A manufacturer that appoints an agent or distributor in Bahrain works inside a registration system. Legislative Decree No. 10 of 1992 on the Commercial Agency, as amended by Legislative Decree No. 8 of 1998 and Legislative Decree No. 49 of 2002, sets who may be an agent, what the contract must say, how a registration is kept alive, how an agency ends and what the agent may claim. Bahrain's rules differ in important ways from those of its neighbors. In particular, Articles 5 and 7 of the original decree have been repealed, and the compensation rules depend on whether the agency has a fixed term. This article explains, from our office in Kuwait and in cooperation with our partners in Bahrain, what a principal or an agent should know before signing or ending an agency. Article numbers refer to the Decree as amended.
What counts as a commercial agency
Article 1, as amended in 1998, defines a commercial agency as representing the principal in distributing goods and products, or offering them for sale or circulation for a profit or commission, or performing facilitation services of any kind. It includes land, sea and air transport agencies, tourism and travel offices, services, insurance, publications, publishing, press, advertising, and any other commercial activity designated by a decision of the Minister of Commerce. The agency contract is made in the common interest of both parties (Article 6), and the commercial agent carries out the agency and organizes his ordinary commercial activity independently (Article 4).
Article 2 adds a restriction: no person may act as agent for a company or body from which the ministries of the State buy weapons and military products, in respect of those weapons and products.
What the contract must say
Article 3, as amended, requires the agency contract to state the names and nationalities of the agent and the principal, the goods and services covered with the rights and obligations of each party and the amount of profit or commission the agent earns, the agent's area of work, the term if it is fixed, the commercial centers of the agent and the principal, the trade name of the goods or the trademarks, the agent's undertaking to provide sufficient spare parts and the maintenance needed for the cars, machinery, engines, equipment and electrical and electronic devices covered by the agency, an arbitration clause if there is one, and any other terms agreed that do not conflict with the Decree. A contract that omits these items may be difficult to register, so a template used elsewhere in the region should be adapted for Bahrain.
Who may be registered
For an individual, Article 14 requires Bahraini nationality, no previous sentence for a felony or a custodial sentence for a crime of dishonor, breach of trust or an economic crime unless rehabilitated, and no declared bankruptcy unless rehabilitated. For a company, it must be validly incorporated, its purposes must include some or all of the activities in Article 1, Bahrainis must own at least 51 percent of its capital, and its head office must be in Bahrain. These rules are the reason a foreign principal usually works with a Bahraini-owned distributor.
Article 15, as amended, provides that for the agency to be valid at registration the agent must be directly linked to the principal. It permits registering an agency between an agent and a company, export house or other body, provided it is authorized to make agency agreements for the goods or products. The end of the relationship between that company or body and the producing company does not affect the principal's obligations to the agent.
Registration and its upkeep
Article 13 requires the registration of the agency, or any amendment to it, in the Commercial Agencies Register at the competent department of the Ministry of Commerce. An agency that is not registered is disregarded, and no claim concerning it is heard. This second consequence is the one that catches parties out: an unregistered agent may find that the court will not hear his claim at all.
The application is submitted on the prescribed form with supporting documents (Article 17). The department decides on a registration or renewal request within thirty days of submission, and provides a certificate on request (Article 18). It may refuse with reasons, and any interested party may submit a grievance to the Minister within thirty days of publication of the decision or notification, with the Minister deciding within thirty days. Under Article 20, a decision may be challenged before the High Civil Court within thirty days of notification or publication. Where a grievance is available, you must lodge it first and wait for it to be decided or for thirty days to pass. The thirty days for the court challenge then run from notification that the grievance was rejected, and failure to answer the grievance within thirty days counts as rejection.
Article 16 requires the agency's registration to be renewed within two months after two years have passed from the first registration or the last renewal. Article 19 allows the department to strike off the registration if renewal is not requested in time, if a condition of registration is lacking, or if registration was obtained without right or on incorrect information. Article 21 requires publication in the Official Gazette of every registration, renewal, addition, amendment or striking off within thirty days.
How an agency ends, and what the agent can claim
Fixed-term agency
Under Article 8, an agency ends at the end of its fixed term unless the parties agree to renew it. If they do not agree on renewal, the competent department may strike off the registration or register the agency in the name of another trader who agrees with the principal. If one party wishes to end the contract before the fixed term expires, the registration is not struck off or transferred except with the consent of both parties. The agent may claim compensation if a fixed-term agency is withdrawn before its term ends.
The agent also has a statutory claim on expiry. Even where the agency ends by the arrival of its term, and despite any contrary agreement, the agent may claim compensation from the principal if his activity led to an apparent success in promoting the principal's products or to an increase in its customers, and the principal's refusal to renew the contract prevented him from earning the profit of that success (Article 8(4)). Because the right applies despite a contrary agreement, a clause that says "no compensation on expiry" does not remove it.
