Legal Framework of Agency Agreements
Agency agreements are governed by Presidential Decree 219/1991 “On Commercial Agents in compliance with Directive 86/653/EEC” (“PD”) which was supplemented by Presidential Decrees 264/1991, 249/1993, 88/1994 and 312/95.
In spite the fact that the PD solely regulates commercial agency agreements that relate to the sale of goods and as per Article 14(4) of L. 3557/2007, the PD also applies mutatis mutandis to commercial agency agreements that relate to the provision of services.
Which is the main content of an Agency Agreement?
As in any agreement, the will of the parties must have coincided as to the essentials of their relationship. Such essentials will determine the content of the agreement, how this agreement will be executed, as well as the commission or other remuneration payable. However in practice, the written agreement will include many more provisions regulating the relationship of the parties, especially to the extent it is not regulated by law.
The typical clauses in such agreements are the preamble, the definitions and clauses relating to the territory, the commission and the manner of its payment, the obligations of parties, intellectual and industrial property, exclusivity, non-competition, duration and indemnity payable for termination, applicable laws, arbitration or prorogation of jurisdiction, and the typical miscellaneous clauses, such as those dealing with notices and severability.
What are the basic aspects of an Agency Agreement?
The material aspects of a commercial agency agreement are: (a) the fact that it is bilateral, (b) the stability/permanency of the relationship, (c) the continuing provision of services by the commercial agent, (d) the fact that the commercial agent is independent and can freely provide such services (he can freely organise his commercial activities and has his own commercial premises) and (e) the fact that the commercial agent acts in the name of and on behalf of the principal. This last feature is also the main characteristic of this type of agreements. As per the foregoing, the commercial agent executes the ancillary task of mediating sales in the name and on behalf of the principal.
Exclusivity is a usual but not characteristic term in commercial agency agreements and, therefore, the parties are free to determine the content of the relevant provision as per article 361 of the Greek Civil Code.
Are there any formalities regarding the Agency agreements?
Commercial agency agreements can be concluded informally.
What are the main obligations of the agent arising from an Agency Agreement?
According to article 4(1) of the PD, “the commercial agent must, upon exercising his activities, look after the interests of the principal and always act in good faith. In particular, the commercial agent must: (a) engage with due diligence in negotiations and potentially in the conclusion of the transactions assigned to him; (b) communicate to his principal all necessary information available to him; and (c) comply with reasonable instructions given by his principal”
Therefore, a fundamental obligation of the commercial agent, also constituting the essentiale negotium of the agreement, is to care for the principal’s interests.
What are the main obligations of the principal arising from an Agency Agreement?
The obligations of the principal are determined in article 4(2) and (3) of the PD. More specifically: “The principal must, during his relationship with the commercial agent, act lawfully and in good faith. In particular, the principal must: (a) provide the commercial agent with the necessary documentation relating to the goods concerned; and (b) provide to the commercial agent the information necessary for the performance of the agency agreement, and in particular notify the commercial agent within a reasonable period, once he anticipates that the volume of commercial transactions will be significantly lower than that which the commercial agent could normally have expected. In addition, the principal must inform the commercial agent within a reasonable period of his acceptance, refusal, and of any non-execution of a commercial transaction which the commercial agent has procured for the principal.”
In other words, the fundamental obligation of the principal is to act in good faith towards the agent.
What is a commission?
As arises from articles 5 and 6 of the PD, the remuneration of the commercial agent is the percentage of commission on the value of the sales made by the principal. In practice, this percentage is usually strictly defined in the commercial agency agreement and therefore is beyond dispute. In the absence of any agreement on this matter, the Agent shall be entitled to a reasonable remuneration.
According to article 7(1) of the PD, the claim for commission exists as of the time and to the extent that one of the following applies: (a) the principal has executed the transaction; (b) the principal should, according to his agreement with the third party, have executed the transaction; (c) the third party has executed the transaction;
When and how is an Agency Agreement terminated?
First of all note that the termination of a commercial agency agreement varies depending on whether the same is of limited or indefinite term.
A combined reading of the respective provisions of PD indicates that the indefinite term commercial agency agreements may be terminated either by notice, observing the terms of notice set in article 8(4), or by immediate termination at any time (without observing any term of notice), provided however that serious grounds justifying such a termination apply.
In the latter case, the commercial agency agreement is terminated at any time because of the failure of one party to carry out all or part of his obligations and/or where exceptional circumstances arise.
The limited term commercial agency agreement is ipso jure terminated upon expiry of its duration, (argument from, article 8(2) of the PD). It can also be immediately terminated at any time (without observing any term of notice), as per above.
Finally, the PD provides expressly that the death of the commercial agent constitutes ipso jure grounds for terminating the agreement.
What are the consequences of terminating an Agency Agreement? (Clientele Compensation and Further Claims on Behalf of the Commercial Agent)
The termination of a (limited or indefinite term) agency agreement, gives rise to a claim for clientele compensation on behalf the commercial agent. According to Article 9 of the PD, the commercial agent has the right to claim clientele compensation, i.e., he has the right to be indemnified under the condition that he has contributed new customers or has significantly advanced business with existing customers. This is the most important claim on behalf of the commercial agent.
