Commercial Agency Contracts in España

In Spain, commercial agency agreements are regulated by the Act on Agency Agreement 12/1992 of May 27 (hereinafter “the Agency Act” or “the Act”). The Act has been adopted following the European Directive 653/86/EC, became effective on January 1, 1994 and has been modified on several occasions in 2003 and 2011.

The Act contains special rules regarding goodwill (clientele) and damages indemnity, ter-mination, previous notice, remuneration, post-contractual and non-competition covenant, obligations of the parties... in similar terms of the EU Directive.

Its rules are mandatory except that expressly mentioned in it and is applicable to all kind of independent self-employed agents when no other specific disposition is applicable to them (art. 3.1).

The Act is not applicable to agents operating in stock exchange or regulated markets (art. 3.2) and, according to the Supreme Court, the Act is only applicable to insurance agency agreements in a residual way (see also Insurance Intermediaries Act 26/2006 of July 17).

The activity carried out by employees acting as agents is regulated by Royal Decree 1438/1985 of August 1 and these relationships are affected by labour (not commercial) law. The consequences for these agents are, therefore, different.

The question whether an Agent is considered “commercial” or “employee” is, therefore, crucial to determine the applicable law.

The first criterion is if the Agent accepts the risk for the operations in which he intervened. In this case, Agent will be always being a “commercial Agent”.

But if the Agent does not accept that risk (which is the most frequent situation) the second criterion to solve is if the Agent is dependent or independent from the Principal.

In case of agents-entities this question does not usually exist because companies cannot be employees (dependent agents). But in case of agents-individuals the question will be decided considering the higher or lower independency from the Principal.

An Agent will be considered as “Commercial Agent” (and therefore submitted to the Agency Act), when he is independent, i.e., he is free to organise his activity and timetables according to his own criteria, with his own personnel and premises and his own admin-istration. In return, an Agent will be considered a “Dependent Agent” (and submitted to labour law and particularly to the Royal Decree), when he acts according to the directions of the Principal (the Employer) who decides on the main questions of the Agent’s organi-zation (timetable, itineraries, distribution criteria, how orders are managed…).

Royal Decree for dependent agents includes regulation on the way the agreement shall be agreed (in writing and in three copies), the duration (free will of the parties), holidays, specific dispositions on clientele, its management and compensation (to be determined by a judge in case the parties have not agreed on it), instruments for the functioning of the relationship, reciprocal obligations of the parties, and termination according to the Gen-eral Labours Statute.

According to these principles, we consider quite improbable that a foreign Principal with no real possibility of having employees in Spain, would appoint a dependent Agent. There-fore, Comments made in this Guide are referred to Commercial (independent) agents and the Agency Act.

Agency Act does not provide a definition of “Agent”. It only contains a definition of the “agency contract”. Nevertheless, using these elements, we could deduce a definition of Agent.

According to the Act and the case law interpreting it, an Agent:

• is an individual or moral person acting as an independent intermediary not linked with a labour relationship;
• is obliged with a third person that we will call “the Principal”;
• his activity consists in promoting commercial transactions on behalf of the Principal or to promote and to conclude transactions (when expressly authorised to do so) on behalf of the Principal (except those transactions carried out in official or stock ex-change markets);
• does not assume, unless expressly agreed otherwise, the risk of these transactions;
• has a relationship built on a continuative or stable basis with a determinate or in-determinate duration;
• is acting in exchange of a remuneration that can have different forms.

From that definition we can exclude from the definition of “Agent” and, therefore, from the application of the Act, other intermediaries:

• occasional Intermediaries because their relationship is not built on a continuative or stable basis;
• self-employed agents because they are not “independent” from the Principal but employees (dependents);
• distributors, because they are acting on their behalf as independent dealers in a buyer-reseller activity;
• franchisees, because in this relationship there is more than just a promotion and it also regards trademarks and marketing, common image, network, services, com-mon know-how.

