solicitors to handle the
transaction on behalf of the purchaser.

Duty to Account

Definition:

A duty to the agent to be held accountable for whatever he received or spent while acting on
behalf of the principal.

Q: Can the agent be held accountable even after the agency agreement is done
or terminated?

Yes, even after the agency relationship has ceased, the agent's duty to account to the
principal may continue.

Hence, the agent is obliged to return to his principal all documents and property originally
given to the agent by the principal and documents prepared by the agent on the instruction
and at the expense of the principal.
Duty not to Delegate

Definition:

Giving others the authority to act on your behalf, accompanied with responsibility and
accountability for results.
Or;
Giving directions to a subordinate and telling them exactly what to do.

The general rule is that an agent may not delegate his authority or duty in whole or in part
except with the authority and consent of the principal.

Note: This can be legal only upon the principal's approval.

Why?

Owing to the fact that an agency agreement is privy to the principal and the agent which
means that authority is normally given to the agent personally on account of his
trustworthiness, skill, or experience.

Liability:

Where an agent is not authorized to delegate, the act of a “sub-agent” appointed by the
agent will not be binding on the principal.

The agent who so delegates his authority is also in breach of the duty not to delegate and is
liable to compensate for any loss that the principal may suffer as a consequence of the
agent’s failure to exercise his authority in person.

There are exceptions in the following cases when the agent can delegate:

1. Nature of Work:

Sometimes, the very nature of work makes it necessary for the agent to appoint a sub-agent.

A banker instructed to make a payment to a particular person at a particular place may

appoint a banker who has an office at that place.

2. Trade Custom:

A sub-agent may be appointed and the work delegated to him if there is the ordinary custom
of trade to that effect. Thus, architect generally appoints surveyors.

3. Principal Consent:

The principal may expressly allow his agent to appoint a sub-agent. His consent may also be
implied from the conduct of the parties. The principal may ratify his agent’s unauthorized
delegation.
Rights of Agents Against their Principals
• The agent’s role in the entire process is crucial and relevant in successfully carrying out the
business. Even though the agent represents his principal in the business conduct, he plays
an important role, as he is the one who has the power to affect the legal relationship
between the principal and the third party.

• The Rights of Agents are 6 rights:

1. Right to receive remuneration.

• Remuneration's definition:
The pay or other financial compensation provided in exchange for the agent's

services performed.

Or;

The total compensation received by the agent for his service.

• Effect of misconduct:
An agent who is guilty of misconduct in the business of the agency is not entitled to any
remuneration in respect of that part of the business in which he has misconducted.

In addition, the agent is liable to compensate the principal for any loss caused by the
misconduct.

2. Right of retainer.

• Can the agent retain some of the principal's money if he does not remunerate him?
An agent may retain, out of any sums received on account of the principal in the business of
the agency, all amounts of money due to himself in respect of advances made or expenses
properly incurred by him in conducting such business, and also such remuneration as may
be payable to him for acting as an agent in a case that the principal does not remunerate
him.

Thus, Agent has the right to retain principal money for the following:

1. Advances made by the agent for conducting Agency business.

2. Expenses adequately incurred by the agent in conducting the agency's business
3. Payable remuneration.
3. Right of lien.

It means the right to keep possession of the belonging of another person until a debt owed
by that person is discharged.

which means;

An agent has the right to retain goods, papers, and other property, whether movable or
immovable, of the principal received by him until the amount due to himself for commission,
disbursements, and services in respect of the same has been paid or accounted for to him.
This right is, however, subject to a contract to the contrary.

Thus, this right of lien arises:

1. Only if there is no contract to the contrary;

2. Only regarding those properties the agent has lawfully gained possession of.
3. Only in the expectation of those properties regarding which some amount is due to
the agent.

4.Right to be indemnified against consequences of lawful acts.

• Indemnified's definition:
To compensate for damage or loss sustained, the expense incurred, etc.

Or;

To guard or secure against anticipated loss.

The principal is obligated to compensate the agent against the consequences of all lawful
acts carried out by the agent in the exercise of the authority given to him.

Q: What if the agent is requested to do unlawful act?

• Example:
• - Under the principal's instructions, the agent contracts with party C to

deliver certain goods to him. The principal does not send the goods to the

agent, and party C sues the agent for breach of contract.

• - The agent informs the principal of the suit, and the principal authorizes him

to defend the suit.