In particular and according to Article 9 of the PD:
1 (a) The commercial agent shall be entitled to compensation, after termination of the commercial agency agreement, if and to the extent that, he has contributed new customers to the principal or has significantly increased the volume of business with existing customers and the principal continues to derive substantial benefits from the business with such customers and the payment of this compensation is equitable having regard to all the circumstances and, in particular, the commission lost by the commercial agent on the business transacted with such customers. Such circumstances shall include the application of a noncompetition clause within the meaning of Article 10 hereof. (b) The compensation amount may not exceed a figure equivalent to indemnity compensation for one year calculated from the commercial agent’s average annual remuneration over the preceding five years and if the agreement goes back less than five years the compensation shall be calculated on the average for the period in question. (c) The grant of such indemnity shall not prevent the commercial agent from seeking other damages he has sustained, as provided in the provisions of the Civil Code.
Such compensation cannot exceed the agent’s annual average fees, calculated on the fees of the five preceding years (and in case the agreement was shorter lived, on the respective period). From the above provisions, this claim can be brought forth provided that the below mentioned preconditions apply concurrently:
- The agent contributed new customers or significantly increased business with existing customers during the course of the agreement;
- The principal retains significant benefits resulting from business with such customers after the agreement is terminated; and
- The amount of the compensation is “equitable”;
In addition, the agent must have notified the principal to this effect within one year from the termination of the agreement. Finally, note that this claim is subject to a five year statute of limitation.
Further to clientele compensation and as per article 9(1) (c) of the PD, the agent is in principal also entitled indemnity pursuant to the general provisions of the Greek Civil Code and other laws.
What happens to the non-competition term of an Agency Agreement after termination?
Following termination of the agency agreement, the non-competition clause is binding for one year. Of course the clause is only valid if it has been agreed in writing. Furthermore, the clause must relate to the goods stipulated in the agreement and the territory or the group of customers handled by the agent.
Which is the applicable law in Agency Agreements?
The agreement is governed by the law chosen by the parties. The choice must be expressed or demonstrated with reasonable certainty by the terms of the agreement or the circumstances of the case. Such choice however, may not circumvent mandatory European Community law provisions adopted for the purpose of ensuring public interests (of a political, social or economic nature).
In case of a dispute would the principal be exposed to local jurisdiction?
The parties may stipulate in writing a clause determining jurisdiction (prorogued jurisdiction). Furthermore, all private agreements in general (including the one in question) can be subject to arbitration, as long as such agreement is concluded in writing.
Τax considerations regarding in Agency Agreements
If the agent and the principal are established in Greece, both are subject to taxation in the same. This means that they must keep the books required by commercial and tax laws, file tax returns, withhold taxes and attribute them to the Greek State. If however the principal is established in another country several issues arise.
General tax legislation provides that a foreign business is subject to corporate income tax in Greece, either for income generated within Greece or as a result of its permanent establishment in the same. An enterprise is subject to such provisions if it sells goods or provides services in Greece though an agent, authorized to negotiate and conclude agreements in the name of the principal.
Therefore, if documents relating to transactions with Greek customers are signed by an authorized agent, the profit from these transactions will be taxed in Greece. If they are signed by the principal, the profit would be considered as generated outside Greece. Of course the above are subject to bilateral treaties signed between Greece and other countries for the avoidance of double taxation.
As for the Value Added Tax (“VAT”), note that the principle is charged with VAT on commissions that it pays. The agent collects the VAT on his commission and pays it to the Greek State, regardless of whether the principal is situated in Greece, in an EU member State, or in a third country.
II. DISTRIBUTION AGREEMENT
What is a Distribution Agreement and how this Agreement differs from the Agency Agreement?
A distribution agreement is a permanent/continuous contractual agreement on the basis of which, the supplier is obliged to sell (exclusively or not) the products to the distributor in a specific territory while the latter undertakes the obligation to purchase supplier’s products (exclusively or not), according to the latter’s terms and conditions.
The commercial agent acts in the name and on behalf the principal while the distributor purchases and sells products in his own name. Therefore the main difference between the two lies in the kind (quality) of business risk which they assume. That is to say, the commercial agent may lose his commission if the sale of goods is frustrated whereas the distributor runs the risk of not collecting the price for the goods.
Lastly distribution agreements may appear in the following forms: (a) Exclusive supply agreement; (b) Exclusive customer allocation agreement; and (c) Selective distribution agreement;
Legislative framework of distribution agreements
Contrary to commercial agency agreements distribution agreements are not directly regulated by law. Distribution agreements are therefore unregulated agreements.
However Greek Courts find that the PD applies mutatis mutandis on all intermediation agreements. This view was partially adopted by the Greek legislator. Article 14(4) points (a) and (b) of L. 3557/2008, established the “mutatis mutandis application” of the PD solely with respect to commercial agency agreements concerning the provision of services as well as exclusive distribution agreements.
