Practical Guide to International Commercial Agency Contracts

  • Austria
  • Brazil
  • China
  • France
  • Germany
  • Greece
  • Israel
  • Italy
  • Mexico
  • Netherlands
  • Poland
  • Romania
  • Russia
  • Spain
  • 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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Netherlands

How are agency agreements regulated in The Netherlands?

In the Netherlands, commercial agency contracts (handelsagentuur) are governed by the Articles 7:428ff of the Dutch Civil Code (DCC) implementing Council Directive 86/653/EEC (EUROPEAN Agency Directive).

It is a subspecies of the commission agreement (overeenkomst van opdracht) and as such the general rules of Dutch contract and civil law apply regarding the determination of rights, obligations and liability under the law that are in part mandatory or applicable by default failing a specific stipulation in the agreement. Dutch contract law is also governed by its implementation of principles of fair dealing and good faith (redelijkheid en billijkheid) which require parties to behave context-dependent taking into account the interest of the other parties involved.

Furthermore, generally known industry customs in the profession or industry (e.g. seasonality related clauses in the fashion industry or related to agricultural products) may be deemed applicable to the relationship between the agent and the principal.

What are the differences from other intermediaries?

Article 7:428 DCC defines the commercial agent (handelsagent), in line with the European Agency Directive, as an independent intermediary who has continuing (as opposed to a broker) authority to negotiate the sale or the purchase of goods on behalf of another company/person, hereinafter called the 'principal’. It can be agreed that the agent may conclude contracts with customers on behalf of and in the name of the principal. The agent may within certain limits also assume risks for the creditworthiness of the customer with whom the principal enters an agreement. The agent is free to arrange his own work and to organize his working times flexibly. The agent does not have to be a private individual but can be a legal entity or partnership as well. His remuneration is success-based, but other forms of remuneration may be agreed.
Dutch law does not provide for specific subcategories of agents, but of course, all internationally common models exist. In addition, an important distinction is also whether the agency is exclusive or not and whether the principle may e.g. serve certain key accounts directly. The law provides for detailed prescriptions of how the entitlement to commission is to be calculated and also provides for protective provisions that ensure that the agent also has access to the data of the principal to have the agent’s entitlements checked. Of course, the agent may assume as certain risk as well as regards the commission and the creditworthiness of the customer, but limited by law.

Commercial agents and importers in the Netherlands have combined forces in the VNHI, the Verbond van Nederlandse Handelsagenten en Importeurs or Union of Dutch Trade agents and importers. While not having a specific legal status, this association (and similar associations) plays an important role in setting practices, e.g. by providing model agreements. Of course, these are tailored more to the agents’ needs than those of the principal. So an enterprise seeking to enter the Dutch market is well advised to seek expert advice.

The employed sales representative (handelsvertegenwoordiger) enables deals on behalf of his employer, typically, earning a fixed wage supplemented by a success-based commission. The Dutch employment law will apply in full, so, while subject to the right of instruction of the employer, the sales representative will in return enjoy the full protection of employment law.
The commercial broker (makelaar), while on an individual commission basis performing similar work, contrasts with the agent in that he is not permanently entrusted with realizing business. Although receiving a commission, he does not enjoy similar protective provisions such as the (sole) agent. The commercial broker works on the basis of a commission agreement regulated in article 7:425 DCC.

The distributor (distributeur / importeur) typically buys goods on the basis of a contract with a manufacturer/supplier and then sells them on his own behalf and on his own account. Other than in several other jurisdictions the rules of the commercial agency are not applied in an analogue manner for determining rights and obligations e.g. in case of termination. However, careful consideration should be given to entering into agreements that have a commission-based remuneration. With long term contractual relations and high dependency and/or investments of the distributor that have not been amortized, it should be noted that on the basis of case law short notice terminations of long term relationships – even if not based on written agreement - are generally not possible without compensating the distributor.
Franchisee. The franchisor provides the franchisee with a business concept of sale of goods or services under a brand and often also other aspects of the “look and feel” the business creating a unified market appearance of a brand that is actually operated by many separate entrepreneurs. Although franchisor and franchisee enter into a long-term agreement with often extensive mutual rights and obligations, the franchisee, in contrast to the agent, will still act on his own behalf and on his own account.