An Agency agreement contains the following points:

• the appointment the Agent, either an individual or a company, as an independent party;
• obligations of both parties. The Agent shall organize the promotion as an inde-pendent entrepreneur and communicate to the Principal all the information neces-sary to functioning of the agreement;
• the Principal will be obliged to grant to the Agent all the necessary and appropriate information to carry out the activity and to do it in a timely way;
• the remuneration of the Agent that could be a percentage on each transaction, a fixed amount or a combination of both (further information is contained in §14E);
• duration of the agreement that can be determinate or indefinite. In the absence of such provision, agreement shall be considered for an indefinite duration;
• the necessary previous notice for the termination of the agreement with indefinite duration. In case the parties have not agreed on that according to the general pro-visions of the Act (see herein §10), previous notice to terminate indefinite agree-ments is foreseen in the Act;
• goodwill (clientele) indemnity. If foreseen it shall respect the principles contained in the Act that are, in any case, of application (see §12).

The following are also some elements where the parties can decide more freely according to the Act:

• the possibility for the Agent to assume the risk of the transactions with a specific compensation for it;
• appointment of sub-agents needs the express authorization of the Principal (see also §14B);
• exclusivity or the possibility to act on behalf of several Principals. According to the Act and unless is foreseen differently, the Agent can represent several other princi-pals (art. 7). On the other hand, Agent can be appointed as an exclusive basis or not although usually exclusivity for a specified geographical area (or a specific kind of customers, or products) is granted (see also §14D);
• regulation on Agent’s expenses and the obligation to reimburse them: according to the Act unless otherwise agreed, the Agent has not the right to be reimbursed for his expenses (art. 18);
• restrictions on competition (art. 20, 21). There is the possibility to restrict the Agent the possibility to represent competitive products or services during the agreement and also once the agreement has come to an end (see §14C);
• the right to a written agreement: although the agency agreement is valid even without written form, the parties have the right to ask the other for a written one (art. 22).

In any case, parties are free to decide any other element, clauses or conditions to the agreement, provided these are lawful and not against the compulsory principles of the Act.

Generally, under Spanish law, commercial contracts do not need specific form to be valid. This is the case for Agency agreements where the Act expressly permits the oral form.

This said, although parties in an agency agreement are free to have a non-written form, as previous mentioned, either party has the right to compel the other party to put their agreement in writing (art. 22). The lack of a written form will not be an issue for the valid-ity of the agreement but will need additional evidence to prove, also its contents, it in case of conflict.

Agents, either an individual or a company, are independent entrepreneurs. Therefore, they have to comply with all the legal requirements depending on their circumstances. There are not special obligations for agents different of those applicable to other individuals-entrepreneurs or companies. Particularly, agents-individuals shall be registered at the social security and tax offices in order to carry on their business. But also, companies need to be fully incorporated according to their social structure, in order to be able to carry out businesses.

Agents (either individuals or companies) do not need to be registered at any professional bar or association to perform their business and do not need to have special qualification for their activity.

Exclusivity can be agreed by the parties. Exclusivity can be that the Agent is the only one appointed in a specific territory of that the Agent is appointed for a specific kind of clients or products.

In any case, exclusivity is not an essential part of the Agency agreement. Therefore, in or-der to claim such right it must be agreed by the parties. If the parties have not expressly agreed such exclusivity, the agency will be considered non-exclusive. Nevertheless, the ac-tivity of the parties could show that this exclusivity, although not contained in the agree-ment, was in fact accepted.

As a general rule, the party claiming it (usually the Agent) shall be able to prove it in case of contestation.

It will usually depend on what the parties have agreed, the concrete clauses of the Con-tract and the extension of the Agent’s exclusivity and territory.

If the Agent is appointed as an exclusive Agent for a complete country, all the clients and all the products with no restrictions, he usually will be entitled for commissions on online sales in this territory. If the Agent has been appointed for a limited area in this country, for specific clients or concrete products or services, it will be more complicated to claim such commissions.

In any case, parties are free to exclude these online sales either completely or at least share them.

During the contract, Agency Act permits the Agent, except if agreed differently, to also act as an Agent of a non-competitor to his Principal. On the contrary, in order to represent a competitor (a Principal providing identical or similar products or services) or to act in his own behalf, the Agent must receive the express authorization of his first Principal.

