Kuwait Court of Cassation principle number 347

Summary: - Income tax on foreign companies acting as principals for themselves or as agents for others. The condition for its becoming payable. Their conducting business, trade, or activity in the State of Kuwait directly or through an agent. What is meant by an agent. Agency in this form is considered ordinary agency based on the concept of representation. Articles 1 and 2/e, f of Decree No. 3 of 1955 concerning Income Tax. - The provisions on commercial agency and their regulation of contract agency. Their application to a distribution contract. Its condition: inclusion of a clause granting exclusivity to the distributor. Articles 271 to 278 of the Commercial Code. - Interpretation of contracts. Its requirement. No regard is to be had to what a particular phrase in the contract means in isolation from the remaining phrases. The meaning of all the phrases must be considered as an interconnected and cohesive whole to ascertain its true intent. An example. Rule: It is established that the provision in Article One of Decree No. 3 of 1955, as amended, concerning Kuwaiti Income Tax that “An annual income tax shall be imposed on the income of every body corporate conducting business or trade, in respect of its activity in the State of Kuwait, wherever it is incorporated,” and the provision in Article Two, paragraph (e), of the said Law that “The expression ‘body corporate,’ wherever incorporated, conducting business or trade in Kuwait, includes any body corporate conducting business or trade in Kuwait, whether directly or through an agent where such agent is a body corporate, and also any body corporate conducting business or trade in Kuwait in its capacity as an agent for another,” and in paragraph (f) that “The agent referred to in paragraph (e) is the person authorized by his principal to conduct business or trade or any of the activities stipulated in Article (1) of this Law, or to conclude a binding agreement with a third party on behalf of his principal and for his account and within the authority conferred upon him, such that the profits of a Kuwaiti trader resulting from his sale of goods which he purchased and transported for his own account shall not be subject to this tax,” indicate that a condition for tax becoming payable by a foreign company—acting as principal for itself or as agent for another—is that it conduct business, trade, or activity in the State of Kuwait directly or through an agent. The agent intended in this regard is the person authorized by the principal company to conduct business, trade, or any of the activities, or to conclude binding agreements with a third party on behalf of the principal and for its account. Agency in this form is no more than a type of ordinary agency based on the concept of representation, whereby the agent represents the principal in concluding the transaction for the latter’s account. It is also established in this Court’s jurisprudence that the legislature set out in Articles 271 to 286 of the Commercial Code the provisions on commercial agency concerning contract agency and distribution contracts, and provided in the last article that “A distribution contract under which a trader undertakes to promote and distribute the products of an industrial or commercial establishment in a particular area, provided that he is its sole distributor, shall be deemed equivalent to contract agency and shall be subject to the provisions of Articles 275, 281, 283, 284, and 285.” This means that the provisions on commercial agency and their regulation of contract agency also apply to a distribution contract if the contract includes a clause granting exclusivity to the distributor or entitling him to remuneration for transactions concluded by the principal directly or through others in the area allocated to the agent’s activity, even if those transactions were not concluded as a result of the latter’s efforts, pursuant to Articles 272 and 278 of the aforementioned Code. Accordingly, this rule applies to a distribution contract just as it applies to a contract-agency agreement. It is also settled in this Court’s jurisprudence that interpreting contracts requires that no regard be had to what a particular phrase in the contract means in isolation from the other phrases; rather, the meaning of all the phrases must be considered as an interconnected, cohesive whole to ascertain its true intent. That being so, and since it is established from all the foregoing and from examination of the clauses of the two distribution agreements concluded between the foreign Maytag company and the two respondent companies, and in accordance with what was previously explained in the ground of challenge, that the clauses of the two contracts taken together indicate that the two respondents are entrusted with distributing the foreign company’s products and represent it in the distribution area in Kuwait City as its two agents, the effects of all their distribution of its goods and products therefore accrue to the company, which is accordingly obliged to pay the tax claimed. This is not detracted from by what is stated in clause 16 of the first agreement and clause 15 of the second agreement that the two respondents are not considered its agents, since, as previously stated, the totality of the contract’s conditions indicates the existence of this agency. Since the challenged judgment departed from this and ruled to uphold the first-instance judgment, which departed from the foregoing view, it is vitiated by defective reasoning that led it to err in applying the law, requiring its cassation on this ground without any need to address the remaining grounds of appeal. As to the merits of the appeal, it is ready for determination. In view of the foregoing, and since the relief sought by the appellant in his capacity in the statement of appeal is reversal of the appealed judgment, which dismissed the request to order the two respondents in their capacities to pay the tax imposed on the foreign Maytag company as its two agents and distributors of its products in Kuwait City, the Court, adopting its foregoing conclusion, grants his request. Since the appealed judgment departed from this view, it must be reversed and a fresh judgment entered ordering the two respondents, in solidum between them, to pay the amount claimed in the manner stated in the operative part, and ordering them to pay the costs of both levels of proceedings, including attorneys’ fees.