How to appoint an agent in Netherlands

A special form is not required for the contract between agent and principal; it can thus be concluded verbally, by an exchange of correspondence or by conclusive acts (for example by repeated transaction procuring). However, the agent can request the content of the contract is recorded in writing.

The agent himself has to comply with all general laws for running a business in the Netherlands, but the principal other than in relation to the agent and the customer with whom he contracts assumes no special risk of note.

Of note is that, as regards insurances or brokering financial products, special rules apply including extensive regulatory requirements relating not only to the persons performing the daily operations but also the owners and managers of such business.

Is it possible to apply a foreign law?

An international agency agreement can be governed by non-Dutch law as stipulated by Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 (Rome I Regulation).

Parties are free to choose the applicable law. Choice-of-law clauses are in principle fully recognized by the courts. However, the conflict-of-law public policy exception in article 9 of the Rome I Regulation might overrule the law chosen by the parties if that foreign law or a specific provision of that foreign law is contrary to fundamental principles of the national law.

The agent’s claim for indemnity/compensation upon termination if the agent is doing business outside the EU and the EEA for a Dutch principal may be excluded. Such exclusion is even allowed if the national law of the country where the agent is doing business grants mandatorily such a claim. But in the event that said national law would be the one of a European member state because the agent has an office in a European member state, the claim for indemnity/compensation upon termination is not allowed to be excluded.

The Rome I Regulation can also limit the party’s choice-of-law as it stipulates that the parties are not allowed to deviate from mandatory provisions of Dutch law if there is no sufficient connection to the foreign law.

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

Disputes arising from an international agency agreement may be submitted to a foreign jurisdiction or arbitration subject to the several treaties to which the Netherlands is a party and in addition the general rules of international private law. The validity of the arbitration agreement should be assessed in accordance with the procedural and substantive law applicable to the case in question. The substantive law applicable to the contract shall be determined according to the general rules of private international law on the law applicable to contracts. Section 10:166 of the Dutch Civil Code determines the applicable substantive law to the question of whether the arbitration agreement is valid. An arbitration agreement is materially valid if it is valid under the law chosen by the parties or under the law of the place of arbitration or, if the parties have not made a choice, under the law applying to the legal relationship covered by the arbitration agreement. An arbitration agreement is considered to be materially valid if it is valid for a period of one year as referred to in Section 10:166 of the DCC, even if it is materially invalid under the law of one of the other schemes referred to. The provision applies to both Dutch and foreign arbitrations and must always be applied by the Dutch court pursuant to Article 10:2 DCC. Please note that this does not allow an exclusion of overriding mandatory provisions, defined as those to the observance of which a State attaches so much importance for the maintenance of its public interests, such as its political, social or economic organisation, that they must be applied to any case falling within their scope, irrespective of the law otherwise applicable.

Of importance in connection with agency law is the 2017 appeal ruling of the Hague Court of Appeal in relation to a choice of forum for New York. The court rules that the arbitration clause in the agency agreement is legally valid under the law of New York. The Court of Appeal further rules that the protection provisions in the European Agency Directive are mandatory and, take precedence over the law applicable to the contract on account of a choice of law (in this case, the law of New York). However, following from the parties' statements that they agree that, in addition to the chosen law of the State of New York, the mandatory provisions of the European Directive on severance pay also apply between them, the application of these provisions is guaranteed, according to the Court of Appeal. The Court, therefore, concludes that the (reliance on the) arbitration clause in the agency contract impedes the competence of the Dutch court. (Honeywell/Vimac: ruling 28 November 2017 Court of Appeal the Hague nr. 4548525 RL EXPL 15-32103).

Agency agreement termination

If the contractual parties have not agreed otherwise, the agency agreement can be terminated by both parties respecting the legal notice periods which are as follows: During the first contract year one month, during the second contract year two months, from the third to the fifth contract year three months, and as of the sixth contract year six months.

The termination of an agency contract takes effect by the end of a month. In the contract, the parties can agree on other notice periods. It is mandatory that the principal’s termination notice period shall not be shorter than the one for the agent.

