Agency agreement

Institution Definition

An agent is a legal or physical person vested with the power to negotiate and/or conclude contracts on behalf of another person (the principal), either in the agent’s own name or in the name of the principal, for the: (i) purchase of goods or services by the principal, or (ii) sale of goods or services supplied by the principal.

The determining factor in defining an agency agreement for the application of Article 101 is the financial or commercial risk borne by the agent in relation to the activities for which he has been appointed as an agent by the principal (See judgments in Case T-325/01, 15 September 2005, Daimler Chrysler v. Commission; Case C- 217/05, 14 December 2006, Confederación Espanola de Empresarios de Estaciones de Servicio v CEPSA and Case C-279/06, 11 September 2008, CEPSA Estaciones de Servicio SA v. LV Tobar e Hijos SL.). In this respect it is not material for the assessment whether the agent acts for one or several principals. Neither is material for this assessment the qualification given to their agreement by the parties or national legislation.

There are three types of financial or commercial risk that are material to the definition of an agency agreement for the application of Article 101(1). First there are the contract-specific risks which are directly related to the contracts concluded and/or negotiated by the agent on behalf of the principal, such as financing of stocks. Secondly, there are the risks related to market-specific investments. These are investments specifically required for the type of activity for which the agent has been appointed by the principal, i.e. which are required to enable the agent to conclude and/or negotiate this type of contract. Such investments are usually sunk, which means that upon leaving that particular field of activity the investment cannot be used for other activities or sold other than at a significant loss. Thirdly, there are the risks related to other activities undertaken in the same product market, to the extent that the principal requires the agent to undertake such activities, but not as an agent on behalf of the principal but for its own risk.

For the purposes of applying Article 101(1) the agreement will be qualified as an agency agreement if the agent does not bear any, or bears only insignificant, risks in relation to the contracts concluded and/or negotiated on behalf of the principal, in relation to market-specific investments for that field of activity, and in relation to other activities required by the principal to be undertaken in the same product market. However, risks that are related to the activity of providing agency services in general, such as the risk of the agent’s income being dependent upon his success as an agent or general investments in for instance premises or personnel, are not material to this assessment. For the purpose of applying Article 101(1) an agreement will thus generally be considered an agency agreement where property in the contract goods bought or sold does not vest in the agent, or the agent does not himself supply the contract services and where the agent:

  • does not contribute to the costs relating to the supply/purchase of the contract goods or services, including the costs of transporting the goods. This does not preclude the agent from carrying out the transport service, provided that the costs are covered by the principal;
  • does not maintain at his own cost or risk stocks of the contract goods, including the costs of financing the stocks and the costs of loss of stocks and can return unsold goods to the principal without charge, unless the agent is liable for fault (for example, by failing to comply with reasonable security measures to avoid loss of stocks);
  • does not undertake responsibility towards third parties for damage caused by the product sold (product liability), unless, as agent, he is liable for fault in this respect;
  • does not take responsibility for customers’ non-performance of the contract, with the exception of the loss of the agent’s commission, unless the agent is liable for fault (for example, by failing to comply with reasonable security or anti-theft measures or failing to comply with reasonable measures to report theft to the principal or police or to communicate to the principal all necessary information available to him on the customer’s financial reliability);
  • is not, directly or indirectly, obliged to invest in sales promotion, such as contributions to the advertising budgets of the principal;
  • does not make market-specific investments in equipment, premises or training of personnel, such as for example the petrol storage tank in the case of petrol retailing or specific software to sell insurance policies in case of insurance agents, unless these costs are fully reimbursed by the principal;
  • does not undertake other activities within the same product market required by the principal, unless these activities are fully reimbursed by the principal.

