17 May The problem of commercial agents abroad and their non-compliant behavior

It is a recurrent matter in our office the conflicts related to the activity of commercial agency, both on behalf of the company and the agent, and a key aspect in this type of cases is the determination of possible breaches of obligations, either legally or contractually Established by the agent as provided in the Agency Contract Law.

The starting point is that the agency contract is a contract based on trust, so that either party can resolve it without alleging any reason, and must respect that if the notice periods determined in the law. But this denunciation or termination of the contract by unilateral will of one of the parties gives place, when the company that realizes it, to the accrual of the corresponding indemnifications, especially the compensation for the contributed clientele that can continue producing benefits for the company .

This is where the breach of the agent takes on importance, since if it exists the right of the agent to these indemnities disappears. It is vital therefore not only to be clear about the existence of non-compliance but also to have the evidence that proves it in a hypothetical judicial procedure. Jurisprudence relating to the precepts of the Law that regulate this matter lead to a clear conclusion, the prior breach of the agent’s legal or contractual obligations are the cause most often invoked in the courts by employers to avoid payment of indemnities for customers, damages and unamortized investments, all of them very large damages and for which there are no automatic criteria for their calculation.

This evidence of non-compliance, which is no longer straightforward, is very difficult to accredit in the actions of commercial agents abroad, since, as a general rule, they correspond to a first degree of implementation of the company in the country, not counting the same with more personnel or sources of information in the said territory. In Navarro Llima Abogados S.L. We have had to solve this type of situation in countries like Portugal, Japan, Mozambique or Singapore, being really aware of the need for a thorough preliminary preparation that can ensure the success of the contractual resolution at no cost to the company.

Once this evidence is sufficiently obtained, the resolution of the contract must be notified to the agent, alleging that the resolution brings cause of the previous breach with an express mention and a detailed description of the non-compliant conduct of the same, since by general rule, the courts do not enter to analyze breaches which were not alleged by the employer at the time of notification of the contractual resolution.

That is why what may seem a simple communication of resolution of the relationship between businessman and agent requires a detailed advice on the context that leads to the breakdown and preparation of all stages of the process, including potential judicial proceedings. As always, to start well the path of rupture will avoid major problems.

From a technical point of view (always under Spanish law) when talking about the termination of the agency contract for cause imputable to the agent or the employer, we must abide by the provisions of the Civil Code regarding the resolution of reciprocal obligations. It must be an essential breach, that is, not any breach is sufficient, even if sometimes the breached obligation was provided for in the contract. Failure to comply shall be based on the principal and essential obligations, not on ancillary or other obligations.

In order for the agent to be deprived of his right to receive compensation for clients, it is therefore necessary that an essential breach be made of the fact that the agent is performing his activity in a defective and negligent manner or in breach of basic obligations. In any case they must be subjective defaults attributable to the agent and not that they are determined by external causes, as for example they have determined in some occasion the courts for not reaching the minima of sales in a moment of crisis punctual of the market in question.

We can point, by way of example, following the doctrine and jurisprudence, as non-compliant conduct of the agent that exempts the employer from paying legal damages the following:

● The submission of inaccurate reports regarding the agent’s own work, contract expectations or future operations …

● Do not carry out the proper commercial work, promotion, diffusion, concertation of operations with due diligence (and in particular not reaching the agreed minimum sales, although the obligation as a rule is media rather than result).

● Non-compliance with the exclusivity clause.

● Failure to comply with the territoriality clause, ie to operate outside the territory assigned in the contract.

● Failure to comply with the competition clauses or exercise, without the consent of the employer, a professional activity related to concurrent or competitive goods or services.

● Perform denigratory acts that damage the business image of the employer.

● Vulnerate the duty of confidentiality and secrecy.

● Approve the amounts collected or delay the transmission of these amounts to the employer, to simulate non-existent orders.

● Do not carry out due diligence on the personnel at your service or subagents.

● Do not pay invoices and expenses to which the agent has committed, such as advertising expenses.

● Infringement of the prohibition of selling to term to a determined customer by determining a default of the same.

As we have discussed, the casuistry of disputes concerning commercial agency contracts is very broad and requires very extensive advice, preparation and prior planning, which must be started at the first sign that may generate mistrust.

If you find yourself in these circumstances, do not hesitate to come and ask us about your situation. With Navarro Llima Abogados S.L. will have expert advice and defense for the satisfactory resolution of your case, however complicated it may seem at first glance.

Guillermo Martínez – Jaime J. Navarro

Attorneys at Law

Bibliography: Jiménez Mancha, Juan Carlos, Compensation arising from the termination of the agency agreement. Jurisprudential and critical analysis, (Pág. 814 y 815)