Practical Guide to International Commercial Agency Contracts

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  • China
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  • Germany
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  • Israel
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  • Mexico
  • Netherlands
  • Poland
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  • Switzerland
  • USA

The contract of commercial Agency is one of the most used agreements in international trade. In the European Union the legal framework is set by the Council Directive 86/653/EEC, but there are still significant differences among national regulations and jurisprudence of the Member States. Outside the EU, commercial Agency is often not regulated by a specific law or can be subject to laws at the federal or state level. In most countries even if the Parties are free to choose the law applicable to an international Agency agreement and the dispute settlement method, certain provisions provided by local laws cannot be opted out. And while the Agent is usually entitled to a goodwill (clientele) indemnity upon termination of the contract, such indemnity in some countries can be excluded. When negotiating an international Agency contract, therefore, it is very important to know what the available options are, which law is most favorable for the interests of the Principal or the Agent, what provisions cannot be derogated, which is the best jurisdiction for dispute resolution, and so on. In this Guide our legal experts provide some practical answers and advice.

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How are agency agreements regulated in Switzerland?

In Switzerland, commercial agency agreements are mainly regulated by Articles 418a to 418v of the Swiss Code of Obligations (“CO"). Furthermore, Article 418b para. 1 CO states that the provisions governing brokerage contracts ("Mäklervertrag" in German; "Courtage" in French; "Contratto di mediazione" in Italian; Articles 412 to 418) apply supplementarily to agents acting as intermediaries ("Vermittlungsagenten" / "agent négociateurs" / "agenti che trattano gli affari") and those governing commissions ("Kommission" / "Commission" / "Commissione"; Articles 425 to 439 CO) to agents acting as proxies ("Abschlussagenten" / "agents stipulateurs" / "agenti che li conchiudono"). Yet, those references are of minor importance, as Articles 418a to 418v CO already deal with agency agreements in quite some detail.

In addition to the rules in the CO, the Cartel Act, Swiss Unfair Competition Act and further laws may also govern the rights and obligations of the parties to an agency agreement. With regard to the application of the Swiss Cartel Act, it is helpful to refer to the Guidelines on Vertical Restraints (2010/C 130/01) of the European Commission. If the contractual relationship between a principal and an agent qualifies as an agency agreement in terms of paras. 12 et seqq. of the Guidelines on Vertical Restraints and thus falls outside the scope of Article 101 para. 1 of the Treaty on the Functioning of the European Union, it is likely that it will also be compliant with Swiss competition law.

Since Switzerland is not a member state of the European Union, the EU Directive 653/86/EC on the coordination of the laws of the Member States relating to self-employed commercial agents is not applicable. However, Swiss agency law – which was originally enacted already in 1949 and thus decades before Directive 653/86 – is comparable to the rules set forth in Directive 653/86, although there are issues that are governed differently.

According to Swiss law, an agent is a person who undertakes to act on a continuous basis as an intermediary for one or more principals in facilitating or concluding transactions on their behalf, without, however, entering into an employment relationship with its principals.

Swiss law provides the parties to an agency agreement with substantial contractual freedom. However, there are some exceptions where the CO sets forth mandatory rules. This concerns, in particular, the entitlement to a special compensation in the event that agents assume liability for customers' payment obligations (del credere) or shall be bound by post-contractual non-compete obligations. Furthermore, goodwill indemnities are mandatory as well.

As a matter of principle, Swiss agency law obliges agents to safeguard their principal's interests with the diligence of a prudent merchant. In return, principals must do everything in their power to enable the agents to perform their activities successfully. Furthermore, principals are obliged to notify agents immediately if they anticipate that the actual number and/or volume of transactions will be substantially smaller than what was agreed or could be expected in the circumstances.

An agent is entitled to the agreed or customary commission on all transactions facilitated or concluded during the agency relationship and, unless otherwise agreed in writing, on transactions concluded during the agency relationship by the principal without the agent's involvement but with customers acquired by the agent for transactions of that kind.

