Contracts of Commercial Agents and Distributors

Contracts of Commercial Agents and Distributors

Frequently, Commercial Agents as well as Distributors are tied to one manufacturer or wholesaler. As a result, there is often an imbalance of economic power between them. Edificia Rechtsanwälte assist both manufacturers/service companies and suppliers in the following legal issues:

  • Drafting all necessary contract documents, including a legally conforming Purchase Orders,  Professional Supply of Goods and/or Services Agreement (PSA) governing the transaction of any equipment and/or services as well as proper invoicing
  • Assisting in negotiating good supply contracts
  • Collecting unpaid invoices
  • Advising on dispute resolutions in court and outside the courts

 

Under German law, a Commercial Agent is generally defined as a person acting for, or representing, the principal in the distribution of goods or services usually in a particular territory in return for commission or profit”. Sometimes, the agent is tied to one or few principals as a precondition for winning and keeping the agency contract.

A Distributor is defined as the regular buyer and seller of goods and services in his own name from a particular manufacturer/wholesaler/Service company on special terms and conditions in return for a profit margin. Usually, a distributor is tied to one or few principals in order to be awarded the license for selling a particular product or service in a particular territory.

German law, which is much influenced by EU-rules and regulations, sets out various compulsory provisions for the legal and commercial protection of commercial agents. However, the relation between agent and principal largely depends on their specific agreement. So, the parties should be aware of the regulatory framework.

Although German law makes a clear theoretical distinction between a commercial agent and a distributor, the case law often applies the protective rules benefitting agents to the relationship between a distributor and a manufacturer/wholesaler. The case law is complex and, more often than not, unclear in its scope.

Commercial Agencies in Germany are fairly easily created. Foreign companies can easily register an agency in Germany. The agent need not be a local national or controlled by a German company.

In other jurisdictions they are often more strictly regulated. Commercial agency activities e.g. in the UAE may only be carried out by UAE Nationals or companies wholly-owned by UAE Nationals. Once an agency is granted and registered with the UAE Ministry of Economics, the unilateral termination of an agency relationship by a (foreign) principal may give rise to significant compensation awards in favour of the local agent. A European Company is well advised to be aware of such protective regulations.