Practical Guide to International Commercial Agency Contracts in Spain

Practical Guide

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How are agency agreements regulated in Spain?

In Spain, commercial agency agreements are regulated by the Act on Agency Agreement 12/1992 of May 27 (hereinafter “the Agency Act” or “the Act”). The Act has been adopted following the European Directive 653/86/EC, became effective on January 1, 1994, and has been modified in several occasions in 2003 and 2011.

The Act contains special rules regarding goodwill (clientele), compensation for damages, termination, previous notice, remuneration, post-contractual and non-competition covenant, obligations of the parties... in terms similar to those of the EU Directive.

Its rules are mandatory, with the exception of those expressly mentioned in it, and are applicable to all kind of independent self-employed agents when no other specific disposition applies (art. 3.1).

The Act is not applicable to agents operating in stock exchange or regulated markets (art. 3.2) and, according to the Supreme Court, the Act is applicable to insurance agency agreements only in a residual way (see also the Royal Decree-Law 3/2020 of February 4 with some rules on Insurance intermediaries).

The activity carried out by employees acting as agents is regulated by Royal Decree 1438/1985 of August 1, and these relationships are affected by labour (not commercial) law. The consequences for these agents are, therefore, different.

The question of whether an Agent is considered “commercial” or “employee” is, therefore, crucial to determine the applicable law. 

The first criterion is if the Agent accepts the risk for the operations in which he intervened. In this case, an agent will be a “commercial agent”.

But if the agent does not accept that risk (which is the most frequent situation) the second criterion consists in the determination if the agent is dependent or independent from the Principal. In the case of Agents who are entities, this question does not usually arise because companies cannot be employees (dependent agents).
But in the case of individual Agents, the question will be decided considering the higher or lower grade of independence from the Principal.

An Agent will be considered as “Commercial Agent” (and therefore submitted to the Agency Act) when he is independent, i.e. he is free to organise his activity and timetables according to his own criteria, with his own personnel and premises and his own administration. In return, an Agent will be considered a “Dependent Agent” (and submitted to labour law and particularly to the Royal Decree), when he acts according to the directions of the Principal (the Employer) who decides on the main questions of the Agent’s organization (timetable, itineraries, distribution criteria, how orders are managed…).

According to these principles, we consider quite improbable that a foreign Principal with no real possibility of having employees in Spain would appoint a dependent Agent. Therefore, any comments made in this Guide are referred to Commercial (independent) Agents and the Agency Act.

What are the differences from other intermediaries?

Agency Act does not provide a definition of “agent”. It only contains a definition of the “agency contract”. Nevertheless, according to the Act and the case law interpreting it, an agent:

  • is an individual or moral person acting as an independent intermediary not linked with a labour relationship;
  • is obliged towards a third person that we will call “the Principal”;
  • his activity consists in promoting commercial transactions on behalf of the Principal or to promote and to conclude transactions (when expressly authorised to do so) in the name of the Principal (except those transactions carried out in official or stock exchange markets);
  • does not assume, unless expressly agreed otherwise, the risk of these transactions;
  • has a relationship built on a continuative or stable basis with a determinate or indeterminate duration;
  • is acting for a remuneration that can have different forms.

From that definition we can exclude from the definition of “Agent” and, therefore, from the application of the Act, other intermediaries:

  • Occasional Intermediaries because their relationship is not built on a continuative or stable basis;
  • Employed agents because they are not “independent” from the Principal but employees (dependents);
  • Distributors, because they are acting on their behalf as independent dealers in a buyer-reseller activity;
  • Franchisees, because in this type of contractual relation there is more than just a promotion and it also regards trademarks and marketing, common image, network, services…

An Agency agreement contains the following points:

  • The appointment of the Agent, either an individual or a company, as an independent party;
  • Obligations of both parties;
  • The Principal will be obliged to grant the Agent all necessary and appropriate information to carry out the activity and to do so in a timely manner;
  • The remuneration of the Agent that could be a percentage on each transaction, a fixed amount or a combination of both;
  • Duration of the agreement that can be determinate or indefinite;
  • The necessary previous notice for the termination of the agreement with an indefinite duration;
  • Goodwill (clientele) indemnity. If foreseen it shall respect the principles contained in the Act that are, in any case, applicable;