The agent is also bound. In a fixed-term agency he may not withdraw at an unsuitable time or without an acceptable excuse, or he is liable to compensate the principal for the damage caused by his withdrawal (Article 10(1)).
Agency with no fixed term
Article 9, as amended in 1998, deals with agencies of unspecified duration. The competent committee, formed by a decision of the Minister of Commerce, may strike off the registration by agreement between the parties, or where one party asks to end it despite the opposition of the other, and the injured party may claim compensation for the damage suffered. In addition, the agent, despite any contrary agreement, may claim compensation if his activity led to an apparent success in promoting the principal's products or an increase in customers, and the principal's ending of the contract prevented him from earning the profit or commission from that success (Article 9(2)).
Changing the agent
Article 22 governs a change of agent. The agent to whom the agency passes must buy from the first agent the goods covered by the agency that he has in stock, if they are fit for use, at the lower of their market price and cost, plus a maximum of five percent of that price or cost, unless the parties agree otherwise. The new agent and the principal are jointly liable for all the undertakings arising from the agency contract that the first agent gave to third parties, within the limit of the price of the goods or the market price of the service. A principal planning a change of agent should therefore budget for the stock purchase and plan how third-party commitments will be handled.
Article 24 requires the agent, or his lawful representative or the company manager, to apply to strike off the registration within one month of termination or expiry. If the agent dies, or the business through which he operates is sold or merged, the agency continues valid against the principal if the heirs, the buyer or the merging company accept its continuation, in which case they bear the obligations of the original agent. Subject to Article 9, the agency then continues if it has no fixed term; if it has a fixed term, it ends when the term ends (Article 24(c)). Article 25 deals with the principal's side: if the principal company is sold or merged and the buyer or the merging company does not accept the continuation of the agency, the agent may claim compensation for the damage caused by the discontinuation, from the buyer, the merging company or the new agent, subject to Article 22.
Goods, services and disputes
Article 23 requires agents to provide consumers with spare parts and necessary and sufficient tools for cars, engines, machines and equipment, and all the guarantees the original producers and suppliers give for the goods covered by the agency. A violation of this article is punished by a fine of between BD 500 and BD 1,000, and a repeated violation within three years may also lead to closure of the premises or the section used for the agency (Article 26). Article 27 imposes fines of up to BD 500 for knowingly giving incorrect information to the department or failing to notify it of any amendment to the agency's details, for describing oneself as the agent of a company without being registered, and for an agent who knowingly continues to practice after a condition of registration under Article 14 is lost.
Court actions, arbitration and similar proceedings do not stop goods or funds from entering the country or services from continuing under the agency, but the Minister of Commerce may prevent their entry or continuation if the public interest requires (Article 12, as amended). Where a dispute arising from an agency contract is referred to arbitration, the arbitral award is final (Article 30).
What we review before you sign or end an agency
Before signing, we check who the counterparty is and whether it meets the ownership and nationality conditions of Article 14, whether the contract contains the items required by Article 3, whether the agent is directly linked to the principal as Article 15 requires, and how the arbitration clause and the final-award rule of Article 30 will operate. Before ending an agency, we check whether it has a fixed term, the compensation exposure under Articles 8 and 9, the stock purchase and third-party liabilities under Article 22, and the striking-off steps in Article 24. We provide this service from our office in Kuwait, in cooperation with our partners in Bahrain. Because the consolidated text we rely on is a published compilation of the Decree and its amendments, we confirm against the Official Gazette that no later amendment affects the point before we advise.
Read also: UAE Agency and Distribution Contracts: Law 3 of 2022 Guide | Entering Bahrain: Company Forms and Foreign Ownership Guide
Frequently asked questions
Does an agency need to be registered in Bahrain?
Yes. An agency that is not registered is not recognized, and no claim concerning it is heard (Article 13).
Can a foreign company be the agent?
Generally no. A natural person must be Bahraini, and a company must have at least 51 percent Bahraini ownership and its head office in Bahrain (Article 14).
Is the agent entitled to compensation if the agency is not renewed?
Possibly. Despite any contrary agreement, the agent may claim compensation if his activity led to an apparent success in promoting the products or increasing customers and the refusal to renew prevented him from earning the profit of that success (Article 8(4)).
Can the principal appoint a new agent in the middle of a fixed term?
Not without the consent of both parties to strike off or transfer the registration (Article 8(2)). If the agency is withdrawn before its term ends, the agent may claim compensation (Article 8(3)).
What happens to the old agent's stock when the agent changes?
The new agent must buy the usable goods covered by the agency at the lower of market price and cost, plus a maximum of five percent, unless the parties agree otherwise (Article 22).
Do you help with agency and distribution contracts in Bahrain?
Yes. From our office in Kuwait, in cooperation with our partners in Bahrain, we draft, review and advise on agency and distribution contracts.