This list is not exhaustive. However, where the agent incurs one or more of the above risks or costs, the agreement between agent and principal will not be qualified as an agency agreement. The question of risk must be assessed on a case-by-case basis, and with regard to the economic reality of the situation rather than the legal form. For practical reasons, the risk analysis may start with the assessment of the contract-specific risks. If contract-specific risks are incurred by the agent, this will be enough to conclude that the agent is an independent distributor. On the contrary, if the agent does not incur contract-specific risks, then it will be necessary to continue further the analysis by assessing the risks related to market-specific investments. Finally, if the agent does not incur any contract-specific risks and risks related to market-specific investments, the risks related to other required activities within the same product market may have to be considered. © European Commission

Case Comments

New Zealand Competition Authority The New Zealand Competition Authority amends the authorisation it granted for a cooperation agreement between two horse and greyhound betting companies to also apply to a multinational sports betting company (TAB / Tabcorp / Entain)

Commerce Commission amends TAB/Tabcorp authorisation* Following a request from TAB New Zealand, the Commerce Commission (Commission) has decided to amend the authorisation granted by the Commission to certain arrangements between the New Zealand Racing Board (now called TAB) and Tabcorp (...)

New Zealand Competition Authority The New Zealand Competition Authority receives a request to vary the terms of an existing cooperation agreement between two horse and greyhound betting companies (TAB / Tabcorp / Entain)

TAB seeks variation to authorisation of its arrangements with Tabcorp to reflect strategic partnership agreement with Entain* The Commerce Commission (Commission) has received a request from TAB New Zealand (TAB) seeking to vary the authorisation granted by the Commission to certain (...)

Aymeric Louvet Commercial agency: The Court of Appeal of Besançon determines the indemnity for a mandate of common interest by reference to case law on the indemnification of commercial agents and validates the clause excluding commissions earned from previous customers (Salzenbrodt / Perrin)

Facts. Collonil (then parent company Salzenbrodt Gmbh) - a distributor of shoe care products - entrusted Perrin - a specialist in socks and tights under the Berthe aux grands pieds brand - with an exclusive mandate to sell its products to shoe stores and shoemakers. The contract stipulated (...)

Stéphane Brena Commercial agency: The French Supreme Court reaffirms that serious misconduct committed by the commercial agent prior to the termination of the contract but discovered afterwards cannot be depriving of the right to compensation (SDR / Eovi Aesio)

Facts. A commercial agency contract signed in 2004 was terminated by the principal without notice or compensation. In its letter of termination dated January 23, 2015, the principal claimed that the agent had committed serious breaches of his obligations, and that these breaches - deprived of (...)

Anne-Cécile Martin Commercial agency: The French Supreme Court confirms that serious misconduct discovered after the termination of the contract has no bearing on the agent’s right to compensation and provides an interesting solution on the assessment, in this respect, of the terms of the termination letter sent by the principal (SDR / Eovi Aesio)

In the field of commercial agency, this quarter we’ll be highlighting an interesting decision concerning the consequences of the agent’s gross misconduct being discovered by the principal after his contract has been terminated. The French Supreme Court has recently modified its case law to (...)

Stéphane Brena Sales agency: The Court of Justice of the European Union considers the commissions that the agent loses, to include those which would have been received by the agent if the contractual relationship had continued, even if the planned commissions would be one-time lump-sum commissions (QT / O2 Czech Republic)

Facts. In 1998, an agency agreement was concluded between a Czech company and a sales agent of the same nationality. The contract mainly concerned the distribution of telecommunication services and the sale of cell phones, and stipulated a single lump-sum remuneration for all new contracts (...)

Aymeric Louvet Commercial agency : The Paris Court of Appeal declares unwritten the clause by which the agent waives the termination indemnity in exchange for the right to exploit the principal’s customer file after the termination of the contract ( Paris Capital)

Facts. Coldwell Banker, a real estate agency and member of the eponymous international network specialized in luxury real estate, terminated a commercial agency contract for serious misconduct. The agent contested this misconduct and requested payment of the termination indemnity. The debate (...)

Stéphane Brena Commercial agency : The Paris Court of Appeal considers that a commercial agent is someone whose mission is to market the principal’s products, to look for new clients and to negotiate contracts (Consult Plus / Afapark)

Facts. An intermediary company had a relationship with another company producing/distributing visual and audio guidance systems in car parking lots, based on a contract, repeatedly renewed, entitled "business contributor contract", for a geographical area covering France, Belgium, Luxembourg, (...)