• - The agent defends the suit and is compelled to pay damages and costs

and incur expenses.

• - The principal is liable to the agent for such damages, costs, and expenses.
5. Right to Compensation

The principal is entitled the agent to compensation in the event of any injury or loss he
suffers because a principal lacks skill or competency.

• Example:
The principal employs the agent as a bricklayer in building a house and puts

up the scaffolding himself. The scaffolding is unskillfully put up, and the agent is in
consequence hurt. The principal must make compensation to the agent.

6. Right of stoppage of goods in transit.

An agent has a right to stop the goods in transit to the principal (just like an unpaid seller) if;

1. The agent has bought goods either with his own money or by incurring personal liability
for the price.

Or;

2. The principal has become insolvent or bankrupt.

Termination of Agent’s Authority

Definition of Termination:

The act of bringing something to an end.

Or;

The end of something already existed.

• Generally:
An agent’s authority can be terminated at any time. If the trust between the agent and the
principal has broken down, it is not reasonable to allow the principal to remain at risk in any
transactions that the agent might conclude during a period of notice.

• Legally:
Agency can be terminated by the following ways:

1. By the Agreement.
2. By the Act of Parties.

a. Performance by the Agent. b. Revocation by the Principal. c. Renunciation by Agent.

3. By Notice.
4. By Operation of the Law.
1. By the Agreement.

Termination by agreement may occur if the agency relationship is terminated pursuant to the
agreement's provisions.

The following situations may arise in this context:

1. If the agreement provides for the appointment of the agent for a specified period of
time, the agency will come to an end automatically when that period of time expires.
2. If the agreement provides for the agency to terminate upon the occurrence of a
specified event, the agency will end up on the event's occurrence.

Note:

Even on the basis that agency relationship that is created by agreement

between the principal and the agent..

such a relationship can also be brought to an end by mutual agreement

between the parties.

2. By the Act of Parties.

An agency may be terminated by the acts of either the principal or the agent,

as illustrated below:

A. Performance by the agent:

If an agent is appointed to accomplish a particular task or for a specific purpose, the agency
will terminate when the task is accomplished by the agent, or the specific purpose is
attained.

B. Revocation by the principal:

The authority of an agent may be revoked at any time by the principal. However, unilateral
revocation otherwise than in accordance with the provisions of the agency agreement may
render the principal liable to the agent for the breach of an agency agreement.

Any word or conduct of the principal inconsistent with the agent's continued exercise of
authority may operate as a revocation of the agency.

C. Renunciationbyagent:

An agent is entitled to renounce his power by refusing to act or by notifying the principal that
he will not act for the principal.

Unilateral termination of the agency by the agent before he has fulfilled the obligations to the
principal under the agency agreement will render the agent liable to the principal for the
breach of the agency agreement, such as payment of damages for the loss suffered by the
principal.

3. By Notice.

If the agency agreement provides that the agency may be terminated upon either party
serving on the other written notice of a specified duration.

However, if the agency agreement does not contain any termination provision, the general
rule is that reasonable notice has to be given to the other party to terminate the agency.

4. By Operation of the Law.

An agency may terminate by the operation of law upon the occurrence of

particular events:

1. Where the party concerned is an individual:

• By death.
• By insanity.
• By insolvency.

2. Where the party concerned is a legal entity:

• By bankruptcy.
• By the court order of ending the partnership.
• By changing of the company activities.
Commercial Agency Law
In order to understand the Saudi Commercial Agency Law, we have to

understand the following:

1. The Saudi Basic Law of Governance.

2. The Authorities of the State.
3. The difference between the royal order, the royal decree, and the supreme order.
4. Stages of issuing new law in KSA.

1. The Saudi Basic Law of Governance.

The Saudi Basic Law of Governance was published in 1 March 1992.

It contains:

1. The General Principles.

2. The Law of Governance.
3. The Values of Saudi Society.
4. Economic Principles.
5. Rights and Duties.
6. The Authorities of the State.
7. Financial Affairs.
8. Institutions of Audit.

2. The Authorities of the State.

As the Saudi Basic Law of Governance stated in Article 44, the Authorities of the State are:

I. The Judicial Authority.

II. The Executive Authority.
III. The Regulatory Authority.

The King is the ultimate arbiter for these Authorities.

I. The Judicial Authority.

As the Saudi Basic Law of Governance stated in

Article 46:
The Judiciary is an independent authority. The decisions of judges shall not be subject to
any authority other than the authority of the Islamic Sharia.

