Commercial Agency Contracts in Lebanon

In Lebanon, commercial agency contracts are regulated under the Legislative-Decree no 34/1967 and its amendments.

Difference between commercial representative and broker: 

The commercial representative is entrusted with carrying out legal acts, which may be accompanied by material acts, whereas the broker’s role is limited to performing material acts aimed to conclude the transaction.

The commercial representative carries out his activities on a continuous and regular basis, the broker however, intervenes to conclude a specific agreement or transaction

The broker, unlike the commercial representative, does not intervene in the conclusion of an agreement nor on behalf of the principal nor on his own behalf. 

Difference between commercial representative and the distributor:

The commercial representative acts in the name and on behalf of the principal, whereas the distributor acts in his own name and for his own account.

Difference between commercial representative agreement and franchise agreement.

The commercial representative agreement is regulated under Lebanese law, whereas there is still to this day no regulation in Lebanon for franchise agreements.

The commercial representative:

A commercial representative can be a natural person or a legal entity.

Natural person: conditions for acquiring this status:

The person must be Lebanese and must have a commercial establishment in Lebanon. 

Legal entity: conditions for acquiring this status:

In partnership companies and limited liability nationals:

The majority of partners must be Lebanese and the majority of the capital must be held by Lebanese nationals and the authorized signatory must be Lebanese.

In joint stock companies:

Its shares must be nominal shares, the majority of the capital should be held by Lebanese nationals and the third of the board of directors, the general director and the individual in charge of the management, must be all Lebanese nationals.

The Contract:

It may be deduced from Article 2 of the Legislative-Decree 34/67 that all the commercial representative contracts concluded after the promulgation of this Legislative-Decree must be in writing (WRITTEN DOCUMENT) and can be for a limited or unlimited duration.

Furthermore, it is not necessary for the exclusivity clause to be written with clear words on the contract as it could be deduced by the way parties are executing the contract’s clauses.

We should clarify first that for the validity of such contracts, the legal capacities of parties are mandatory, additionally and as deduced from the first article of the Legislative-Decree, a foreign person cannot work in Lebanon as a commercial representative as this is a position dedicated only to a Lebanese national. Also, the commercial representative contract, like any agreement, must be free from all defect of consent for it to be valid and not null and must contain a clear subject.

Finally, a commercial representative contract will not have any effect against third parties until its registration in the Commercial Register (article 2).

Exclusivity should be stipulated in the contract: the principal can grant the commercial representative an exclusive right on a specific territory. If this principal grants another person the right to represent him within the same area covered by the exclusivity clause, the principal will be held accountable as the contract will be considered null and the commercial representative may ask for indemnity.

The commercial representative has a non-competition obligation:

Application of this obligation in the absence of a non-competitive clause:

The commercial representative has the right to accept to represent other clients but with a clear condition: the subject of the new representation should not compete with the previous one.

The conditions for the existence of a COMPETITION:

• The principal must prove that the new representation activity is competing with his current activity.
• The principal must not be aware of this existing competition and must not have shown any form of acceptance: express or implied, like letting this issue slide for a period of time without disputing or contesting it.

Application of this obligation with the presence of a non-competitive clause:

Although the Legislative-Decree 34/67 didn’t expressly mention the possibility of inserting such clause in the agreement, this clause can be added to the latter.

In order to know the conditions for its validity we must return to the law of obligations and contracts.

According to the article 83, for the validity of a non-competitive clause, it should be limited in time or space, and should specify the activity that shouldn’t be executed by the party required to observe this clause. 

Application of this obligation after the termination of the contract

If the commercial representative agreement doesn’t include an express clause stating that the agent cannot compete with the principle even after the resolution of the contract, then the agent shall have all the rights to do so.

The fifth article of the Legislative-Decree 34/67 stipulates that despite any agreement to the contrary, the court of the place where the commercial representative executes his activities is competent for deciding any related conflict.

As for the possibility to include an arbitration clause, multiple opinions regarding this matter arise; that’s why we must differentiate between two distinct cases:

Resolving dispute through arbitration according to local laws:

There are two opinions:

• A first opinion suggests, that due to the express wording of the fifth article of the Legislative-Decree 34/67, parties cannot choose to submit their dispute to arbitration nor to any court other than Lebanese national courts.
• Asecond opinion suggests, that parties cannot choose which court could be qualified to observe their dispute according to the express wording of article 5, however, they can choose to resolve any eventual future dispute between them by arbitration because there is not an article in the Legislative-Decree that prohibits expressly the possibility of resorting to arbitration. 

Resolving dispute through arbitration according to international conventions.

