Links of success: intermediaries in trade (part 2)
In a previous edition, we discussed the potential added value for a producer of setting up a distribution network. We gave an overview of the different actors in the distribution process and some legal concerns. In this article, we address one of the main costs involved: the legal protection enjoyed by certain intermediaries in the event of the termination of commercial cooperation.
Help, my intermediary is a commercial agent
A notice period must be observed when terminating commercial agency agreements of indefinite duration. This is one month during the first year of the agreement and is subsequently increased by one month for each year started, with a maximum of six months. It is forbidden to provide a shorter term in your contract. However, it is permitted to agree on a longer term, provided that the notice period to be observed by the principal is not shorter than that imposed on the commercial agent. Serious shortcomings or exceptional circumstances rendering any professional cooperation permanently impossible may justify termination without notice, provided you invoke this within seven working days.
If a contracting party refuses to perform the notice period, the other party (usually the agent) is entitled to a termination fee corresponding to the (remaining) duration of the notice period. If the commercial agent’s remuneration consisted of commissions, the termination fee is calculated based on the monthly average of commissions during the 12 months preceding the termination of the contract.
After the termination of the agreement, the commercial agent is entitled to an exit fee provided that (i) he has brought in new customers or substantially increased business with your existing customers and (ii) this can still bring you substantial benefits. This compensation may not exceed the amount of one year’s compensation, calculated on the average of the previous five years. If this compensation would not fully compensate the actual damage suffered, the commercial agent can also claim additional damages.
Note: terminating a concession also costs money
When terminating (quasi-) exclusive concessions granted for an indefinite period of time and concessions where significant obligations are imposed on the concessionaire (e.g. stockholding obligations, training requirements), the concessionaire is entitled to reasonable notice or equitable compensation, except in case of gross default. This must be agreed by the parties after the contract is terminated, or determined by the court.
In addition, the concessionaire may claim an additional equitable remuneration, except when the agreement was terminated due to gross negligence on the part of the concessionaire. This compensation shall be estimated on the basis of (i) the added value in terms of customers brought in by the concessionaire and staying with the grantor, (ii) the costs incurred by the concessionaire for the operation of the concession, which may continue to provide benefits to the grantor, and (iii) the mourning money owed by the concessionaire to the personnel he has to dismiss following the termination of the concession agreement. If the parties do not reach an agreement, the court will again rule on an equitable basis, possibly taking into account existing commercial practices.
Producer, be warned!
Commercial agents and (quasi-) exclusive concessionaires thus enjoy far-reaching legal protection in case of termination of cooperation. You should therefore be aware of this before dealing with an intermediary. In view of the substantial sums involved, it is advisable to seek legal advice both when concluding the contract and in the event of any discussions during or after the cooperation.
Bruno Thoen and Wibo Van Poeck
De Langhe Advocaten