All people, either citizens or residents in the Kingdom, are entitled to file suit on an equal
basis. The Law shall specify procedures for this purpose. Article 48:

The Courts shall apply rules of the Islamic Sharia in all cases, according to the Holy Qur'an,
to the Sunna, and according to laws which are decreed by the ruler that does not conflict
with the Holy Qur'an and the Sunna.
II. The Executive Authority.

As the Saudi Basic Law of Governance stated in Article 56:

• The King is the Prime Minister and the members of the Council of Ministers shall assist him
in the performance of his mission according to the provisions of this Law and other laws.

• The Council of Ministers Law shall specify the powers of the Council in respect of internal
and external affairs, the organization of governmental departments, and their coordination.
In addition, the Law shall specify the ministers' qualifications and powers, ministerial
accountability procedures, and all matters pertaining to the ministers. The Law of the Council
of Ministers and the areas of their authority may be amended according to this Law.

III. The Regulatory Authority.

As the Saudi Basic Law of Governance stated in Article 67:

The Regulatory Authority shall be concerned with making laws and regulations that will
safeguard all interests. Its powers shall be exercised according to the provisions of this Law
and the Law of the Council of Ministers and the Law of the Shura Council.

The King has ultimate authority over the regulatory branch, the reference point for all
authority; he is also the supreme commander of all military forces.

3. The difference between the royal order, the royal decree, and the supreme
order.

Q: What is the Royal Order?

The Royal Order is:

A document written in a specific manner that expresses the will of His Majesty

the King directly, bearing the signature of His Majesty in his capacity as Head of State and
Ruler of the country, on a subject not previously submitted to the Shura Council and the
Council of Ministers.

Note:

1. There is no specific time or occasion for this order to be issued.

2. The Royal order is the highest and most powerful regulatory tool or order in the
Kingdom.

Examples:

Appointing the princes, ministers, judges and all other officials.

Q: What is the Royal Decree?

The Royal Decree is:

A document written in a specific manner, bearing the signature of His Majesty

the King in his capacity as the Prime Minister, on a specific subject already discussed
between the Shura Council and the Council of Ministers or in the Council of Ministers only,
for final approval on some internal and external affairs.

Example:

The Foreign Investment Act was issued by the Royal Decree No. (M /1) on 5/1/1421 AH.

Q: What is the Supreme Order?

The Supreme Order is:

A written document but does not have a specific form issued by His Majesty

the King in his capacity as the Prime Minister or through the First Deputy Prime Minister or
the Second Deputy Prime Minister.

Example:

The Supreme Order No. 5 / B / 549 on 10/1/1419 AH, which approved the constant
participation in a number of the famous international book fairs.

4. Stages of issuing new law in KSA.

The law is a set of policies and decisions adopted by any country to regulate the relationship
between institutions and individuals; It is considered a constitution for an organized society,
and all members of this society follow this institution approved by the country, and everyone
is ready to organize his own life and link it to this system.

Q: What are the stages of issuing a new law in KSA?

I. Suggestion.

It is the first stage; all the ministers of the country meet to propose the type of law required to
accomplish, after which the laws and legislations that follow this law are drawn up. Then,
these details are presented to the responsible for this to work on organizing and starting
them.

II.Study and presentation.

The stage of studying the law and presenting it in the second stage comes after the proposal
stage.
This stage takes place by studying the submitted proposals before making any decision or
implementation, in which the Council of Ministers presents the draft law to the Council of
Ministers for discussion.
III. The Review and Discussion Stage.

At this stage, proposals and studies are submitted to the Shura Council and the Council of
Ministers and presented to them.
These proposals are to be discussed and decided whether to be accepted or not.

IV. Acknowledgment and certification.

The ruler signs and approves the decisions of the Council of Ministers after obtaining a large
percentage of votes in favor of this decision.

V. Issuance and signature.

The ruler signs and approves the decisions of the Council of Ministers after obtaining a large
percentage of votes in favor of this decision.

VI. Publication.

This is done by publishing the law issued with the signature and approval of the ruler
throughout the country, and starting work according to it.

Saudi commercial agency Law:

• Law Name: Law of Commercial Agencies

• Issue Date: 03/06/1962

• Publish Date: 03/06/1962
• Law Status: Active

• No. of Articles: 10

Where to find a copy of the law?

