The commercial agent contract in UE : what you need to know

Introduction

The international commercial agency contract is one of the most frequent forms of company presence in foreign markets. This formula has the advantage of making the cost of representation essentially proportional to the sales made, since it is made up of the commissions paid to the agent. As long as it is engaged in international trade, each company must have a distribution network abroad, so most exporters, at whatever scale, encounter the need to develop International Commercial Agency Contracts in several languages.

The aim of this article is to provide simple tips of this type of contract.

Legal framework

Many countries have enacted a statute for commercial agents including protective provisions, considering them in a situation of relative weakness vis-à-vis the company that recruits them. For commercial agency contracts, there is no uniform regulation at international level (unlike, for example, the subject matter of international sales contracts). As a result, the parties must refer to national legislation which, one part, do not take into account the specific needs of international trade (insofar as they were adopted above all for internal contracts) and which, on the other hand, present significant differences from one State to another

Community harmonization

In order to promote the freedom of establishment for agents and to limit the distortions of competition that would be created by different statutes, the European Union promulgated in 1986 a directive « relating to the coordination of the rights of the Member States concerning independent commercial agents ». This Directive provides that « the commercial agent is the person who, in being to conclude these operations in the name and on behalf of another person as an independent intermediary, is permanently responsible for either negotiating the sale or the purchase of goods for another person, referred to as the principal.

Agent obligations

The Directive specifies that the commercial agent must, in the exercise of his activities, protect the interests of the commentator and act loyally and in good faith. In particular, he must do his best to negotiate and, where applicable, conclude the transactions for which he is responsible; communicate to the principal any necessary information available to him; comply with reasonable instructions given by the principal. This obligation of loyalty prevents, for example, the multicard agent from accepting a mandate from a competing company, and prohibits him from prospecting outside his territory or the clientele entrusted to him.

Obligations of means (presence at trade fairs) and results (sales quotas) may also be imposed on the agent. In return, he often benefits from exclusive sales, either on a given geographical territory or for a defined clientele.

The principal’s obligations

The Directive specifies that in his relations with the commercial agent, the principal must act loyally and in good faith. In particular, he must make available to the commercial agent the necessary documentation relating to the goods concerned, provide the commercial agent with the information necessary for the performance of the commercial agency contract, in particular notify the commercial agent within a reasonable time as soon as he foresees that the volume of commercial transactions will be significantly lower than that which the commercial agent could normally have expected. Nevertheless. The main obligations specified by the directive relate to commissions and customer duties.

Commissions

The commission is of course due to the agent on the transactions that go through his intermediary, but the directive also gives him this right on sales to his exclusive territory (or the customers entrusted to him) even if he does not take part in the operation. It is generally provided that the commissions will be paid to the agent after the exporter has received payment from the client (sometimes referred to as a « performance clause ») but, in order to protect the agent, the directive specifies that « the commission is acquired at the latest when the third party has executed its part of the operation”. In other words, the commission becomes payable if the non-payment is attributable to the principal (delay in delivery, non-compliance, etc.), but the right to commission disappears if the non-performance is not attributable to him (force majeure, execution at fault by the client, etc.).

Contract termination

Whether the contract is for a fixed or indefinite period, the directive enshrines a right to compensation in favor of the agent, if the latter has developed the clientele or the sales. This compensation must consider the possible existence of a non-competition clause. Its amount may not, however, exceed one year of commission, calculated on the average remuneration paid to the agent over the last five years, or on the average of the period, if the contract is less than five years old. The end of the representation contract is generally accompanied by a non-competition clause, intended to prevent the agent from exploiting the same clientele for the benefit of a competitor.

Conclusion

Whatever the size of your company, I recommand to ask for a lawyer specializing in business contracts, and not act only with your sales teams. Indeed, even if the amounts of business involved are limited at the start with your agent, you are not immune to having to negotiate higher amounts later.