The Act also permits to limit the competition after the contract has expired. This non-competition after the contract cannot last more than two years or one year if the contract lasted for less than two years.

In order to be valid, such a non-competition clause has to be agreed in writing, and will on-ly be limited to the clients, geographical area and products represented by the Agent.

Although, at least in theory, this clause does not need to be agreed in the same contract (only the writing is required), my suggestion is to clearly include in it. Being a clause limit-ing the activity of the Agent, its interpretation will be restrictive and if it is not clear, it could be refused in case of discrepancy.

Further comments in §14C.

We can consider that an agency agreement is “international” when parties from different jurisdictions and situations of conflicts of law are involved. This said, an international agency agreement can be governed by a law other than Spanish law.

According to the Spanish Civil code general principle (art. 10.5) the contractual obligations shall be governed by the law to which the parties have expressly submitted, provided that it has some connection with the business in question; failing that, the national law com-mon to the parties; in the absence of it, that of the common habitual residence, and, ulti-mately, the law of the place of conclusion of the contract.

In the absence of choice, principles of conflict of law will be applied.

EU rules also foresee similar rules for contracts that shall be governed depending whether or not there is a choice by the parties. For additional information see the EU Guide on Agency agreements.

This said, the parties’ freedom to choose the governing law is not unlimited and it will be necessary to pay attention to the overriding mandatory provisions set forth in Article 9 of the Regulation: those provisions the respect for which is regarded as crucial by a country for safeguarding its public interests irrespective of the law otherwise applicable to the contract.

Yes. Parties in an international agency agreement are free to submit the agreement to foreign jurisdictions or arbitrators.

Agency Act establishes (Second Additional Disposition) the exclusive competence for courts of the domicile of the Agent. This principle does not necessarily imply that the juris-diction is also exclusive for Spanish courts. In fact, courts have made the distinction be-tween jurisdiction and competent courts leaving the parties free to settle their disputes al-so by arbitration or foreign courts.

In fact, the Spanish Supreme Court has accepted the clause where the foreign Agent sub-mitted the disputes to Spanish courts although his domicile was not in our country. Accord-ing to this judgement, the Agency Act provision on settling disputes has been interpreted as a rule to decide which court is competent if the jurisdiction is attributable to Spanish courts, but not a mandatory rule to decide the Spanish jurisdiction in case the Agent is res-ident in Spain.

EU Regulation n. 1215/2012 of the European Parliament and of the Council of 12 Decem-ber 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters is also of application. For further details, see the EU Guide on Agency Agreements.

This said, it seems highly advisable when drafting the agency contract to expressly indicate the competent jurisdiction/arbitration. In case the Spanish one will be chosen for a Span-ish Agent; the mandatory disposition of the Act implies that courts of his domicile will be competent.

As previously said, it is also possible to settle disputes in international agency agreements by arbitration. Spanish Arbitration Act (art. 2.1) permits to do so in all disputes that parties can freely dispose of. This means that all the disputes related to the interpretation and en-forcement of an agency contract can also be settled by arbitration.

Recognition of arbitration awards settled in a foreign country will be ruled by the New York Convention of 1958, without prejudice of other possible international conventions. The procedure will follow the ordinary civil procedure for the enforcement of decisions issued by foreign courts. Disputes between agents and Principals can also be solved by mediation (for further de-tails see §14H of this Chapter).

Foreign judicial and arbitral decisions in commercial matters are generally recognizable and enforceable in Spain, subject to certain conditions and exceptions. Spanish Courts have exclusive jurisdiction on the recognition and enforcement of foreign decisions in the Span-ish territory (art. 22.1 of Judicial Organic Act 6/1985 of July 7th) which cannot decline ju-risdiction (ibid. art. 22 octies.3).

Recognition and enforcement of decisions issued by courts of EU member States are ruled by Regulation 1215. For further details see the EU Agency Guide.

If domestic law is applicable, judicial decisions will be recognised or enforced by the proceeding of “exequatur” according to the Civil Procedure Act and the Act 29/2015 of July 30 on International Cooperation in civil matters.