The website of the Bureau of Experts at the Saudi Council of Ministers

The Approval
Approval Analysis

Before we begin analyzing the approval order, we shall remember the definition of the Royal
decree.

We will analyze the approval based on the previous definition to understand how this law
was issued.

The issuance of the law was based on a Royal Decree for the following reasons:

1. In a written document
2. In a specific manner:
3. In the capacity as the Prime Minister:
4. On a specific subject already discussed in the
Council of Ministers

Article ONE: (Nationally)

A non-Saudi person, whether it is an individual or legal entity, can not operate as a

commercial agent in the Kingdom.

The Saudi companies operating as commercial agents must have a 100% Saudi capital, and
the members of their boards of directors and authorized signatories shall be Saudis.

What if?

1. A foreign person or entity would like to operate as a commercial agent in Saudi

Arabia?

Operating as commercial agent in Saudi Arabia is limited to Saudis, whether

individuals or legal entities.

2. A company that have %75 of their shares as Saudi and %25 is foreign?

The Saudi companies operating as commercial agents must have a 100% Saudi
capital.

3. Members of the boards of directors and authorized signatories of these Saudi

companies shall be Saudis

A Saudi company operates as a commercial agent in Saudi Arabia and has a foreign
member in their board members?
 Article TWO: (Applying the Law)

Commercial agents who are engaged in business on the date of issuance of this Law and
who are not subject to the provisions of Article 1 of this Law, shall be given not more than
two years from the date this law enters into force to liquidate and transfer their businesses to
Saudi commercial agents.

The Minister of Commerce shall specify the period for each agent separately, taking into
consideration the time for liquidation, the nature of the business, and the above-mentioned
period.

This shows how strict the law is and how the laws deal with the current situation that does
not match with the updated law.

In the case mentioned above and to avoid any conflict, the laws solve this issue by one of
the followings:

1. Giving a period of time for correction; or,

2. Providing further dates to apply this new law.

Article THREE: (Registration)

A person or entity may not operate as a commercial agent unless his name is registered with
the Ministry of Commerce in a register designated for this purpose.

The register shall include the name of the merchant or company, type of goods, name of the
authorizing company or establishment, date of authorization, and term of authorization.

Such applications may not be rejected except for non-Saudis or for Saudis who are
unqualified or barred from engaging in business. Rejected applicants may appeal before the
Minister of Commerce.

Notes:

1. To operate as an agent in Saudi Arabia, you should be registered in the Ministry of

Commerce.
2. The registration is called Commercial Registration.
3. The registration should include:

• The name of the merchant or company,

• type of goods,
• name of the authorizing company or establishment, • date of authorization, and
• term of authorization.

Article FOUR: (Punishments)

It was: Operating as a commercial agent in violation of this Law shall be subject to a fine of
not less than 1000 riyals and not more than 5000 riyals. If the violation is committed by a
foreigner or by a Saudi company with one or more non-Saudi partners, the fine shall be
coupled with administrative liquidation of the commercial agency, and the violator may
permanently or temporarily be barred from engaging in business.
The Minister of Interior may, upon a recommendation by the Minister of Commerce, order
the deportation of the said foreigner.

• Amendment

Whoever violates the provisions of this Law and its implementing regulations shall be
punished with a fine of not less than five thousand riyals and not exceeding fifty thousand
riyals, with the penalty being posted at the expense of the violator, without prejudice to the
right of those who suffered damage from the violation to claim compensation.

If the violation is attributed to a foreigner or to a Saudi company that has one or more non-
Saudi partners, the penalty in addition to the fine becomes the administrative liquidation of
the business with the possibility of

depriving him from practicing trade permanently or for a specific period, and the Minister of
Interior may order the deportation of the foreigner from the country in light of the penalty
imposed.

• The punishments for violating this law are:

1. A fine of not less than five thousand riyals and not exceeding fifty thousand SAR.
2. The penalty will be posted at the expense of the violator,
3. Whoever suffered damage from the violation has the right to claim compensation.
4. If the violation is attributed to a foreigner or to a Saudi company that has one or more
non-Saudi partners, the penalty in addition to the fine becomes the administrative
liquidation of the business.

• The foreigner could also face:

1. Possibility of depriving him from practicing trade permanently or for a specific period,
2. Deportation of the foreigner from the country in light of the penalty imposed.

Q: Is the foreign going to face either of the above punishments before paying
the fines?
No.