Within the scope of the agent's exclusivity rights, the agent is entitled to the commission on all transactions concluded during the agency relationship with customers covered by the exclusivity rights. Unless otherwise agreed in writing, the entitlement to the commission arises as soon as the transaction has been validly concluded between the principal and the customer. Claims for commission fall due at the end of the semester in which the transaction was concluded unless the parties to the agency agreement agree otherwise.

What are the differences from other intermediaries?

An agent is an independent contractor, and this feature distinguishes agents from commercial travellers entrusted with the facilitation or conclusion of business transactions on behalf of their employer, but outside of the employer's business premises, in exchange for the payment of a salary (see Articles 347 to 350a CO).

An agent is appointed to perform a continuous activity. This feature of continuous collaboration distinguishes commercial agents from “brokers” ("Mäkler" / "courtier" / "mediatore") and commission agents ("Kommissionär" / "commissionaire" / "commissionario"). Brokers and commission agents are typically remunerated by principals just for putting them in contact with another party for a single business transaction, respectively for selling in their own name, but for the account of the principal, moveable goods of the principal on a non-continuous basis.

Distributors and agents are, again in theory, quite different. Distributors typically buy and resell a principal’s products in their own name and for their own account in a specified territory. Promotional and collaboration duties may be however quite similar, in which case special attention should be paid to compliance with the Swiss Cartel Act. Swiss statutory law does not specifically deal with distribution agreements. Yet, the Swiss Supreme Court has decided in a landmark ruling that certain protective provisions of Swiss agency law may apply by analogy to distribution relationships. This concerns, in particular, Article 418u CO regarding the goodwill indemnity.

How to appoint an agent in Switzerland

Under Swiss law, agency agreements can be concluded in writing, orally or even tacitly. However, several clauses are valid only if they have been agreed on in writing. This includes important points such as

  • a prohibition on the part of the agent to act for other principals,
  • the assumption of del credere liability by the agent,
  • the exclusion of exclusivity rights with regard to territories and/or ranges of customers allocated to the agent,
  • the exclusion of commission on transactions concluded during the agency relationship by the principal without the agent's involvement but with customers acquired by the agent,
  • a modification of the principle that entitlement to the commission is established when a transaction has been validly concluded,
  • an obligation of the agent to draw up a statement of commission,
  • a notice period below one month during the first year of the agency relationship, and
  • a deviation from the rule that all the agent's claims for commission fall due upon the end of the agency relationship.

There are no specific registration obligations to be complied with by (foreign) principals.

Agents, who are not employed through a legal entity, have to register with the competent social insurance authority ("Ausgleichskasse" / "caisse de compensation" / "cassa di compensazione") and pay contributions to the old-age and survivor's insurance, disability insurance and compensation for loss of earnings. In the event that agents respectively employees of agents are employed through a legal entity, that legal entity will have to register with the relevant social insurance authorities as any other employer.

Furthermore, agents whose turnover exceeds CHF 100,000 per year generally have to register with the commercial register, even if they do not make use of a legal entity. Furthermore, agents whose turnover exceeds the same threshold are usually liable to Value Added Tax (VAT) and must, therefore, register with the Federal Tax Administration.

Is it possible to apply a foreign law?

In case of an agency agreement with a relevant international nexus, the governing law must be determined in accordance with the Swiss Private International Law Act ("PILA"). An international nexus exists, in particular, if the principal’s seat is located in a country different from the agent’s seat country.

As can be seen in the following, the provisions in the PILA are, to a substantial extent, harmonized with the EU Regulation 593/2008 on the law applicable to contractual obligations (“Rome I Regulation"):

Article 116 PILA provides the parties to an agency agreement with the possibility to choose the law governing the agreement. Such choice of law must be explicit, i.e., by means of a clear choice of law clause in the agreement, or at least unambiguously evident from the terms of the agreement or the circumstances.

The parties’ freedom to choose the governing law might, however, not be unlimited. According to Articles 18 and 19 PILA, certain mandatory rules of countries other than the chosen one – may that be Swiss or a foreign law – can apply notwithstanding the parties’ will. In that regard, there is legal uncertainty as to whether, e.g., the entitlement to a goodwill indemnity pursuant to Article 418u CO respectively corresponding provisions from foreign laws might fall under Articles 18 and 19 PILA. Yet, this question will, at least in a European context with regard to an entitlement to a goodwill indemnity, be of limited importance in practice, since Article 418u CO is comparable to the indemnity pursuant to Article 17 of Directive 653/86.