If there is not any other convention or bilateral treaty, the judicial decision must fulfil the following conditions:

• the decision has to be definitive. That means the impossibility to appeal against the decision;
• the decision has not to be against the public order;
• the fundamental right of defence was not manifestly jeopardized;
• the decision has not been issued on a subject whose competence was exclusive of the Spanish Courts or on a subject without a reasonable connection with the deciding judge;
• the decision is not irreconcilable with a previous Spanish decision;
• there is not a pending case in Spain between the same parties and with the same object started before the foreign procedure.

And as mentioned before, arbitral awards are recognizable and enforceable according to New York Convention of 1958.

Agency agreements are meant to establish a stable and continuous co-operation between the Agent and the Principal. Agency agreements for a non-stable relationship (occasional intermediaries, mandate) are not ruled by the Act.

Under Spanish law, agency agreements may be entered into for a limited or an unlimited duration (art. 23). In case nothing is foreseen in the agreement, it is deemed to be agreed for an indefinite term.

In case of a limited duration, the agreement will expire when parties have agreed, and the relationship will naturally end on the expiration date (art. 24.1). Nevertheless, in case an agreement with a limited duration continues to be performed, the Act transforms that agreement into an unlimited duration one.

If an agency agreement has been agreed without a limited duration (art. 25), either party may terminate it unilaterally at any time and without cause by giving the other party a previous written notice. This previous notice will be of one month for each year the agreement has been in force with a minimum of one month (for agreements lasting less than one year) and a maximum of six months (for those agreements lasting six or more years). In case the agreement was initially of a limited duration but transformed into an unlimited duration one, the previous notice has to consider all the extension of the rela-tionship.

Parties are free to increase the time for the previous notice but the one agreed for the Principal cannot be higher than the one for the Agent.

Termination for breach is also possible. Parties are free to unilaterally and immediately terminate the agreement in some cases (art. 26): (i) when the other party has completely or partially breached the legal or contractual obligations; or (ii) in case the other party has been declared in bankruptcy (concurso de acreedores).

Termination for death. Agency agreement also ends in case of death or death declaration of the Agent. It is not the case in case of death or death declaration of the Principal, but his/her successors can terminate it with the necessary previous notice (art. 27).

According to Agency Act (art. 26) both parties are able to terminate the contract for total or partial breach by the other party of the obligations set forth in the law or in the contract. The Act does not define this breaching. Moreover, the Agent will not be entitled to the goodwill compensation nor the damages indemnity foreseen in the Agency Act if he did not respect the legal or contractual obligations (art. 30).

Therefore, it will be necessary to verify both the legal obligations and the specific ones included in the agreement.

Some examples derived from the law justifying an earlier termination by the Principal:

• f the Agent does not act loyally,
• if the Agent does not communicate all the information for the good development of the relationship, particularly the information related to the solvency of the clients,
• if the Agent does not follow the reasonable indications by the Principal provided these do not affect Agent’s independency,
• if the Agent does not receive from third parties claims regarding the quality or quantity of the products sold
• if the Agent does not have an independent accountancy for the activities carried out for the Principal,
• if the Agent appoints sub-agents or if he represents other similar products or services without the Principal’s authorization.

Some examples derived from the law justifying an earlier termination by the Agent:

• if the Principal does not act loyally,
• if the Principal does not make available to the Agent, sufficiently in advance and in appropriate quantity, the sample books, catalogues, price lists and other documents necessary for the exercise of his professional activity,
• if the Principal does not provide the Agent with all the information necessary for the performance of the agency contract and, in particular, if he does not warn the Agent, as soon as he is aware of it, when he foresees that the volume of acts or transactions will be significantly lower than what the Agent could have expected,
• if the Principal does not pay the agreed remuneration.

The contractual provisions that are usually claimed to terminate the contract:

• breach by the Agent of the non-competition clause or the Agent’s promotion outside his territory,
• breach by the Agent of the minimum turnover agreed. In this case, it is necessary that this was clearly and concretely set in the contract and accepted by both parties. A clause where the minimum turnover was only decided by the Principal is usually not accepted. In some cases, when the minimum sales were too strict and the Principal had accepted the non-attainment in the past, the breaching has not been considered an impediment to obtain the goodwill compensation. This was also the case when this minimum turnover was considered abusive or with no possibility to negotiate it.
  