Article FIVE: (Registration Fees)

Fees for registration in the Agencies Register shall be as follows:

- 500 riyals for an individual merchant.

- 100 riyals for the companies.
Fees shall be paid once.

• Amendment

Fees for registration in the Agencies Register shall be as follows:

- 500 riyals for an individual merchant and the companies.

Fees shall be paid once.
Article SIX:
(Type of Business to this Law)

• It was...

This law shall come into force three months after the date of its publication.

• Amendment

Without prejudice to any other regulations, the Commercial Agencies Law, and its
amendments, apply to anyone who contracts with the producer or whoever acts on his
behalf in his country to carry out commercial business, whether he is an agent or distributor
in any form of agency or distribution.

There are 4 more articles added to the law in 2021.

Article SEVEN:
(What Should the Agent Provide?)

Without prejudice to laws and decisions of the provision of spare parts and maintenance, the
agent and distributor shall:

1. Make available a continuous supply of highly demanded spare parts and make
available other less demanded spare parts within a reasonable time, as stipulated by
the Implementing Regulations; and
2. Provide the necessary maintenance for the products, guarantee their manufacturing
quality and abide by the terms and conditions of the producers throughout the term of
the agency agreement, and the year following either the expiration of the agency
agreement or the appointment of a new agent, whichever comes first, in accordance
with the Implementing Regulations.

Article EIGHT: (Publication of the Law)

The Implementing Regulations of the Law of Commercial Agencies shall be issued by the
Minister of Commerce and shall be published in the Official Gazette.

Article NINE:
(A Model Agreement)

Q: What are the elements that shall be included in the agency agreements?

The ministry of commerce shall prepare model agreements for agents and distributors

1. parties to the agreement,

2. subject matter,
3. duration,
4. territory,
5. terms for renewal and termination, and
6. the parties’ obligations towards each other and towards consumers, especially with
regard to the provision of maintenance and spare parts.
Implementing Regulations
Definition:

A set of rules, instructions, and procedures issued by the minister or the competent authority
to implement the provisions of the law.

Q: Can we have an implanting regulations without a law?

Regulation Name: The implementing regulations for the commercial agency law.

Issue Date: 30/03/1981

Law Status: Active

No. of Articles: 49

Article 1:

• Commercial agencies that are in relation to the implementation of the Commercial

Agencies Law and its amendments refer to anyone who contracts with a manufacturer or his
representative in his country to conduct business as agent or distributor in any form of
agency or distribution for profit, commission or facilities of any nature, including agencies for
maritime, air or land transportation or any other agencies that would be decided by the
Minister of Commerce.

• The agent or distributor may contract with sub-distributors within the agency's territory,
provided that the original agent or distributor remains liable for the legally established
obligations towards the consumer.

Note:

The Saudi Commercial Agency Law and it's implementing regulations apply on:

• Anyone who contracts with a manufacturer or his representative in his country.

• To conduct business as agent or distributor in any form of agency or distribution.
• For profit, commission or facilities of any nature, including agencies for maritime, air
or land transportation or any other agencies that would be decided by the Minister of
Commerce.

The implementing regulations has limited the sub-agency and sub- distributing with
following conditions:

1. It should be within the agency's or distributor's territory.

2. The original agent or distributor remains liable for the legally established obligations
towards the consumer.

Q: Can the agent contract with with a sub agent without the principal's permission as
per the Saudi Law?
Article 2:

A non-Saudi person, whether a person or legal entity, may not operate as a commercial
agent in the Kingdom. Saudi companies operating as commercial agents must have 100%
Saudi capital, and the members of their boards of directors and authorized signatories shall
be Saudis.

Article 3:

The agent and distributor shall provide spare parts, provide the necessary maintenance, and
guarantee the quality of workmanship and the conditions set by the producers.

Article 4:

The commercial agent or distributor shall ensure that all papers, contracts, and
advertisements -that are related to the agency- and official invoices bear his name, address,
the type and territory of the agency, and the commercial registration number.

Article 5:

The commercial agent and distributor shall commit to facilitating the tasks of the competent
control officers by cooperating with them and responding to their requests within the scope
of the provisions of these Regulations.

Q: What is the competent authority that holds the agent accountable in case he
violates the provisions of this law and its implementing regulations?
It is the ministry of commerce and its officers.