In the absence of a choice of law, the law of the state where the agent has its place of business governs agency relationships. This follows from Article 117 para. 3 PILA, whereby the agent is to be considered as providing a service and thus the characteristic obligation within an agency relationship. From a principal's perspective, it is crucial to be aware of this rule. In case the agent has its place of business in a country other than the country of the principal, a principal is well advised to include a clear choice of law clause in the agency agreement, as otherwise, the foreign agent might benefit from its "own" law. From a Swiss law perspective, such choice of law will generally be valid, with the exception that specific mandatory rules of the law governing the agency relationship in the absence of a choice of law might still be applicable.

In order to reinforce the effectiveness of a Swiss choice of law, it is generally advisable to couple such a provision with a clause stating that a Swiss court shall have exclusive jurisdiction for any disputes arising out of or in connection with the agency agreement. If a choice of jurisdiction clause refers to a municipality within a canton with a commercial court (i.e., Zurich, Berne, Aargau or St. Gallen), the dispute will be adjudicated by a specialized commercial court. Commercial courts act as sole cantonal instances, whose judgements may be appealed before the Swiss Supreme Court only. In principle, the review of a judgement by the Swiss Supreme Court is limited to questions of law, but not questions of fact.

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

It is possible that any disputes arising from an international agency agreement be submitted to the jurisdiction of foreign judicial courts or foreign arbitrators.

The legal basis for an agreement on jurisdiction (prorogation) depends on whether or not one of the parties to an agency agreement is domiciled in a member state of the Convention on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters of 30 October 2007 ("Lugano" Convention), i.e., in a member state of the EU or EFTA (European Free Trade Association, with the exception of Liechtenstein). If so, Article 24 of the Lugano Convention allows for an agreement conferring jurisdiction to be concluded in various manners, namely a) in writing or evidenced in writing; b) in a form which accords with practices which the parties have established between themselves; or c) in international trade or commerce, in a form which accords with a usage of which the parties are or ought to have been aware and which in such trade or commerce is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade or commerce concerned.

It is worth adding that the Lugano Convention is, to a large extent, substantially identical to EU Regulation 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (“Brussels I Regulation"). However, the Lugano Convention was not amended when the recast Brussels I Regulation was adopted in 2012, so that it is still based on the outdated Brussels I Regulation of 2001.

If none of the parties to an agency agreement is domiciled in a member state of the Lugano Convention, Article 5 of the PILA applies. According to that provision, a choice of jurisdiction agreement may be made in writing, by telegram, telex, telecopier, or by any other means of communication that evidences the terms of the agreement by a text. Article 5 PILA is thus stricter than Article 24 of the Lugano Convention.

In the absence of a choice of jurisdiction agreement, jurisdiction for a dispute must be established in accordance with the Lugano Convention or, outside the scope of application of the Lugano Convention, the PILA. Under the Lugano Convention, an action may be brought in the state where the defendant is domiciled (Article 2 Lugano Convention). In addition, the courts of the place where the agent performed its services are competent (Article 6 para. 1 Lugano Convention). Outside the scope of application of the Lugano Convention, Article 2, 112 and 113 PILA lead, in essence, to the same courts as the Lugano Convention.

As regards the submission of disputes arising from an international agency agreement to foreign arbitrators, this is generally possible. Switzerland is a very arbitration-friendly venue and, e.g., a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 10 June 1058 ("New York Convention"). Indeed, Article 177 para. 1 PILA states that all pecuniary claims may be submitted to arbitration.

Pursuant to Article 354 of the CPC, which governs domestic arbitration, only claims over which the parties may "freely dispose" may be the object of an arbitration agreement. Yet, based on a recent leading case of the Swiss Supreme Court, it may be assumed that even disputes about, e.g., (mandatory) goodwill indemnity claims are arbitrable.