Below are some aspects on which the parties can have greater freedom of decision under the law:

  • The possibility for the Agent to assume the risk of the transactions with a specific compensation for it;
  • Appointment of sub-agents and need of express authorization by the Principal;
  • Exclusivity or the possibility to act on behalf of several Principals;
  • Regulation on Agent’s expenses and the obligation to reimburse them: according to the Act unless otherwise agreed, the Agent has not the right to be reimbursed for his expenses (art. 18);
  • Restrictions on competition (art. 20, 21);
  • The right to a written agreement: although the agency agreement is valid even without written form, the parties have the right to ask the other for a written one (art. 22).

In any case, parties are free to decide any other element, clauses or conditions to the agreement, provided these are lawful and not contrary to mandatory principles of the Act.

How to appoint an agent in Spain

Generally, under Spanish law, commercial contracts do not need a specific form to be valid. This is the case for Agency agreements where the Act expressly permits the oral form.

This said, although parties in an agency agreement are free to have a non-written form, as previously mentioned, either party has the right to compel the other party to put their agreement in writing (art. 22). The lack of a written form will not be an issue for the validity of the agreement but will require additional evidence in order to prove the contract in case of conflict, including as regards its content.

Agents, either an individual or a company, are independent entrepreneurs. Therefore, they have to comply with all the legal requirements depending on their circumstances. There are not special obligations for agents different of those applicable to other individuals-entrepreneurs or companies. Particularly, agents-individuals shall be registered at the social security and tax offices in order to carry on their business. But also companies need to be fully incorporated according to their social structure, in order to be able to carry out businesses.

Agents (either individuals or companies) do not need to be registered at any professional bar or association to perform their business and do not need to have special qualification for their activity.

Is it possible to apply a foreign law?

We may consider an agency agreement to be "international" when parties from different jurisdictions are involved and conflict of laws situations arise. This said, an international agency agreement can be governed by a law other than Spanish law.

According to the Spanish Civil code general principle (art. 10.5) the contractual obligations shall be governed by the law to which the parties have expressly submitted, provided that it has some connection with the business in question; failing that, the national law common to the parties; in the absence of it, that of the common habitual residence, and, ultimately, the law of the place of conclusion of the contract.

In the absence of choice, principles of conflict of law will be applied. EU rules also foresee similar rules for contracts that shall be governed depending on whether or not there is a choice by the parties. For additional information see the EU Guide on Agency agreements.

This said, the parties’ freedom to choose the governing law is not unlimited and it will be necessary to pay attention to the overriding mandatory provisions set forth in Article 9 of the Regulation: those provisions whose observance is considered crucial by a country for the protection of its public interests, irrespective of the law otherwise applicable to the contract.

Is it possible to submit any disputes to a foreign jurisdiction or to foreign arbitrators?

Yes. Parties in an international agency agreement are free to submit the agreement to foreign jurisdictions or arbitrators.

Agency Act establishes (Second Additional Disposition) the exclusive competence for courts of the domicile of the Agent. This principle does not necessarily imply that the jurisdiction is also exclusive for Spanish courts. In fact, courts have made the distinction between jurisdiction and competent courts leaving the parties free to settle their disputes also by arbitration or foreign courts.

In fact, the Spanish Supreme Court has accepted the clause where the foreign Agent submitted the disputes to Spanish courts although his domicile was not in our country. According to this judgement, the Agency Act provision on settling disputes has been interpreted as a rule to decide which court is competent if the jurisdiction is attributable to Spanish courts, but not a mandatory rule to decide the Spanish jurisdiction in case the Agent is resident in Spain.

EU Regulation n. 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters is also of application. For further details, see the EU Guide on Agency Agreements.