Article 6:

No one may act as a commercial agent or distributor unless he is registered in the register
designated for this purpose at the Ministry of Commerce. Registration applications and
supporting documents shall be submitted within three months from the agreement's
inception.

This registration is for the agency agreements not for CR.

Article 7:

• A person who is not Saudi or whose registration documents are inconsistent with the
Agencies Law and its Implementing Regulations may not be allowed to register.
• An applicant whose registration has been rejected may appeal to the Minister of
Commerce within one month from the date of notifying him with the reasons for
rejection.
• The decision of the Minister of Commerce is final in this regard.
Article 8:

The registration application of the commercial or distribution agency shall include the
following data:

1. Name of the commercial agent or distributor, whether an individual or a company.

2. Number of commercial registration that gives the applicant the right to practice agency
business.
3. Address of the agent or distributor.
4. Name of the person authorized to manage the store or sign on its behalf.
5. Types and names of the goods and services included in the contract.
6. Name of the principal and his nationality.
7. Address of the principal’s headquarters.
8. Address of the industrial or agricultural center of the produced goods encompassed by
the contract.
9. Territory of the agency and distribution and its term.

Article 9:

Applications for registering a commercial or distribution agency in the register may

not be accepted unless supported by:

1. Commercial or distribution agency contract in two copies, one of which is original and
duly certified by the competent authorities.
2. Certified Arabic translation of the contract and any other documents issued in a
foreign language.
3. Copy of the main or secondary commercial registration that allows conducting the
business of agency or distribution.

Article 10:

Commercial or distribution agency contract shall be:

1. be in writing and signed by the principal in his country of origin or with his
representative in that country;
2. include a full explanation of the rights and obligations of the parties towards each
other, as well as their obligations towards the consumers in terms of providing
maintenance and spare parts.
 Article 11:

Commercial or distribution agency contract shall include the following data:

1. Capacity and nationality of each party.

2. Subject and territory of the agency, and all the works, services and goods it
encompasses.
3. Agency term and renewal.
4. Agency termination or expiration.
5. Agency contract may include other clauses provided that they are consistent with the
regulations applicable in Kingdom Saudi Arabia.

Article 16:

The registration of the commercial or distribution agency shall be canceled in the

following cases:
1. A merchant, whether an individual or a company, ceases practicing business.

2. Commercial or distribution agency contract expires and has not been extended or
renewed.

3. Commercial agent or distributor fails to fulfill any of the requirements stipulated in the
Commercial Agencies Law and its amendments.

Article 17:

• Registration shall be administratively canceled if the concerned party fails to submit a

cancellation request within one month after verifying the reasons causing the
cancellation and hearing the statement of the concerned party.
• The concerned party shall be notified of this decision by registered letter.

Article 18:

• The concerned party may appeal to the Minister of Commerce against the decision
issuing the administrative cancellation and clarify the justifications thereof within one
month from the date of being notified.
• The decision of the Minister shall be final in this regard.

Article 19:

• The Minister of Commerce shall assign competent officials to be in charge of

detecting the violations of the Commercial Agencies Law and its Regulations.

• The officials shall have the capacity of judicial officers and they shall be entitled to access
locations and stores, conduct inspections, prepare minutes on violations, hear the
statements of the concerned parties, review documents, and other investigation procedures.
Article 20:

Any violation of the Commercial Agencies Law, its amendments, and its Implementing
Regulations shall be punished by the imposition of a fine of no less than five thousand riyals
and no more than fifty thousand riyals, provided that the penalty shall be published at the
expense of the violator in a local newspaper, without prejudice to the right of any aggrieved
party to seek to recover damages.

Article 21:

• A panel of three members, at least one of them is a legal advisor, shall be formed at
the Ministry of Commerce pursuant to a decision by its Minister to impose the
penalties provided for in the Law of Commercial Agencies and its amendments.
• The panel decisions may be appealed to the Minister of Commerce within 15 days
from the date the aggrieved party or his representative is notified thereof; otherwise,
its decisions shall become final upon the lapse of the mentioned period and the
approval of the Minister of Commerce.

Article 22:

• Persons who act as agents and distributors at the time in which the Regulations
come into force, whether registered or not, shall apply for registration in accordance
with the Regulations within one year from the determined date, and they may not
engage in business after that period until they complete the registration.
• • Registered agents, shall submit their applications along with documents that prove
the validity of the agency contract and a certificate from the Chamber of Commerce
confirming the payment of the subscription fees.