Kuwait Court of Cassation principle number 560

Summary: - Income tax on foreign companies acting as principals on their own behalf or as agents for others. The condition for its being due. Their conducting business, trade or activity in the State of Kuwait directly or through an agent. Meaning of 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 governing commercial agency, including their regulation of contract agency. Their application to distribution contracts. Its condition: inclusion of a clause granting exclusivity to the distributor. Articles 271 to 278 of the Commercial Code. - Interpretation of contracts. Its requirements. No regard is to be had to what a particular contractual phrase means in isolation from the remaining phrases. The meaning conveyed by all the phrases must be adopted, treating them as an interconnected and cohesive whole, to ascertain the true intention behind it. Example. Rule: It is established that the provision in Article 1 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 incorporated,” and the provision in Article 2, 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, if such agent is a body corporate, and also any body corporate conducting business or trade in Kuwait in its capacity as agent for others), 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 provided for in Article (1) of this Law, or to conclude a binding agreement with a third party on behalf of his principal, for his account and within the authority conferred upon him, such that the profits of a Kuwaiti merchant arising from his sale of goods he had purchased and transported for his own account shall not be subject to this tax,” indicate that, for tax to be due from a foreign company, acting as principal on its own behalf or as agent for others, it must conduct business, trade or activity in the State of Kuwait directly or through an agent. An agent in this regard means the person authorized by the principal company to conduct business or trade or any activities, or to conclude binding agreements with a third party on behalf of and for the account of the principal. 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 the jurisprudence of this Court that, in Articles 271 to 286 of the Commercial Code, the legislature regulated the provisions of commercial agency relating to contract agency and distribution contracts, and provided in the last article that “A distribution contract under which a merchant undertakes to promote and distribute the products of an industrial or commercial establishment in a specified area, provided that he is its sole distributor, shall be treated as contract agency and shall be subject to Articles 275, 281, 283, 284 and 285.” This means that the provisions governing commercial agency, including 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 another person in the area assigned 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 Law. Consequently, this rule applies to distribution contracts as it applies to contract agency contracts. It is also settled in the jurisprudence of this Court that interpretation of contracts requires that no regard be had to what a particular contractual phrase means in isolation from other phrases; rather, the meaning conveyed by all the phrases must be adopted, treating them as an interconnected, cohesive whole, in order to ascertain the true intention behind it. That being so, and it being 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 set out 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 within the distribution area in Kuwait City as its two agents, the effects of all their distribution of its goods and products accrue to the company. It is therefore obliged to pay the tax claimed. This is not affected by what appears in clause 16 of the first agreement and clause 15 of the established agreement, that the two respondents are not considered its agents, since, as stated above, the contractual terms taken together establish the existence of that agency. Since the challenged judgment departed from this and ruled to uphold the first-instance judgment, which departed from the foregoing view, it is defective for unsound reasoning leading to an error in the application of the law, requiring its cassation on this ground without any need to address the remaining grounds of challenge. As to the merits of the appeal, it is ready for determination. In view of the foregoing, and since the appellant’s claims in his capacity in the statement of appeal seek to set aside the appealed judgment, which rejected the claim to compel the two respondents in their capacities to pay the tax imposed on the foreign Maytag company as its two agents and the distributors of its products in Kuwait City, the Court, adopting its foregoing conclusion, grants his claim. Since the appealed judgment departed from this view, it must be set aside and a fresh judgment issued obliging the two respondents, under concurrent liability between them, to pay the amount claimed in the manner stated in the operative part, and obliging them to pay the costs of both instances, including lawyers’ fees.