After great debate, on 27.6.2013 the Supreme Court in Plenary confirmed the mutatis mutandis application of the PD in all intermediation agreements (e.g. non exclusive distribution agreements, commission agency agreements, brokerage agreements, etc.), provided of course that the respective criteria set by the PD are met. This ruling was based on the finding that there exists “an involuntary lacuna, which the legislator should have predicted and cover (primary lacuna)”
Which are the basic criteria for the mutatis mutandis application of the PD in distribution agreements?
Jurisprudence has established the following criteria: (a) If the distributor acts as part of the commercial network of his counterpart having the same weak position and intense dependency on the producer as a commercial agent. Furthermore, it is examined if the distributor has the same level of integration in the distribution network of his counterpart; (b) If he contributes to the growth of his counterpart’s clientele having to a significant extent duties comparable to those of a commercial agent; (c) If he undertakes the responsibility not to compete his counterpart; (d) If his clientele is known to his counterpart during the agreement and upon its termination the same is handed over to the latter; and (e) If in general the financial activity and benefits of the distributor are similar to those of an agent.
Note that the crucial element which will lead to the mutatis mutandis application of the PD in the distribution agreement, as well as all other intermediation agreements, is whether or not the supplier is in a position to draw benefits (make sales) from the clientele contributed by the distributor or whether his affairs have been significantly advanced throughout the duration of the agreement, preserving such benefits after the agreement is terminated.Already, the Supreme Court in Plenary has very recently (27.6.2013) handed down decisions 15/2013 (concerning a permanent travel brokerage agreement) and 16/2013 (concerning a commission agency agreement) which ruled in favour of the mutatis mutandis application of the PD, in all intermediation agreements, provided of course that the respective criteria are met. More specifically, the Court found that there exists an involuntary legislative lacuna (primary lacuna) which makes it possible for the PD to be mutatis mutandis applied on allother intermediation agreements.
Which is the main content of a Distribution Agreement?
Standard clauses in a distribution agreement are indicatively: Contacting parties, appointment of the distributor as exclusive or not, description of the products and prices of the same, definition of the territory, obligations of the parties, non-competition, resale prices, distributor’s margins, duration, termination, post termination terms, applicable law and jurisdiction.
Are there any formalities regarding the Distribution Agreement?
Distribution agreements can be concluded informally.
What are the main obligations of the Distributor arising from a Distribution Agreement?
In general, both the distributor and the supplier have enhanced fiduciary duties as well as an enhanced obligation to protect the interests of their counterpart.
More specifically the distributor has the following obligations: (a) To abstain from competing the principal throughout the duration of the agreement as well as after the termination of the same; (b) To maintain confidentiality; (c) To constantly and exclusively promote the products of the principal in the territory contractually assigned to him, being on the same time subject to the latter’s authority regarding the course of sales or purchases as the case may be; (d) To advertise the goods even on his own expenses; and (e) To inform the principal of his clientele;
What are the main obligations of the principal arising from a Distribution Agreement?
The main obligation of the supplier is to sell his products to the distributor in the agreed territory and to continuously support him (i.e., provide documents, certificates or advertising leaflets regarding the products, machinery, know-how, trademarks, information about the relevant market, methods of marketing). Other ancillary obligations can arise from good faith in concreto, also taking into consideration the level of distributor’s incorporation in the supplier’s overall network.
When and how is a Distribution Agreement terminated?
Provided that the conditions for the mutatis mutandis application of the PD are met, matters concerning the duration and termination of a distribution agreement are regulated by the same. Therefore what has been mentioned above for commercial agents also applies for distributors.
What are the consequences of terminating a Distribution Agreement?
Provided that the conditions for the mutatis mutandis application of the PD are met, matters concerning the consequences of termination and in particular the clientele compensation are regulated by the same. Therefore what has been mentioned above for commercial agents also applies for distributors.
However, having noted that the indemnity of a commercial agent is calculated based on the agreed sales commission how, is the indemnity of a distributor calculated since he does not receive a commission, but buys and sells products instead?
The answer is that the distributor’s “commission” is determined by the profit emerging from the difference between the purchase and selling price of the respective products.
In case of a dispute would the principal be exposed to local jurisdiction?
What has been mentioned above for commercial agency agreements also applies for distribution agreements.
Tax considerations regarding in Distribution Agreements?
A foreign supplier is not exposed to any taxes in Greece. The profit from sales of goods is considered as generated outside of Greece and is therefore not taxable in the same; nor does the mere sale of goods create a permanent establishment in Greece under any circumstances.
There are no special taxes related to a distributor’s business premises. In any import of goods from third countries (non EE members Sates), VAT is paid at the customs clearance and is deduced from the VAT corresponding to the sales (outflows) of the distributor.
In case of intra-Community movements of goods (i.e. from an EU member State into Greece) no VAT is paid, but the distributor is debited and credited with the relevant amount. So the transaction is neutral. Subsequently, when the distributor sells the goods, he pays to the State the full amount of the corresponding VAT, not having any credit from the acquisition of goods.
