International Agency Contract: Avoid cross-border conflicts

International agency agreement: legal keys to avoiding conflicts in cross-border operations

The agency contract is a key option for companies seeking to expand their business into foreign markets without having to establish subsidiaries or branches.

However, at the international level, this contractual relationship poses a series of legal challenges that require special attention.

Regulatory differences between countries, potential conflicts of laws, and the enhanced protection of agents in some jurisdictions are key factors in preventing litigation and ensuring legal security for the business owner.

Regulatory reference framework

Within the European Union, the agency contract is partially harmonised through Council Directive 86/653/EEC of 18 December 1986 on the coordination of the rights of Member States relating to independent commercial agents.

Its objective is to protect the agent and guarantee a minimum common standard in:

• The rights and obligations of the parties during the term of the contract.
• The rules on remuneration.
• The consequences of the termination of the contract, especially in terms of compensation or indemnity.

All Member States have transposed this Directive, although with significant differences in its specific application, particularly with regard to the agent's right to compensation following the termination of the relationship.

Key issues in cross-border agency contracts

Law applicable to the contract

Regulation (EC) No 593/2008 (Rome I) allows the parties to choose the law applicable to the contract.

In the absence of a choice, the law of the country where the agent has his habitual residence shall apply.

This choice is crucial, as it directly impacts the validity of key clauses and the possibility of limiting or excluding certain rights of the agent.

Practical warning : Some countries consider the rules transposing Directive 86/653/EEC to be mandatory, especially regarding compensation.

Therefore, even if another law is chosen, the national provisions of the agent's country could be applied if they are considered to protect inalienable rights.

competent jurisdiction

Regulation (EU) No 1215/2012 (Brussels I bis) allows the parties to agree which courts will have jurisdiction to resolve any potential disputes.

This clause is strategic, given that differences between judicial systems can directly affect the outcome of the proceedings and their efficiency.

Recommendation : Also consider using arbitration clauses in a neutral venue (e.g., through the ICC rules), especially if the contract has a high economic component or the agent is located in a country with an unreliable or unpredictable judicial system.

The agent's compensation after termination of the contract.

One of the most critical aspects in international agency contracts is the compensation regime applicable when the relationship ends.

a What does Directive 86/653/EEC establish?

The Directive requires Member States to provide for the agent at least one of the following two options:

1. Client Compensation, according to the German model.
2. Compensation for damages, according to the French model.

Furthermore, it allows Member States to establish these rules as mandatory , preventing their exclusion by prior contractual agreement.

b. Transposition in Spain: Law 12/1992, of May 27

Spain opted for the German model through the Law on the agency contract.

According to this standard:

1. The agent has the right to a equitable compensation If it has brought in new clients or significantly increased operations with pre-existing clients, provided that these clients continue to generate substantial profits for the entrepreneur (art. 28).
2. The amount of compensation may not exceed the average annual amount of the remuneration received during the last five years or, if the contract lasted less, during that period.
3. This right is non-waivable in advance and must be exercised within the period of one year since the termination of the contract.

c. International compatibility: applicable law and mandatory rules

When the contract is concluded with an agent domiciled in another Member State, the question arises as to whether this compensation can be excluded by choosing a foreign law.

The answer will depend on:

1. If the chosen law allows such an exclusion (for example, Swiss law or, in some cases, post-Brexit English law).
2. If the regulations of the agent's country consider its own rules imperatives, in which case they could be applied independently of the law chosen by the parties.

Practical example : If a Spanish company hires an agent in Germany and agrees to the application of Spanish law, but excludes compensation, the German courts could apply their own law (transposition of the Directive) if they consider that the rules are mandatory to protect the agent.

d. Criteria for calculating compensation

Courts and contractual practice often assess:

1. The number and quality of new customers brought in.
2. The volume of business generated with those clients.
3. The potential future profit that the entrepreneur will obtain thanks to that clientele.
4. The duration of the relationship and the regularity of the transactions.

This is not automatic compensation : there must be a real loss for the agent and an enrichment for the employer after the termination of the contract.

e. Causes for exclusion

The agent will not be entitled to compensation if:

1. He has terminated the contract without just cause.
2. Has seriously breached its contractual obligations.
3. He has given up his contractual position without the employer's authorization.

Exclusivity clauses and territorial delimitation

Territorial exclusivity is common in these contracts, but it must be precisely regulated to avoid overlaps or disputes with other agents or distributors.

Practical advice : Clearly define the assigned territory, the degree of exclusivity, and the consequences of non-compliance.

Duration, notice and early termination

The Directive requires a notice period proportional to the duration of the contract (minimum one month per year, up to a maximum of six months), except for just cause for immediate termination.

Recommendation : Expressly establish the notice periods and regulate in detail the objective causes that justify early termination.

Closing remarks

The international agency contract cannot be managed with generic clauses.

It requires a thorough analysis of the applicable law, the mandatory statute of the agent's country, and the potential legal and economic risks arising from the termination of the contract.

A proper contractual design should:

• Carefully choose the applicable law and the competent jurisdiction.
• Evaluate whether indemnity rules are mandatory in the agent's jurisdiction.
• Establish clear resolution and advance notice mechanisms, as well as clauses controlling the clientele.
• Avoid legal loopholes that can be interpreted against the employer.

Is your company considering hiring agents abroad? Do you have questions about how to apply European regulations and avoid liability risks?

Our team of lawyers, experts in international commercial contracts, can help you structure agency relationships that are secure, balanced, and compliant with applicable law.

RRYP Global, international contract lawyers.