Anne-Cécile Martin Commercial agent: The French Supreme Court rules on the applicability of the French commercial agency protection regime to a foreign commercial agent whose contract had been governed by French law (CLS Rémy Cointreau / Select Wine Merchants)

This quarter also saw the publication of a decision by the French Supreme Court (Cour de cassation) on the law applicable to commercial agency contracts. The facts of the case are straightforward. A French company had entered into an "exclusive agency agreement" with a Canadian company, (...)

Stéphane Brena Commercial agent: The Paris Court of Appeal considers that a commercial agent is someone whose mission is to develop the principal’s clientele, a mission which can be ensured by means of information, advice and discussion actions, without requiring the ability to modify the contractual terms ( STS / Zinio)

Facts. A company, providing digital press publishing services to magazine publishers, had entrusted a distributor with "representation, prospecting and development" assignments under successive contracts since 2008. In 2016, the parties entered into a new contract, entitled "commercial agent (...)

Stéphane Brena Commercial agency : The French Supreme Court, operating a reversal of case law, decides that the serious fault of the agent prior to the termination not referred to in the letter of termination because of its late discover, cannot be invoked by the principal (Acopal / Paniers Terdis)

Facts. Since 2008, a company had been working as a commercial agent for a principal who had clearly tolerated the representation of competing products by the agent. In 2013, a commercial agency agreement was signed by the same parties, expressly stipulating that the agent " may not accept the (...)

Nicolas Ferrier Severance payment: The French Supreme Court reverses its position by refusing that the agent’s serious misconduct committed before the termination of a contract but discovered afterwards takes away his right to severance pay (Acopal / Paniers Terdis)

Three recent rulings deserve a grouped commentary because they allow us to revisit the conditions of the agent’s termination indemnity. In the first case (Cass. com., Nov. 16, 2022, no. 21-17.423: Lettre distr. déc. 2022, note S. Brena; JCP E 2023, 1004, note Ph. Grignon), the principal (...)

Anne-Cécile Martin Commercial agency: The Court of Justice of the European Union recognises the possibility of excluding the sub-agent’s right to compensation in the event of the continuation of relations between the sub-agent and the principal (Herios)

Commercial agency is at the heart of the case law of this quarter (see below), as evidenced by a first decision rendered by the Court of Justice of the European Union concerning the sub-agent’s right to indemnity in the event of continuation of relations between the latter and the principal. (...)

Anne-Cécile Martin Commercial agency: The Court of Justice of the European Union confirms the suppletive nature of the provisions conferring on the agent the right to receive a commission for transactions concluded, during the term of the agency contract, with a third party whose clientele he had previously obtained for transactions of the same kind (Rigall Arteria Management)

We also note a decision rendered this quarter by the Court of Justice of the European Union concerning the scope of the provisions of Article 7, §1, b) of Directive 86/653/EEC conferring on the agent the right to receive a commission for transactions concluded, during the term of the agency (...)

Articles

Romain Papy Algorithmic agreements and competition law

Digital technologies can have both positive and negative effects on competition. The consumer benefits fully from the effect of increased transparency and competition through the posting of rates online. Nevertheless, the consumer could be harmed by the facilitating effect of algorithms in the (...)

Emmanuelle Claudel, Nicolas Ferrier, Patrice Bougette, Frédéric Marty, Florence Ninane, Noemie Bomble, Irène Luc, Andreas Mundt, Olivier Guersent, Marion Carbo, Charlotte Colin-Dubuisson, Sima Ostrovsky, David-Julien dos Santos Goncalves Perspectives on the proposed reform of the Vertical Restraints Regulation and its Guidelines

The On-Topic aims to present a range of views on the European Commission’s proposed reform of the Vertical Restraints Regulation and its Guidelines. The contributors are representatives of the European Commission and competition authorities, practitioners, legal researchers and economists. (...)

Philippe Prevel EU Distribution Law

The new edition of EU Distribution Law, published six years after the previous edition, is concerned with the competition rules prohibiting anti-competitive agreements and behaviour affecting trade between Member States, and the special rules which protect commercial agents. Under EU law such (...)

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