Agency Act entitles the Agent to an indemnity if the agency agreement (either with an in-definite or definite duration) is terminated (art. 28). This is called the Clientele (or good-will) Compensation (Indemnity) and the Agent cannot validly renounce to this right, or re-duce it, at or before the signature of the agreement (art. 3).

When an agency contract terminates, the Agent has the right to the Clientele Indemnity if the following requirements are met:

• if the Agent has increased the number of clients or sensibly increased the activity with the previous ones;
• if the previous activity of the Agent is deemed to still produce substantial ad-vantages to the Principal;
• and this indemnity results appropriate due to the existence of agreements limiting the competition, loss of commissions or other circumstances.

In general terms, courts have considered that it corresponds to the Agent to prove that his/her activity has been positive for the Principal during the contract. In some cases, courts have denied this Indemnity when the Agent only showed abstract evidence but without identifying the clientele created, and without proving the real possibility of its continuity after the termination. In order to avoid this Indemnity, the Principal shall prove, in return, that the Agent’s activity is not deemed to produce substantial benefits after the termination or that the compensation is not equitable due to different reasons.

Clientele indemnity is also applicable to agreements terminated by death or death declaration of the Agent.

The amount of the indemnity is not fixed by the law which only contains the possible maximum amount. The amount shall not surpass, in any case, one year of remunerations received by the Agent calculated as the average in the five previous years or during all the agreement if it lasted less than five years (art. 28).

The Clientele Indemnity shall not be payable (art. 30):

• when the termination of the contract by the Principal was due to the breaching by the Agent of any legal or contractual obligation;
• when the termination is due to the Agent will, unless it was due to reasons imputable to the Principal or due to the Agent’s age, infirmity or illness and in case it was not reasonable to require his continuity as Agent;
• when the Agent has assigned, with the knowledge of the Principal, his rights and duties in the agency contract to a third person.

In addition of the Clientele Indemnity, the Agent is also entitled to ask for Damages Indemnity. Agency Act establishes (art. 29) that in case of termination of an indefinite agency contract by the Principal, this one will be obliged to indemnify the Agent for damages and prejudices caused by such termination (except in case of previous breaching of the Agent) provided it was not possible the amortization of investments the Agent had incurred on the Principal’s advice.

The right to ask for Clientele and Damages indemnities ends one year after the termination of the agreement.

Both indemnities (Clientele and Damages) do not prevent the Agent to ask for other differ-ent damages arising from the termination of the Agreement by the Principal (for instance, in case of lack of previous notice).

The mere existence of an Agent in Spain is not usually considered a permanent establishment of a foreign principal.

According to the ODCE Tax Convention Model and its comments, independent agents are not to be considered as permanent establishment (art. 5). The case could be different in case of dependent agents (those not covered by the EU Directive or, in some cases, for in-stance, a subsidiary of the Principal) and where the Agent has the possibility to conclude agreements on behalf of the Principal.

There are many other important legal or contractual aspects that are convenient to consider when a foreign Principal is appointing an Agent in Spain. We can mention the most common of them as permitted or foreseen in the Act.

It is also important to underline that a foreign Principal shall be aware of the general obligations included in the Act and applicable to the agreement (when ruled by Spanish law) if the parties do not agree in a different way.

A. Authority to conclude agreements on behalf of the Principal

According to our legal system, the Agent does not necessarily have the power to conclude contracts on behalf of the Principal.

A foreign Principal shall take into account that the Act accepts both possibilities: (i) an Agent only promoting the Principal’s products or services or (ii) an agent also being authorized to conclude such operations on behalf of the Principal (art. 1).

In order to permit the Agent to conclude contracts on behalf of the Principal it will be necessary to include a specific and express clause in the contract (art. 6).

B. Appointment of sub-agents and employees

General rule (art. 5) is that in order to appoint sub-agents, the Agent needs the express authorization of the Principal. In this case the Agent will be liable for the sub-Agent activities.

