Sunday, January 29, 2012

BASIC ASPECTS OF AGENCY AGREEMENTS UNDER SWISS LAW AND COURT PRACTICE

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An agency can be concluded either implicitly or expressly. In the absence of contractual provisions, the statutory provisions apply. The Principal�s interests are best served with an agreement in writing that, as far as possible and desired, opts out of statutory provisions.


It is possible that a court will infer an implicit agreement from a course of trading between two business partners. The statutory provisions that will apply if an implicit agreement is found primarily favor the interests of the agent.


Therefore, potential principals are well advised to avoid the circumstance in which a business relationship with a broker or commission agent can be construed as an agency agreement.


The Code of Obligations defines the agent as a person who contractually obliges itself, on a continuous basis and without being an employee, either (i) to act as an intermediary on behalf one or several principals in business transactions, or (ii) to conclude such transaction in their name and for their account.


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An agent always performs his work independently. He is entitled to organise his work and to dispose of his time freely. Otherwise there is a risk that he may be qualified as an ordinary employee. Such is the case, if an agent acting exclusively under the principal�s supervision is too rigidly subjected to the principal�s directives, instructions ad control and therefore is lacking independence.


If a person or company acts as an independent intermediary, but on a case by case rather than a continuous basis, or if a person or company is charged to solicit, against a commission, an opportunity to enter into one specific deal only, such arrangement is not an agency relationship under the definition of this term in the Swiss Code of obligations, but a broker-dealer arrangement, governed by different legal concepts and legal entitlements (Code of Obligations 41 et seq)


For the agency agreements, the Code of Obligations is applicable (articles 418a to 418v).


Formalities


The agency agreement is, by law, not subject to any form and therefore, may be concluded orally. Due to the complexity of the relationship between the commercial agent and the principal, however, written contracts are recommended.


Exclusivity


Unless otherwise agreed upon, the commercial AA is not exclusive.


Commission


An agent is entitled to the agreed commission on all business transactions in which the agent acted as an intermediary or which were concluded during the term of the agency agreement. This does also include transactions not directly procured by the agent, but concluded by the principal with customers that the agent formerly solicited for such transactions, and follow-up orders of customers that were solicited by the agent during the term of his agency agreement.


Duration


Under to the principle of freedom of contract, the parties may freely negotiate the duration and renewal of agency agreements. Although Swiss law does not set specific upper limits for fixed-term agency agreements, an excessively long duration ( eg. Exclusive agency agreement exceeding ten years) overly restricts the personal freedom of either party and thus is void. Most courts are likely to treat exclusive agency agreements with excessively long fixed terms as indefinite term agreements subject to the ordinary termination rules.


Upon the expiration of contractually specified duration, the agreement automatically terminates. If, in site of the expiration of the fixed term, the relationship is tacitly continued by both parties, the agreement is deemed to be renewed. Thereby, the law expressly provides that a renewal shall be for the same period of time, but under no circumstances for longer than one year.


If the agreement does not specify a certain duration (indefinite agreement), and if this period cannot be deduced from the purpose of the agreement, it can be terminated by either party during the first ear of the contract period, with one month�s notice, the termination notice being effective at the end of the calendar month following the date of notice. An agreement of shorter notice must be in writing. Thereafter, the agreement can be terminated by giving two months prior notice, effective at the end of a calendar quarter. The parties can, however, agree upon longer periods and/or upon effective dates other than the end of a calendar quarter, but they cannot validly agree on any notice periods shorter than two months. Finally, the stipulation of different notice periods for the principal and the agent is prohibited in all cases.


Also, in all cases, both parties can immediately terminate an agreement for so called valid reasons (with cause). This provision is compulsory. The law defines valid reasons as circumstances under which a party invoking them can, in good faith, not be expected t continue the contract relationship. The existence of such circumstances depends heavily on the particularities of each case and is decided by the courts with wide discretion. However, the parties are free to expressly designate in their agreement certain circumstances as valid reasons. The right to terminate an agreement without notice for valid reasons must be exercised without delay, otherwise it is deemed to be forfeited.


Finally, the agency agreement terminates upon death or incapacity of the agent, or bankruptcy of the principal. The agency agreement terminates upon the death of a principal only if the contract was entered into essentially with regard to this principal.


Indemnification upon Termination


All claims of an agent for commissions or other compensation become due at the end of the agency relationship. Unless trade customs or an agreement on the contrary require otherwise, an agent has a claim for post-contractual commissions only on such orders which the principal received prior to the termination of the agency relationship, and only on transactions solicited by the agent during the agency relationship.


A commercial agent who, throughout his activity, substantially increased the principal�s clientele during the contract period, has an inalienable right to an adequate compensation (goodwill compensation) if the principal continues to substantially benefit from the established business relations even after the termination of the agency relationship. This compensation shall not exceed the amount of net earnings for one year derived from the contract, computed as the average of the last five years, or, if the relationship has not lasted that long, as the average of the total period. The compensation is lost if the agency relationship has terminated for a reason for which the agent is responsible.





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