This month, the Corporate and Commercial Department of Belzuz Abogados S.L.P. – Sucursal em Portugal, provides an overview of the legal framework for agency agreements, in particular, about the termination of the contractual relationship, as well as about the agent’s legal rights arising from said termination.
The agency agreement is regulated by the Decree-Law No. 178/86 of July 3rd, as amended. The legal framework and the analysis set out below is also applicable to other commercial distribution agreements, with the necessary adaptations.
The agency agreement has a triangular base, set between the manufacturer, the seller and the consumer and is legally defined as the agreement in which one of the parties undertakes to promote, independently and on the other’s behalf, the execution of certain agreements, against a retribution, in a given geographical area or within a certain circle of customers.
In recent years, we have been witnessing the development of distance commerce and trade, with the intervention of independent intermediaries on the economic circuit, who often operate in the Iberian, European or International market, multiplying the jurisdictions involved in these contractual ties.
The agency agreement is distinct from the distance contract, defined by the Decree-Law No 24/2014, of February 14th, that has transposed the Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011, as the contract concluded directly between the consumer and the supplier of goods / service provider, without the simultaneous physical presence of the parties, with the exclusive use of one or more means of distance communication. In this case, the figure of the agent is not foreseen, as an intermediary and promotor of the principal.
The Agency Agreement Legal Framework lists the rights and obligations of the parties, the protection mechanisms for any third party, the rules for termination of the agreement and the applicable rules on conflict of laws.
The agency agreement may terminate on its expiration date, if subject to a predetermined term. The agreement further expires in the event that the parties have agreed on a condition precedent that is not verified or a resolutive condition event of which occurs, as well as upon death or extinction (as a natural or legal person) of the agent.
The contractual relationship may also be terminated by a written agreement between signed by both parties.
Any party can terminate the legal relationship if the agreement was signed without a defined term, by a written communication sent to the counterparty with a prior notice of one, two or three months, depending on whether the agreement is in force for less than one year, at least one year or at least two years, respectively. Failure to comply with the legally stipulated prior notice deadlines does not prevent the termination of the agreement, generating a general obligation to compensate the counterparty for any damages caused by the lack of notice.
The agency agreement may also be unilaterally terminated by either party, by written notice, sent within a month as from the acknowledgement of the facts that justify the termination, when such facts correspond to a breach of the contractually assumed obligations and the respective seriousness or repeated practice makes the maintenance of the contractual relationship impossible and unenforceable for the non-breach party, or in the event of circumstances that make it impossible or seriously impair the performance of the agreement in terms that it is no longer reasonably required that the agreement remains in force until the end of its term.
Regardless of the means for termination of the agreement, either party has the right to be compensated for any damages resulting from a counterparty’s breach under the general legal terms. The termination based on the occurrence of circumstances which make it impossible or seriously affect the performance of the agreement also generates a legal right of compensation, fixed according to equity.
In addition, the agent is further entitled to a goodwill indemnity regarding principal’s customers, after the termination of the agreement by any of the described above means (except in the event that the agreement is terminated due to any breach of the agent or in case the agent has assigned his contractual position to a third party, with the prior agreement of the principal) through the cumulative verification of the following requirements:
- The agent has brought the principal new customers or has significantly increased the volume of business with existing customers;
- The principal continues to derive substantial benefits from the business with such customers;
- The agent ceases to receive any retribution for contracts negotiated or concluded with the already existing customers after the termination.
This mechanism allows the agent to be compensated for his performance and for the business raised which the agent is prevented to profit from as a result of the agreement’s termination, business which will then be developed by another agent or by the principal. The ambiguous concepts established by the announced requirements have been widely concretized by the Portuguese Courts.
The goodwill indemnity is calculated on the basis of considerations of equity and may not legally exceed a figure equivalent to an indemnity for one year calculated from the commercial agent's average annual remuneration over the preceding five years and if the contract goes back less than five years the indemnity shall be calculated on the average for the period in question .
A final note regarding the imperative rule on conflict of laws set out in Article 38 of the aforementioned law, setting out that the agreement’s termination matters shall be governed by Portuguese law in the event that, when compared to other applicable jurisdictions, the Portuguese law is more advantageous and protective for the agent and if the agent exclusively or predominantly develops the activity in national territory, even if the parties have agreed for that the agreement to be governed by a different law or if the agreement is more related with another jurisdiction, often common in respect of Iberian and international agreements.
The Corporate and Commercial Department of Belzuz Abogados, S.L.P. – Sucursal em Portugal has professionals qualified to provide legal advice in clarifying any question regarding the legal framework of the Agency Agreement and in monitoring the procedures for the termination of the contractually established relationship.
Furthermore, the Litigation Department of Belzuz Abogados, S.L.P – Sucursal em Portugal has professionals equally qualified to provide legal advice in dispute resolution related with the termination of the agency agreement.
Belzuz Abogados SLP
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