Agent’s activity through his/her own employees does not need the Principal’s authorization. Agent will also be liable for the activity carried out by his employees.

C. Non-competition obligations

According to Agency Act (art. 7) the Agent is free to act on behalf of more than one Principal unless differently agreed in the contract. This includes promotion or even concluding transaction on behalf of a different Principal.

Notwithstanding, the Agent will need the consent of the Principal in order to act on his own behalf or on behalf of another party whose products or services are of similar or in competition with the Principal’s. If this was the case, and if the Agent has represented several competing parties, he will be obliged to prove the Principal’s consent.

According to the Agency Act it is also possible to agree a non-competition obligation after the termination of the contract. In order to be valid some conditions are necessary (arts. 20 and 21):

• its maximum duration will be two years since the termination of the agency con-tract or one year if the duration of the contract was for less than two years;
• it has to be agreed in writing;
• its geographical extension should be the same of the agency contract or it has to be limited to the same group of persons the Agent was in charge of;
• it will only affect the products or services promoted or transactions concluded as in the object of the Agreement.

D. Exclusivity and territory

Exclusivity cannot be implied from the Agency Act but needs to be agreed expressly.

Exclusivity is not a natural characteristic of the commercial agency agreements so as it seems to appear in the Preamble of the Agency Act (Para II.3). And this includes both possibilities: The Principal having several agents and the agents being authorized to represent several Principals.

The necessity of an express agreement for the exclusivity does not imply that this needs to be in writing. Oral pact on exclusivity is also valid provided it is proved enough in case of discrepancies.

The correct delimitation of the territory in which the Agent has been appointed or the kind of clients he is authorized to deal with, is also a relevant element to consider in the agreement. The Principal is free to forbid the Agent the promotion of sales outside that territory.

On the other hand, there is a reference in the Agency Act to commissions to be received by the Agent for sales within his exclusive territory. If this was the case and the Agent was appointed for an exclusive territory, he would have the right to commissions although the sales were not promoted nor concluded by him in such territory (art. 12.2).

E. Remuneration

Parties are free to agree upon the remuneration that can consist in a percentage on sales (commission), a fix amount or a combination of both systems.

Remuneration is an essential element of the agency contract and if the parties do not agree it, it will be fixed according to the commercial usages or, in their absence, on the reasonable amount considering the circumstances of each case (art. 11).

The Act also establishes that the remuneration is due (art. 14) from the moment in which the Principal has enforced or shall have enforced the commercial transaction or has been carried out, even partially, by the third party.

Remuneration shall be paid not later than the last day of the following month to each natural quarter in which it was due (art. 16).

The Agent will lose the right to the commission if the Principal proves that the operations were not executed due to circumstances not attributable to the Principal (art. 17).

F. Expenses

According to the general provisions of the Act, and unless otherwise agreed by the parties, the Agent has not the right to be reimbursed for the expenses of his activity (art. 18).

G. Information obligations

Agency Act states (art. 9) a general obligation for the Agent to inform the Principal on all the necessary elements for the correct carrying out of the commercial transactions he is in charge of. Particularly, the Agent has to inform on the solvency of the third parties with whom there were transactions to be concluded or executed.

These obligations are compulsory according to the Agency Act although there is no provision on the way, the periodicity, the contents, the Agent has to provide them. It is there-fore advisable for a foreign Principal to set all these elements in the agency agreement.

H. Mediation

Other than court or arbitral procedures, international conflicts in Agency agreements can also be resolved by mediation. An international conflict is when at least one of the parties has his domicile in a country different to the other.

According to Spanish Act 5/2012 on Mediation on civil and commercial matters (this act incorporates the Directive 2008/52/CE) parties can solve their conflicts with mediation provided it affects rights or obligations that can be disposed by them.

The Mediation Act regulates mediation as an alternative to the recourse to judicial or arbitral procedures. It allows the parties to solve their discrepancies with the help of a media-tor and to reach an agreement on how regulate the situation. The duration of such procedure will be as brief as possible. Foreign agreements coming from mediation abroad are also enforceable in Spain according to the Act 29/2015 of July 30 on International Cooperation in civil matters provided it is not against the Spanish public Order.