In drafting the agency contract it seems highly advisable to expressly define the competent jurisdiction/arbitration. In case the Spanish one will be chosen for a Spanish Agent, the mandatory disposition of the Act implies that courts of his domicile will be competent. 

As previously said, it is also possible to settle disputes in international agency agreements by arbitration. Spanish Arbitration Act (art. 2.1) permits to do so in all disputes that parties can freely dispose of. This means that all the disputes related to the interpretation and enforcement of an agency contract can also be settled by arbitration.

Recognition of arbitration awards settled in a foreign country will be ruled by the New York Convention of 1958, without prejudice of other possible international conventions. The procedure will follow the ordinary civil procedure for the enforcement of decisions issued by foreign courts.

Disputes between Agents and Principals can be also resolved by mediation.

Agency agreement termination

Agency agreements are meant to establish a stable and continuous co-operation between the Agent and the Principal. Agency agreements for a non-stable relationship (occasional intermediaries, mandate) are not ruled by the Act.

Under Spanish law, agency agreements may be entered into for a limited or an unlimited duration (art. 23). In case nothing is foreseen in the agreement, it is deemed to be agreed for an indefinite term.

In case of limited duration, the agreement will expire when parties have agreed and the relationship will naturally end on the expiration date (art. 24.1). Nevertheless, in case an agreement with a limited duration continues to be performed, the Act converts this agreement into an agreement of indefinite duration.

If an agency agreement has been agreed without a limited duration (art. 25), either party may terminate it unilaterally at any time and without cause by giving the other party a previous written notice. This previous notice will be of one month for each year the agreement has been in force with a minimum of one month (for agreements lasting less than one year) and a maximum of six months (for those agreements lasting six or more years). In case the agreement was initially of limited duration but converted into an agreement of indefinite duration, the previous notice has to reflect the full extent of the relationship.

Parties are free to increase the time for the previous notice but the one agreed for the Principal cannot be higher than the one for the Agent. Termination for breach is also possible. Parties are free to unilaterally and immediately terminate the agreement in some cases (art. 26): (i) when the other party has completely or partially breached the legal or contractual obligations; or (ii) in case the other party has been declared bankrupt (concurso de acreedores).

Termination for death. Agency agreement also ends in case of death or death declaration of the Agent. This does not apply in the event of the death or declaration of death of the Principal, but his successors may terminate it with the required previous notice. (art. 27).

Termination indemnity

Agency Act entitles the agent to an indemnity if the agency agreement (either with an indefinite or definite duration) is terminated (art. 28). This is called the Clientele Indemnity and the agent cannot validly renounce to this right, or reduce it, at or before the signature of the agreement (art. 3).

When an agency contract terminates, the agent has the right to the Clientele Indemnity if the following requirements are met:

  • if the agent has increased the number of clients or sensibly increased the activity with the previous ones;
  • if the previous activity of the agent is deemed to still produce substantial advantages to the Principal;
  • and this indemnity results appropriate due to the existence of agreements limiting the competition, loss of commissions or other circumstances.

In general terms, courts have considered that it is up to the Agent to prove that his/her activity has been positive for the Principal during the contract. In some cases, courts have denied this Indemnity when the agent only showed abstract evidence but without identifying the clientele created, and without proving the real possibility of its continuity after the termination. In order to avoid this Indemnity, the Principal shall prove, in return, that the Agent’s activity is not deemed to produce substantial benefits after the termination or that the compensation is not equitable due to different reasons.

Clientele indemnity is also applicable to agreements terminated by death or death declaration of the Agent.

The amount of the indemnity is not fixed by the law which only contains the possible maximum amount. The amount shall not exceed, in any case, the annual remuneration received by the agent calculated as the average of the previous five years or throughout all the agreement if it has lasted less than five years (art. 28).

The Clientele Indemnity shall not be payable (art. 30):

  • When the termination of the contract by the Principal was due to the breaching by the agent of any legal or contractual obligation.
  • When the termination is procured by the agent, unless it was due to reasons imputable to the Principal or due to the agent’s age, infirmity or illness and in case it was not reasonable to require his continuation as an agent.
  • When the agent has assigned, with the knowledge of the Principal, his rights and duties in the agency contract to a third person.