Therefore, it is worth considering including a proper arbitration clause in an international or even domestic agency agreement. It is often advisable to make use of a model clause from an arbitration institution, such as the model clause relating to the Swiss Rules of International Arbitration of the Swiss Chambers' Arbitration Institution.

Agency agreement termination

Under Swiss law, agency agreements may be entered into for a fixed or indefinite period of time.

If an agency agreement was concluded for a fixed period of time or its term is limited by virtue of its purpose, it ends without notice upon the expiry of that term.

In the event that the parties to an agency agreement continue their collaboration regardless the expiry of the term, the agreement is deemed to have been tacitly renewed for the same term, but only up to a maximum of one year. However, the one-year limitation does not apply in the event that the expiry of a fixed-term agency relationship requires prior notice. In such a case, a failure by both parties to give notice is deemed to be a tacit renewal of the agency agreement, so that the original term of the agency agreement applies again.

If an agency agreement is concluded for an indefinite period of time, it may be terminated by either party during the first year of the agency relationship with effect as of the end of the following calendar month. The parties are free to agree on a longer or shorter notice period, provided that shorter notice periods must be agreed in writing. 

Once the agency agreement has lasted for at least one year, the notice period amounts to two months, such notice to take effect at the end of a quarter. However, the parties may agree on a longer notice period. In contrast, shorter notice periods are inadmissible. In any event, the notice period must always be the same for both the principal and the agent.

Both an agency agreement concluded for a fixed or indefinite period of time may be terminated at any time with immediate effect for good cause, i.e., if circumstances exist which render the continuation of the agency relationship unacceptable for the terminating party. By way of example, an uncertainty whether the principal is capable of delivering at all, a refusal of the agent to carry out its activities or a bankruptcy of the agent may constitute a good cause. Parties may try to define "good causes" in the agency agreement. Having said that, such definition only serves as an indication of what the parties deem to be unacceptable. However, the court will still have the possibility to accept other undefined or non-enumerated good causes as sufficient for termination with immediate effect. With the exception of severe cases, the party who wishes to terminate an agency agreement with immediate effect is required to warn the other party and require her to rectify a breach prior to giving notice with immediate effect.

According to the Swiss Supreme Court, an unjustified termination of an agency agreement with immediate effect, i.e., without good cause, is effective. However, a principal giving such notice becomes liable to damages and must compensate the agent for the lost profits that the agent would have earned until the end of the next ordinary termination date respectively the expiry of the agency relationship.

The agency relationship automatically ends on the death or incapacity of the agent or the bankruptcy of the principal. The bankruptcy of the agent does not lead to automatic termination of the agency relationship but constitutes good cause for termination with immediate effect.

At the end of the agency relationship, all of the agent's claims for commissions fall due, unless the parties have agreed otherwise in writing. In principle, the agent is entitled to commissions on all orders placed by clients acquired by the agent during the agency relationship if such orders are placed before the end of the agency agreement. However, the principal and agent are free to agree on a different rule.
Moreover, each party must return to the other party everything received from the other party or from third parties for the other party's account during the agency relationship. This concerns, in particular, moveable goods, funds and other documents (e.g., marketing materials, samples, customer-related documentation etc.) in the possession of the agent. However, the agent disposes of an inalienable special lien on moveable goods and funds of the principal in order to secure claims against the principal under the agency agreement.

Termination indemnity

Article 418u CO provides the agent with an inalienable entitlement to a goodwill indemnity if the agency agreement is terminated. The goodwill indemnity under Swiss law is comparable to the indemnity pursuant to Article 17 of Directive 653/86.

Entitlement to a goodwill indemnity requires, firstly, that the agent’s activities have resulted in a substantial expansion of the principal’s customer base. Swiss case law provides no clear threshold as to when an expansion of the customer base is "substantial". Ultimately, not the number of customers but the acquired turnover should be decisive.

Secondly, the expanded customer base respectively the business relations with clients acquired by the agent must result in considerable benefits to the principal even after the end of the agency relationship. This requires a certain loyalty of the customers toward the principal, so that the principal can continue doing business with them. The existence of such loyalty depends, inter alia, on the good or services concerned.