The agency agreement can be limited in time from the beginning. It will then terminate automatically after the expiration of the time limit, without having to be terminated separately. It is important that it ends de facto after the time limit of the contractual agreement.

Special care should be taken if an agreement is de facto continued. Typically it will be deemed extended for the same period as the initial term.

The agency agreement can be terminated extraordinarily by both parties for good cause, even if this is not foreseen in the agreement itself. Good cause is given when it is unreasonable for the terminating party to continue the contract until it can be terminated ordinarily.

Usually, this is only the case for serious breaches of contract, for example, breach of the non-compete obligation. The right to terminate an agency agreement extraordinarily cannot be excluded. Usually, before terminating a contract extraordinarily, a warning letter is issued in order to give the contract partner the opportunity to remedy the breach of contract.

In many Dutch agency agreements, performance minimums are also stipulated, failing to achieve such standards will then be a ground for termination.

Termination indemnity

Section 7:442(1) of the Dutch Civil Code stipulates that a commercial agent is entitled to a client's indemnity at the end of the agency agreement. As in Belgium, where the preliminary question came from, the Netherlands has, therefore, opted for a system of agent's indemnity to implement European law (see also the mandatory article 17(2) of the Agency Directive with regard to this choice of system). In the Netherlands, the right to agent's compensation, according to the law, applies regardless of the right to claim compensation. The agent's compensation is not unlimited. The amount may not exceed the remuneration of one year, calculated on the basis of the average of the last five years or, if the agency contract has been in force for a shorter period, on the basis of the average of its entire duration (Article 7:442(2)DCC).

To the extent that a commercial agent has suffered more and other types of damage that exceed the ceiling, the EU member states are free to grant commercial agents the right to claim their other damage ('broader protection'). That part of national agency law is not harmonised (grounds 30-33). Articles 7:439(3) io. 7:441(1) BW give an example of such a claim for damages, namely if the agency agreement is terminated for 'urgent reasons', on the grounds of circumstances for which the other party is to blame.

The law also leaves room for other claims for damages, in view of the wording of Article 7:442(1) DCC ("irrespective of the right to claim damages").

The award of compensation at the end of the agency - in addition to any customer compensation - may not lead to double compensation. Apart from this limitation, EU Member States are allowed to protect their commercial agents above the general level of protection of the agency directive (judgment Unamar, C-184/12, EU:C:2013:663, paragraph 50). In the Netherlands, the DCC already offers this possibility. However, at the end of the agency period, commercial agents can invoke that their entire damage upon termination is eligible for compensation.

Other peculiarities

In respect of agency agreement, a probationary period cannot be stipulated, which would allow the agreement to be terminated with immediate effect, as in the case of the employment agreements (assuming a certain minimum term of such an employment agreement).

In case law, a specific way of calculating the compensation for the agent has developed.

The three-phase key for calculating the customer remuneration at the end of the agency agreement as set out in the T-Mobile judgment of The Supreme Court of 2 November 2012 now appears to be followed regularly by the courts.

In the first phase, the benefits that transactions involving the commercial agent's have for the principal In short, in this context, in phase one the benefit of the principal fixed at the last 12 months gross commission earned in respect of new and intensified existing customers, what amount of money was then earned in respect of the new and intensified existing customers, and what amount of money was earned in respect of the new and intensified existing customers? Which shall be corrected by factors relating to (a) duration of the benefit that the principal is expected to be able to derive from the transactions with said customers, (b) the evolution of the customer base; and (c) the accelerated receipt of commission income by the agent, which is paid out once.

In phase two a fairness adjustment shall be made, taking into account in all the circumstances of the case, in particular on the commission foregone by the agent.

Finally, in phase three, the amount found from the two previous phases is capped at the remuneration for one year, calculated as follows to the average of five years.

However, since a recent Supreme Court of 19 May 2017 it is clear that the 'calculation method' cannot be applied by default without taking into account the preliminary question as to whether the conditions for an entitlement to customer compensation have been met, and that the obligation to make a statement of expenditure and to pay a fee have been met. The burden of proof in this respect lies with the agent. Among other things, the Supreme Court ruled that the agent must demonstrate that the principal can still expect new transactions from customers introduced or intensified by the agent to a relevant extent.