The use of self-employed agents abroad is a long-established method of marketing and selling. The agent concludes contracts for the supply of goods and services on behalf of the exporting firm. The agent usually works on the basis of a commission.
The agent in this context is usually the exporter’s representative in another country. He is not the principal’s employee. He is an independent contractor who works on his own account.
The agent’s authority will depend on the terms of his appointment. The agent may be authorised only to introduce third parties to the exporting firm, leaving decisions as to whether to conclude the contract of supply, to the home firm. Alternatively, the agent may have authority to actually conclude contracts with third parties on behalf of the home/export firm.
A distributor is not an agent because he does not act on behalf of the supplier/ principal and is not accountable to it. He buys his own goods and sells them on his own account.
Relations with a commercial agent are subject to common EU-wide legislation. Most of the provisions cannot be overridden by the terms of the agency contract.
Exclusive agency contracts may have implications under European Union law. The European Union has granted a block exemption which applies subject to certain conditions.
Duties of Agent
The extent of the agent’s authority will depend on the agreement with the domestic supplier. The agent will usually have the power to bind the exporting firm who appoints him in relation to the business concerned. Accordingly, the exporter should make be satisfied in relation to its reputation and standing.
There may be a probationary period before a long-term appointment is entered by the supplier/ principal with the agent. A personal relationship should ideally be established between the agent and the appointing business. The agent should be regularly visited in order to maintain confidence and verify quality assurance.
The agent must act in good faith in the course of the agency. He must not accept bribes or take secret profits. He must not divulge confidential information to third parties.
The agent must account to the principal for all monies and property received. He must keep records and keep the principal’s money and property, separate from his own. He must pay over to the principal all monies received on the latter’s behalf. He will be entitled to a set-off or lien or monies owed to him.
The agent may undertake to promote the exporter’s business in the relevant territory. He may many of the obligations of a distributor. However, the agent contracting on behalf of the principal in selling goods and providing services. The distributor trades on his own account.
The principal is the person who appoints the agent. In this context, he is the domestic supplier/ exporter. The principal’s duties are defined principally by the agency agreement.
The principal must act dutifully and in good faith towards the agent. The principal must provide the agent with the necessary documentation and information to enable him to sell the goods or provide the service.
The principal must advise the agent within a reasonable time if he anticipates that the volume of business will be lower than expected. The principal must inform the agent of his acceptance or rejection or non-performance of any contract, involving the agent.
At common law, the principal must pay commission on sales and business actually acquired by the agent through his efforts. An agent may be obliged to indemnify the principal against loss sustained through the insolvency of customers introduced by him. This disincentivises the agent from introducing customers, without regard to their financial standing.
An agent is entitled to commission where he has earned it in accordance with the terms of the contract. Sometimes agents are paid fixed sums on account of the commission which has accrued to them.
An agent cannot generally claim commission if a customer places an unsolicited order with the principal. This rule can be modified by trade or custom or by the terms of the contract.
It is a matter of interpretation of the agency agreement, whether an agent is entitled to commission for a repeat order. Issues may arise in relation to repeat orders during the contract and after the contract.
An agency agreement may provide a self-employed agent with the sole or exclusive rights in a particular territory. In this case, the agent is paid commission on all sales emanating from the territory whether procured by his efforts or otherwise.
Other Agent Types
Continental European countries recognise “commissionaires” as a special class of self-employed commercial agent. This is sometimes referred to in English as a “commission agent” or a “commission merchant.”
A commissionaire is a person who has a relationship with the principal, but as regards third parties acts in his own name. No direct contract exists between the principal and the third party.
The commissionaire is accountable to the principal for the profit on the transaction. He must use reasonable diligence in the performance of his duties. He may not make an undisclosed profit or bribe.
Unlike the position with common law agency, the principle is not in a contractual relationship with the third part. The principal cannot recover the price from the third party. He liable for any defects in the goods.
A del credere agent undertakes to indemnify the principal for any loss which he may have sustained, owing to the failure of a customer introduced by him to pay the purchase price.
A mercantile agent is an agent who carries stock. He has authority in the ordinary course of his business to sell the goods or consign goods for sale or buy goods or raise money on the security of the goods. Third parties acting in good faith with a mercantile agent are protected against the fact that they may not have title to the goods, under certain circumstances.