Thirdly and lastly, a goodwill indemnity must not be inequitable. This could be the case if the agent has already been sufficiently compensated for the expansion of the customer base during the agency relationship (e.g., by means of extraordinarily high commission) or if the agency relationship lasted for a very long period of time, during which the agent could benefit itself from the expanded customer base. The courts dispose of a substantial discretion when deciding whether a goodwill indemnity qualifies as inequitable.

No goodwill indemnity is due in case the agency relationship ended for reasons attributable to the agent. This will be the case, in particular if the principal has terminated the agency agreement because of a default attributable to the agent or the agent has terminated the agency agreement itself unless such termination is justified by circumstances attributable to the principal. A goodwill indemnity cannot only be due in case an agency relationship for an indefinite period of time ended due to a notice of termination, but also in case of the expiry of a fixed-term agency relationship.

The amount of a goodwill indemnity must not exceed the agent’s net annual earnings from the agency relationship calculated as the average for the last five years. Where the agency relationship lasted for less than five years only, the average over the entire duration of the agency relationship is decisive. In the event that the agent acted for several principals during the agency relationship, it is important to calculate the average net annual earnings for quantifying the goodwill compensation on a product- respectively service-specific basis, but not on the basis of the agent's business as a whole.

A rule comparable to Article 17 para. 5 of Directive 653/86, according to which an agent loses its entitlement to a goodwill indemnity if it does not notify the principal within one year following termination of the agency agreement, is unknown to Swiss law. The ordinary statute of limitations (i.e., 10 years) applies.

In addition to a goodwill indemnity, an agent might also be entitled to claim damages in the event that the principal has breached its statutory and/or contractual obligations as, e.g., the obligation to do everything in his power to enable the agent to perform its activities successfully (cf. Article 418f CO).

Other peculiarities

An agent has exclusivity rights in a territory and/or with regard to a range of customers if such territory respectively range of customers has been allocated to the agent in an explicit or tacit manner unless such exclusivity rights are explicitly excluded in writing.

An agent may generally also act for other principals unless otherwise agreed on in writing. Agents who are prohibited from acting for other principals and whose agency relationships have lasted for at least one year dispose of an inalienable right to adequate compensation for their loss of income in the event that they are prevented from working through no fault of their own due to illness, compulsory military service or similar reasons.

Although agents are generally free to act for other principals too, it follows from the agent's duty of faith that competing activities during an ongoing agency relationship generally require the consent of the principal.

After the end of the agency relationship, an agent is generally free to immediately start acting for competitors, unless he is bound by a post-contractual non-compete obligation. Swiss agency law governs post-contractual non-compete obligations by reference to Swiss employment law. In order for such an obligation to be valid, it must be agreed on in writing and appropriately restricted with regard to its term, territory and scope. As to the term, Swiss law generally provides for a maximum term of three years. In practice, however, it might often be very difficult to enforce a post-contractual non-compete obligation for a term exceeding one year. An agent disposes of an inalienable entitlement to adequate compensation in return for the post-contractual non-compete obligation. One should also keep in mind that post-contractual non-compete obligations must be compliant with Swiss competition law. It is sensible to adhere to the same principles as stipulated in EU competition law (see p. 9 above).

Agents are authorized only to arrange business transactions, to receive notices of defects and other declarations from customers with which customers exercise or reserve their rights in respect of a defective performance by the principal. Furthermore, agents may exercise the principal's rights to secure evidence of such defects.

By contrast, agents are not allowed to accept payments, to grant time limits for payments or to agree on amendments to contracts between the principal and the customer. If, however, an agent is empowered by the principal to collect payments from customers, it is entitled to a special commission on any amounts collected and forwarded to the principal unless the parties have agreed otherwise.

Under Swiss law, agents are generally not entitled to any reimbursement of costs and expenses incurred in the normal performance of their duties. However, agents are entitled to reimbursement of those costs and expenses incurred as a result of special instructions issued by the principal. Furthermore, agents must be reimbursed, e.g., for freight charges and customs borne on behalf of the principal (Article 418n CO). Having said that, the parties to the agency agreement are free to agree otherwise.