In addition to the Clientele Indemnity, the agent is also entitled to claim damages. The Agency Act establishes (art. 29) that in case of termination of an indefinite agency contract by the principal, this one will be obliged to indemnify the Agent for damages and prejudices caused by such termination (except in case of a breach by the agent) provided that it was not possible to amortise the investments which the agent had made at the indication of the principal.

The right to ask for Clientele indemnity and to claim damages ends one year after the termination of the agreement.

Both indemnities (Clientele and Damages) do not prevent the Agent to claim other, different damages arising from the termination of the Agreement by the Principal (for instance, in case of lack of previous notice).

Other peculiarities

According to our legal system, the Agent does not necessarily have the power to conclude contracts on behalf of the Principal. A foreign Principal shall take into account that the Act accepts both possibilities: (i) an agent only promoting the Principal’s products or services or (ii) an agent also being authorized to conclude such operations on behalf of the Principal (art. 1). In order to permit the agent to conclude contracts on behalf of the Principal, it will be necessary to include a specific and express clause in the contract (art. 6).

The general rule (art. 5) is that in order to appoint sub-agents, the agent needs the express authorisation of the Principal. In this case, the agent will be liable for sub-agent activities. Agent’s activity through his own employees does not need the Principal’s authorization. The agent will also be liable for the activity carried out by his employees.

According to Agency Act (art. 7), the Agent is free to act on behalf of more than one Principal unless differently agreed in the contract. Notwithstanding, the Agent will need the consent of the Principal in order to act on his own behalf or on behalf of another party whose products or services are of similar or in competition with the Principal’s.

According to the Agency Act, it is also possible to agree on a non-competition obligation after the termination of the contract. In order to be valid some conditions are necessary (arts. 20 and 21):

  • Its maximum duration will be two years since the termination of the agency contract or one year if the duration of the contract was for less than two years; It has to be agreed in writing;
  • Its geographical extension should be the same as for the agency contract or it has to be limited to the same group of persons the agent was in charge of;
  • It will only affect the products or services promoted or transactions concluded as in the object of the Agreement.

Exclusivity cannot be implied from the Agency Act but needs to have been agreed expressly. Exclusivity is not a general characteristic of the commercial agency agreements so as it seems to appear in the Preamble of the Agency Act (Para II.3). And this includes both possibilities: the Principal having several Agents and the Agents being authorized to represent several Principals.
The correct delimitation of the territory in which the agent has been appointed or the kind of clients he is authorized to deal with is also a relevant element to consider in the agreement. The Principal is free to forbid the agent the promotion of sales outside that territory.

On the other hand, there is a reference in the Agency Act to commissions to be received by the agent for sales within his exclusive territory. If this was the case and the agent was appointed for an exclusive territory, he would have the right to commissions although the sales were not promoted nor concluded by him in such territory (art. 12.2).

Parties are free to agree upon the remuneration that can consist of a percentage on sales (commission), a fix amount or a combination of both. The remuneration is due (art. 14) from the moment in which the Principal has enforced or shall have enforced the commercial transaction or has been carried out, even partially, by the third party. Remuneration shall be paid not later than the last day of the following month to each natural quarter in which it was due (art. 16). The Agent will lose the right to the commission if the Principal proves that the operations were not executed due to circumstances not attributable to the Principal (art. 17).

According to the general provisions of the Act, and unless otherwise agreed by the parties, the Agent has not the right to be reimbursed for the expenses of his activity (art. 18).

Agency Act states (art. 9) a general obligation for the Agent to inform the Principal on all the necessary elements for the correct carrying out of the commercial transactions he is in charge of. Particularly, the Agent has to inform on the solvency of the third parties with whom there were transactions to be concluded or executed. These obligations are compulsory although there is no provision on the way, the periodicity, the contents... It is therefore advisable that a foreign Principal sets out all these elements in the agency agreement.

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