The recent jurisprudence tends toward rejecting the implementation of arbitration clauses, because article 5 is of public order, which means, despite any agreement between the parties aiming to solve their dispute according to international conventions, the court of the place where the commercial representative is executing his activities remains the only qualified court. However, in some cases, the courts have accepted the recourse to arbitration where there is a bilateral or multilateral treaty which allows arbitration since they supersede national laws.

Additionally, parties can, after a dispute has arisen, submit this dispute to arbitration.

As stated in the second article of the Legislative-Decree 34/67, an agency agreement can be concluded for a limited or unlimited term. If the contract is set for a limited term, the contract ends upon the expiry of its term. Additionally, the fixed-term contract is tacitly renewed if the parties decide to continue executing the contract.

Causes of termination of commercial representative agreement:

The commercial representation agreement could end if one of the following occur:

1. Violation of the non-compete obligation: In this case, the principal has all the rights to ask for the annulation of the agreement.
2. Replacement of the commercial representative: The commercial representative contract is a contract where the identity and personal qualities of the commercial representative are important and are the main reason why the principal decides to choose him/her to hold this role (intuitue personae), therefore, any replacement of the commercial representative is a legitimate reason for the principal to ask for the annulation of the agreement.
3. Force majeure: force majeure is a legitimate reason, to end the agency agreement.
4. Bankruptcy: the bankruptcy of the commercial representative constitutes a legitimate reason for the principal to ask for the termination of the agreement.
5. Decline in the business activity: the principal is authorized to terminate a commercial representative agreement without the possibility for the agent to ask for indemnity, if the Decline in the business activity happened because of the agent’s fault (examples of neglect : not visiting customers with whom business relations are established , not attending and participating in trade exhibitions… ), this termination happened if  the principal provided some opposition regarding this matter and notified the agent throughout the duration of the commercial representative agreement.
6. Failure to provide the necessary means for the execution of the agreement: if the principal fails to provide the means that are mandatory for the agent in order to work efficiently and execute the agreement (for example: assisting the agent with technical and commercial help/assistance , providing him with every document or element that could be necessary for him/her….), then the commercial representative has all the rights to end the agreement and to seek indemnity.
7. Failure to respect the “exclusivity” of the commercial representative agreement: as stated above, if the principal fails to respect this obligation, the agent can end the agreement and seek indemnity.

Parties can conclude a “target” clause, where the commercial representative undertakes to achieve a specific result regarding the volume of purchases or sales. Such clause is considered valid and is not contrary to public order. And the failure to execute such clause could be used by the principal as a valid reason to end the commercial representative agreement.

Based on the fourth article of the Legislative-Decree 34/67, the commercial representative can, and despite any contrary agreement, ask for indemnity if the termination of the contract occurred without cause.

Additionally, the commercial representative has the right, even if the contract has expired, and despite any contrary agreement, to ask for indemnity if his activity results in a marketing success for the principal’s brand or result to a rise of the client number but the principal didn’t agree to renew the agreement.

The compensation resulting from the annulment and termination of the commercial representative contract is calculated based on the damage or loss incurred by the party, as well as the profit loss.

The judge appoints an expert in order to asses all the aspects of the compensation. And the “commercial books” could be used to help calculate such compensation.

Finally, it is worth mentioning, that the fourth article of the Legislative-Decree is of public order, therefore, any prior contrary agreement, or any prior waiver of indemnity, is considered null and void. 

However, If the termination was carried out by mutual consent, the parties cannot ask for any indemnity.

Pursuant to article /1010/ of the Lebanese code of civil Procedures (CPC), any foreign title must first be recognized through an exequatur proceeding before initiating enforcement measures in Lebanon. 

The requirement for a recognition of a foreign judgement in Lebanon:

• The judgement must be issued by a competent court under the laws of the issuing country.
• The judgment must be final and enforceable in the country where it was issued.
• The defendant must have been properly notified of the proceedings and given the opportunity to defend himself.
• The judgment must be issued by a state that permits enforcement of Lebanese judgements on its territory.
• The judgement must not violate Lebanese public order.

Recognition of an arbitral order issued abroad

An international arbitral award arises from disputes related to international commercial matters.

• Recognition and enforcement in Lebanon require:
  • A proof of the existence of the award.
  • That the award is not clearly contrary to national or international public order.

• To satisfy these conditions, the claimant must submit:
• The original arbitral award and the arbitration agreement, or certified true copies of both, authenticated by the arbitrators or the competent authority.
• A certified translation of all documents if they are in a foreign language, in accordance with Lebanese law.

And finally, we must clarify that refusal to grant exequatur may be appealed in the following limited cases:

• The award was issued without a valid arbitration agreement or based on an expired agreement.
• The arbitrations were not appointed in accordance with legal procedures.
• The award was rendered after the expiration of the arbitrator’s mandate.
• The parties’ right to a defence was not respected.
• The award issued violates Lebanese public order.