Agreements

Agencies

If you need help either buying or selling your products, you may decide to engage an agent to represent you. An agent acts as your trading representative, and signs contracts on your behalf.

Agency agreements

An agency agreement should include clear provisions setting out the rights and obligations of both the principal and the agent. Although there is no legal requirement to enter into an agency agreement, we would recommend drawing up a formal contract, so as to prevent any arguments about fees, termination, goodwill, liability and restraint of trade clauses.

If you do indeed decide to draw up a written agency agreement, this must conform to certain statutory requirements in order to be valid. Apart from making sure you comply with these statutory requirements, it is also worth clearing defining the extent of the agent’s liability, if any, in the agreement. You might also want to think about including a restraint of trade clause, i.e. a clause prohibiting the agent from entering into competition with the principal (for no more than two years) after the termination of the contract.

An agency agreement should not grant the principal any powerful rights of instruction and control, as it will then start to look like a contract of employment. This could bring employment law into the equation. The problem is that an overly detailed agency agreement could be deemed to lead to the formation of an employment relationship, for example, where the principal holds certain authority over the agent. This situation can easily be prevented by ensuring that your agency agreement is properly drafted.

Whether you wish to safeguard your rights by drafting an agency agreement, to clearly define the extent of your agent’s liability, or to prevent an agent from competing with you in the future, why not contact one of the lawyers at our Company Law Practice Group?

Distribution and agency agreements

If you do not wish to market your products yourself, but would prefer someone else to do so, it may be worth signing a distribution or an agency agreement under which a distributor or agent acts as an intermediary on your behalf.

Unlike an agent, a distributor sells your products within a certain geographical area (or ‘territory’), for his own account and risk. This is often an exclusive arrangement. In most cases the distributor is free to fix the price himself.

Under an agency agreement, an agent is authorised to enter into contracts with third parties on the supplier’s behalf. When you sign an agency agreement, it is important to make clear arrangements about what exactly the agent should do on your behalf. Unlike a distributor, an agent does not run any purchasing risk, as he sells products on the supplier’s behalf. This means that the supplier has far more control over the agent’s actions, so that an agent is generally more dependent on the supplier than a distributor would be.

Distribution or agency agreement?

In contrast with distribution agreements, there are certain statutory rules governing agency agreements. This is because of an agent’s higher degree of dependency. Also, there are different rules about the termination of these agreements. In short, you need to be aware of whether you’re signing a distribution or an agency agreement. The heading or title on the document in question is immaterial: a contract presented as a ‘distribution agreement’ may actually prove to be an agency agreement in practice.

What does a distribution agreement contain?

A distribution agreement should answer the following questions:

Who is liable for what?
What fees are to be charged?
What are the terms of payment?
Who is going to be responsible for marketing, and how will the product be marketed?
What products are covered by the agreement?
Are there any exclusive rights involved?
What arrangements have been made for the termination of the agreement, and what happens after the agreement has been terminated?

If you have any questions about distribution agreements, please feel free to contact one of the members of our Company Law Practice Group. We will be more than pleased to help.

Continuing performance contracts

Long-term agreements

Continuing performance contracts (duurovereenkomsten in Dutch) come in many different shapes and sizes. Basically, a continuing performance contract is an arrangement that binds the signatories to fulfil certain commitments during a long period of time. Service and distribution agreements are good examples of continuing performance contracts. The law contains very few specific rules on continuing performance contracts. Most of the rules are based on case law.

A continuing performance contract may also come into being if the parties concerned have formed a close trading relationship over the years without actually recording the terms of their relationship in a written document.

Terminating a continuing performance contract

Many of the disputes surrounding continuing performance contracts are about their termination. For example, one party has just invested in new production resources when the other party gives notice of termination. The question then is: is the other party allowed to terminate? The important thing here is to ascertain whether the contract is of specified (i.e. fixed-term) or unspecified (i.e. indefinite) duration. In principle, fixed-term continuing performance contracts may not be terminated prior to their expiry. These contracts terminate automatically once they reach the end of their term. Continuing performance contracts of unspecified duration, on the other hand, may in principle be terminated, although this may require giving notice of termination and/or paying some form of compensation.

Specifying the term of notice in the contract

You can prevent confusion and unpleasant surprises by specifying the term of notice in the contract before signing it, and also incorporating clauses regulating other important matters that need to be clarified.