Commercial Agency. Colombia and Spain.

Commercial Agency. Colombia and Spain. Comparative Notes. European Union. Termination of the Contract.

Commercial relations between Colombia and Spain are particularly strong and, quite often, are formalised through commercial agreements such as a Commercial Agency. The legal systems of Colombia and Spain have points in common, as well as protective conditions in favour of the Agent; however, there are differences between them that should be taken into account.

This publication aims to provide a practical approach to some of the most relevant differentiating elements when applying and choosing the applicable regulations, such as compensation rights upon termination of the agency contract.

Agency Agreement. Spanish Regulations.

In our commercial legal system, the Agency Agreement lacks comprehensive regulation within the Commercial Code. Instead, Law 12/1992, of 27 May, on Agency Agreements (hereinafter, the LCA), provides the aforementioned agreement with its own detailed regulation and legal regime, defining the Agency Agreement in its first article, which provides as follows:

“Under an agency agreement, a natural or legal person, known as the agent, undertakes towards another, on a continuous or stable basis and in exchange for remuneration, to promote acts or commercial transactions on behalf of another, or to promote and conclude them on behalf of and in the name of another, as an independent intermediary, without assuming, unless otherwise agreed, the risk and venture of such transactions”

The provision offers a clear and precise definition of the nature, purpose and characteristics of the agreement—elements that are shared to a greater or lesser extent across the various national and supranational legal systems within Europe and even beyond.

However, the remuneration aspect of the Agency Agreement, referred to in the aforementioned provision, always gives rise to certain differences between the various national legal systems. While these differences are not of great importance within EU Member States due to the relative uniformity of their legal systems, they are more pronounced outside Europe. Consequently, entering into an International Agency Agreement between entities belonging to two or more States may entail certain complications regarding the legal regime applicable to the agreement and, therefore, its contractual terms.

European Union Directive.

Spanish regulation of the Agency Agreement arises as a result of the transposition of Directive 86/653/EEC of 18 December 1986 on the coordination of the laws of the Member States relating to self-employed commercial agents.

Section 3 of the LCA regulates the remuneration of the commercial agent. The remuneration system under Spanish law is based on three basic pillars:

• Remuneration system: it may consist of a fixed amount, a commission based on the volume and value of the transactions promoted by the agent, or a combination of both. The right to commission will arise from each commercial transaction concluded through the agent’s intervention during the term of the agreement and during the three months following termination.

• Right to compensation: for goodwill, based on the average annual amount of the remuneration received by the agent during the last five years, or during the entire term of the agreement if shorter; and for damages, where the principal unilaterally terminates an agency agreement of indefinite duration, for the losses that early termination may have caused the agent, as applicable.

• Loss of the right to commission and compensation: as regards commission, provided that the concluded transactions are not performed due to circumstances not attributable to the principal; as regards compensation, in the event of breach of contract or unilateral termination by the agent, as well as the consensual assignment of the agreement.

Colombian Regulations.

Given the numerous commercial relationships our clients establish with entities in Colombia, it is appropriate to refer to the legal system of the Republic of Colombia as a model for this comparative analysis.

In Colombia, unlike our system, the Agency Agreement is regulated in the Commercial Code, although the regulation is limited and relies on numerous cross-references.

The remuneration of the commercial agent is governed by Articles 1322 and 1324 of the Colombian Commercial Code, the latter being of particular importance. Following the same modus operandi used for the domestic system, we can divide remuneration under this system into two fundamental aspects:

• Remuneration system: the law makes no mention of how the agent’s remuneration must be structured, so it is necessary to refer to commercial practice. Typically, the agent is entitled to a commission equivalent to a percentage of the business carried out, although it may also be a predetermined and stable sum. The right to commission will arise even if the transaction is not carried out for reasons attributable to the principal and even where it is agreed that the transaction will not be concluded.
• Right to compensation: upon termination of the agreement, the agent will receive a sum equivalent to the one-twelfth of the average commission received in the last three years, for each year the agreement was in force, or the average of all amounts received if the term of the agreement was shorter. In addition, in the event of unilateral termination by the principal without just cause, an equitable compensation will be determined by expert evidence based on the scope, importance and volume of the business carried out by the agent.

We can observe that the parties’ autonomy plays a fundamental role in establishing the agent’s remuneration system, due to the limited regulation in place; this is not the case with respect to the compensation provided for, whose regulation in Article 1324 is protective of the commercial agent’s rights and seeks to ensure, by all possible means, the effective payment of a certain sum upon termination of the agreement, without it being subject to any condition.

In recent years, reference has been made to a landmark judgment of the Supreme Court of Justice of Colombia—the judgment of 19 October 2011 in the William Namen matter—in which the Court raised the possibility that the agent could waive the remuneration or “commercial severance” under Article 1324, thereby undermining the provisions of that article. However, it is unanimously accepted in legal doctrine that what the Court stated in that judgment has no binding force whatsoever.

Finally, mention should be made of Bill 146 of 2015, a legislative proposal still under consideration in the Colombian Chamber, which seeks to eliminate the mandatory nature of agreeing the commercial severance as contemplated in Article 1324 of the Colombian Commercial Code.

Conclusion.

Having compared both models, we can highlight that, on the one hand, the Spanish and European model offers strong safeguards for the contracting parties, as all aspects of the Agency Agreement are regulated, and specifically the remuneration aspect at issue here. This model provides for a remuneration system that can be adapted depending on the circumstances of each case, since the weighted sum resulting from such remuneration may be based on sales and transactions carried out, on the goodwill provided, or on a fixed amount contractually stipulated without variation. Therefore, depending on the system chosen by the parties, it may generate uncertainty for the Agent that the Colombian model does not, as it has a fixed system that is not at the parties’ disposal.

Conversely, the safeguards offered by resorting to Colombian law as the law applicable to an Agency Agreement are very limited, as it leaves most of its regulation to the parties’ discretion, which in practice may lead to a tug-of-war between potential contracting parties to establish terms that are more favourable to them. However, the appeal of this legal system lies in the economic protection afforded to the Agent, as it establishes compensation conditions that are qualitatively far superior to those contemplated in the European model, and quantitatively superior if the agreement provides for short timeframes for performance of its purpose. As regards the compensation matter mentioned, Article 1324 of the Colombian Commercial Code removes from the parties’ autonomy any modification of its content and scope, imperatively prohibiting making compensation subject to any condition.

In short, we can observe that choosing one system or the other when entering into an Agency Agreement between entities from both countries should respond to the interests at stake: either opting for a safeguard-based model in exchange for lower compensation advantages, or for a model open to the parties’ agreement but with compensation conditions for the agent that are beyond any power of disposition by the parties.

It should be noted that, although there are other differentiating aspects between the Spanish/European regulatory system and the Colombian system, the objective of this comparative analysis is merely to provide an initial overview.

If you need guidance and assistance in negotiating transactions in Colombia, please do not hesitate to contact us. If you would like more information about our international contracting services, you can click HERE.

Author: Pablo Manuel García García

Area: Lawyers. International Commercial Law

Date: March 2018

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