When conducting business in Trinidad & Tobago, it is worthwhile to foreign investors to understand the prohibitions against anti-competitive behaviour in Trinidad and Tobago.
Unfair competition may arise through the dumping of goods into the local market, or through unfair competitive practices conducted by dominant business enterprises or by anti-competitive agreements.
Legislation has been introduced to afford a remedy to local manufacturers who face unfair competition in the form of (1) imports of dumped or subsidized goods where the local manufacturer suffers material injury caused by such imports; and (2) anti-competitive practices.
Fair Trading legislation has also recently been introduced to promote and maintain effective competition. Companies considering a merger transaction should seek guidance to determine whether the transaction would be captured under the new legislation, and if so, how to comply.
In this Chapter, Fanta Punch, Partner in Hamel-Smith’s Dispute & Risk Management Department presents an overview of the legislative controls and restrictions on unfair competition.
A typical sales agency agreement would describe the extent of the agent’s field of operations and the extent to which the principal accepts limitations on its freedom of action thereby permitting the agent the opportunity to exploit the markets. Such limitation would, however, be subject to the right to withdraw exclusivity in certain circumstances, for instance, if sales targets are not achieved. The division of responsibilities between principal and agent presents a wide range of possibilities and requires skilful negotiation.
The provisions in a Sales Agency Agreement regarding payments of the agent’s commission and accounting between the parties should be drawn to minimise their tax liabilities including the expenses of VAT and to take advantage of applicable double taxation treaties.
The form and content of this agreement will be similar to the Sales Agency Agreement. However, in the Marketing Agency Agreement, no authority is vested in the agent to contract on behalf of the principal and therefore his function stops short of signing contracts and accepting orders.In an appropriately drawn Marketing Agency Agreement, an overseas supplier will not be deemed to be trading within Trinidad and Tobago with the consequence that he incurs no liability to Trinidad and Tobago tax on sales of the product.
In an appropriately drawn Marketing Agency Agreement, an overseas supplier will not be deemed to be trading within Trinidad and Tobago with the consequence that he incurs no liability to Trinidad and Tobago tax on sales of the product. Consequently, it is important that the structure of the relationship be arranged in such a way as to minimise the tax liability.
The Registration of Local Agents of Foreign Governments or Foreign Enterprises Act, Ch. 19:08. requires an agent carrying on business on behalf of a foreign government or a foreign enterprise to ensure that the contract is in writing, is subject to the laws of Trinidad and Tobago, and that a copy is lodged with the Board of Inland Revenue (BIR). In addition, the Agent must register with the Registrar General. The Agent must also make a declaration that there is no other contract between the parties, and this declaration is also lodged with the BIR. Where there is no written contract or where the contract is not subject to the laws of Trinidad and Tobago, the penalty on summary conviction is a fine of TT$20,000 and imprisonment for five (5) years. This law does not appear to be enforced by the BIR.
In appointing a distributor, the terms dealing with the extent of the territory of the distributor, the extent of his protection from competition from products supplied by the manufacturer to others, and the limits on the distributor’s freedom to supply outside the specified territory will be the essence of the distributorship agreement. The supplier normally uses a distributor when it wants to enter into a new market with which it is unfamiliar. The terms of the agreement may also specifically address minimum sales targets, passing of risk, training, and familiarization of the distributor with the product, after sales maintenance service (depending on the product), termination of the agreement and consequences of termination, for example, disposal of stock upon termination.
In the absence of specific terms addressing termination, a term which is usually implied is the one requiring the provision of reasonable notice of termination in accordance with public policy considerations regarding restraint of trade and the unfair contract terms provisions. This is however based on common law principles of contract because the Unfair Contract Terms Act, presently in force, does not address the issue.
It is common, though not essential, that the distributor holds stocks of the products. In the absence of a provision addressing the disposal of stock on termination whilst the distributor will not be entitled to any specific compensation, he may generally be entitled, under common law principles, to any stock ordered and paid for prior to termination but not yet received. The distributor may even be able to claim for a reimbursement from the manufacturer in lieu of any stock ordered.
The same principles regarding taxation apply to a Distributorship Agreement as for a Marketing Agency Agreement, and therefore the agreement and the relationships should be so structured as to minimize the tax liabilities of the parties.
There are an increasing number of franchises in Trinidad and Tobago. Franchise agreements generally entitle the franchisor to exercise continuing control over the way in which the franchisee carries on the franchise business, and will usually oblige the franchisor to provide the franchisee with advice on such matters as location, training, advertising, sources of supply for products and equipment, negotiation with suppliers and financial management. In consideration of the rights so granted and the continuing advice and support given, the franchisee agrees to pay to the franchisor a continuing royalty on gross sales and often agrees to purchase products and services exclusively from the franchisor. The Franchise agreement will also grant to the franchisee certain rights of use with respect to the Franchisor’s trademarks and/or business names. In certain Franchise agreements, the Franchisee is also charged with the responsibility of registering the Franchisor’s trademarks, logos and business names in the territory where the franchise is being operated.
As an alternative to direct franchising, the proprietor of a franchise system may by means of a Master Licence delegate responsibility of recruiting, appointing and supervising franchisees to a master franchisee in Trinidad and Tobago.
Generally, royalty payments payable to non-resident franchisors will be subject to withholding tax. The rates are based on the country of residence of the franchisor and the applicable double taxation treaty (if any) between Trinidad and Tobago and that country. If there is no treaty, the statutory rate of withholding tax applies. The current rate is 15%.
An important consideration that should be addressed by every prospective investor is the issue of the ownership and control of intellectual property rights that may be associated with the proposed business activity. This issue should encompass the legal and regulatory regime relative to trademarks, service marks, patents, copyrights and trade secrets. For further details about the intellectual property regime in Trinidad and Tobago, see the chapter entitled Intellectual Property.
In drafting agency, distributorship, licensing and franchise agreements, the common law doctrine prohibiting covenants in restraint of trade should be borne in mind. Under this doctrine, such covenants are prima facie unenforceable at common law as being in breach of public policy and enforceable only if they are reasonable with reference to the parties concerned and not injurious to the public interest.
If covenants are drafted in a manner that permits severance by the Courts, the offending clauses will be struck out and the remainder of the contract enforced by the Courts. The Unfair Contract Terms Act prevents a party from imposing on a consumer a clause which excludes liability from negligence on its part unless the term is justified as being reasonable in the circumstances. It also prevents parties from choosing the laws of another jurisdiction as the governing law of a contract, if the sole reason for doing such is to avoid the provisions of the Unfair Contract Terms Act.