Exclusive Distribution in Kuwait: What a Principal Can Still Promise, and Where the Competition Law Steps In

Since Law No. 13 of 2016 on the Regulation of Commercial Agencies came into force in March 2016, an "exclusive distributor" clause in a Kuwaiti agency or distribution contract no longer delivers what most foreign principals expect. Article 4 of that law states that the import or supply of any goods or product is not confined to its agent or distributor, even if the agency is exclusive and even if the contract includes the right to use the trademark. Law No. 72 of 2020 on the Protection of Competition, in force since November 2020, then added a second layer. Article 7 prohibits any agreement or coordinated practice between parties in a vertical relationship (for example a supplier and its distributor) that restricts, limits or prevents competition.

Why this matters

Contracts drafted on the older, protected model are still in circulation, reciting that the local partner is the "sole and exclusive" distributor for Kuwait. Under Article 4 the clause does not stop a third party that meets the law's conditions from importing the same goods. And when the parties try to rebuild exclusivity through the back door, using territorial bans, customer allocation, minimum resale prices or a refusal to supply, they move from an ineffective clause to conduct the Competition Protection Agency (CPA) can investigate. The headline sanction, a fine of up to 10 per cent of annual revenue under Article 34(1), was struck down by the Constitutional Court in February 2025 (Direct Constitutional Challenge No. 4 of 2023) as disproportionate, and the CPA's amending draft has not yet been gazetted. What remains still bites: Article 28 lets the CPA Board order the practice stopped and the position corrected within a set period, its inspectors have judicial-police powers under Article 26, and injured competitors and parallel importers can claim damages.

What the Agency Law gives, and what it keeps

Law No. 13 of 2016 was written to open the market. Article 2 allows a principal to appoint more than one agent or distributor, while keeping the rule that agents must be Kuwaiti nationals or companies with at least 51 per cent Kuwaiti ownership. Article 4 opens the door to parallel imports, provided the goods meet the international and GCC standards adopted in Kuwait and the manufacturer's warranty terms. Article 5 even obliges the registered agent to service parallel-imported goods of the same type, spare parts included, on its usual warranty terms and prices, where the manufacturer or principal has agreed to warrant them.

What the law did not remove is the agent's protection on exit. Article 9 provides that a principal may not terminate the contract without a breach by the agent; otherwise the principal must compensate the agent, and any agreement to the contrary is void. The Commercial Code (Decree-Law No. 68 of 1980) adds Article 281, which requires compensation for termination without cause, and Article 282, which gives the agent fair compensation, set by the court, where a fixed-term contract is not renewed on expiry, regardless of what the contract says, as long as the agent has not been at fault. The Commercial Code route runs through Article 286, which extends these protections to a distribution contract only where the trader is the sole distributor; with statutory exclusivity gone, that condition now turns on what the principal has actually done in the market, one more reason Article 9 of the Agency Law is the provision that matters.

Where the Competition Law steps in

Article 5 of the Competition Law lists the hardcore horizontal restraints between competitors at the same level: price fixing, market sharing, output limits and bid rigging. Article 7 addresses vertical relationships and is drafted as a general standard: any agreement or coordinated practice between a supplier and its distributor that restricts competition is prohibited, with the CPA Board empowered to set the criteria. Article 8 prohibits abuse of a dominant position, which matters where a principal's brand controls the relevant market and it refuses supply to parallel importers or dictates resale prices.

Article 9 of the Competition Law allows the CPA Board, on prior notification, to authorise an arrangement that would otherwise restrict competition where it improves efficiency or distribution and delivers clear consumer benefits that outweigh the restriction. A selective distribution system for technical or luxury goods, with objective dealer criteria, can be built to meet this test.

The tension nobody has resolved

The Agency Law abolished exclusivity to let competition in, but it kept compensation rules that make it costly to end or not renew an existing relationship. A principal may freely add a second distributor under Article 2, but replacing an underperforming one runs into Article 9 of the Agency Law and Articles 281 and 282 of the Commercial Code. The result is a market in which incumbent distributors are protected less by exclusivity than by the cost of removing them. Neither the legislature nor the CPA has addressed this interaction, and until one of them does, the compensation rules remain the real constraint in most disputes we see.

WEFAQ's view

WEFAQ advises principals to stop drafting around exclusivity and start drafting around performance. Article 3 of the Agency Law already requires the contract to state the territory, the term, the renewal mechanism and the method of termination; those clauses decide a dispute, not the word "exclusive". Measurable performance obligations, a documented cure process before termination, and a clear renewal mechanism give a principal a basis for termination for cause under Article 9 and reduce the exposure under Articles 281 and 282. Where a principal wants a controlled network, the route is a selective system justified on efficiency grounds notified to the CPA under Article 9 of the Competition Law where the restriction is significant, rather than hidden. For distributors the analysis runs in reverse: the value of a Kuwaiti distribution contract lies in registration under Article 6, term and the statutory protection on exit, and each should be secured in writing and on the register.

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Source: Law No. 13 of 2016 on the Regulation of Commercial Agencies (Articles 2 to 10 and 20); Commercial Code issued by Decree-Law No. 68 of 1980 (Articles 281 and 282); Law No. 72 of 2020 on the Protection of Competition (Articles 5 to 9, 26, 28, 34 and 35); Competition Protection Agency Decision No. 14 of 2021 (Executive Regulations); Constitutional Court judgment in Direct Constitutional Challenge No. 4 of 2023 (February 2025) on Article 34(1).

This article is provided for general information only and does not constitute legal advice. For advice specific to your circumstances, please contact WEFAQ Law Firm.