Agency Law - R. Vrahimis & Associates

Agency falls in the area of commercial law and it deals with a set of contractual, quasi-contractual and non-contractual fiduciary relationships.  The relationship is formed between a “principal” (usually a producer, manufacturer or owner of Intellectual property) who authorises the “agent” (usually called a Commercial Agent) who is a representative acting on behalf of a principal so as to be empowered to create legal relations (usually sale or retail contracts) with a third party on behalf of the principal.  The agent works under the principal’s control and on their behalf.  The agent is required to negotiate on behalf of the principal or bind the principal into contractual relationship with third parties.  The principal is bound by the contract entered into by the agent with the third party as long as the agent works within the scope of the agency.  Otherwise if the agent goes outside the scope of the authorisation (“on a frolic of his own”) he may not be deemed to bind the principal.

There are three broad classes of agents:

When an agent does not have the right to make agreements on behalf of the principal but is only required to bring the principal and the third party into contact in view of them entering into a contractual relationship and receives a commission for this introduction, then that agent is called a “Commission Agent”.    This agent works for the principal and collects commission for the successful completion of sale.  A commission agent may also be a go between (middle-man) who works directly for the principal and collects a fixed commission from the principal for mediating e.g. an agent who collects premiums for an insurer.  Rarely, agents may also be called commission agents if they are agents of the principal who are remunerated on a commission basis.

Unlike an agent, a broker is a go between (middle-man) who works for an individual and not for a Principal (who is usually a manufacturer or producer).  Like a commission agent who collects commission form the Principal, the broker collects commission from the individual.  Some examples are:

This area of law is concerned to the supply chains in a wholesale and retail arrangement.  Distributors and dealers participate in the supply channel of an industry each playing an important role in the retail industry by making the goods accessible to consumers.

Distributors or distribution agents:  These are companies or individuals who buy goods in bulk from a producer or manufacturer and then sell these goods in bulk i.e. wholesale and retain any profit realised.  Distributors are wholesalers who sell in large quantities and do not deal directly with the public.  In the distributor relationship, distributors are usually allowed to use the producer’s trademarks and trade names.  Frequently distributors are also given an exclusive territory, area or location in which to sell the producer’s goods and may even be required to maintain inventories and stock replacement parts.  Although distributors may seem like the producer’s representative or affiliate they are nothing of the sort.  Distributors are not agents and do not act on behalf of the producer nor can they create legal obligations to the producer.  Therefore distributors are principals themselves i.e. they buy and sell on their behalf and own the goods that they sell.  Some producers may routinely use distributors as intermediaries who then sell the goods to retailers, other merchants, industrial or commercial businesses or even to institutional users who buy these good for resale or business use.

Dealers or retail distributors:  These are companies or individuals who buy goods from a distributor and sell directly to the public.  Like distributors, dealers are also not agents and do not act on behalf of the distributor or the producer nor can they create legal obligations to the distributor or the producer but they are principals themselves i.e. they sell on their behalf and own the goods that they sell.  Dealers may also be “Servicing Dealers” who provide consumer services e.g. handle questions from consumers or problems about the goods in their exclusive area and sometimes they may even be responsible to handle warrantees, repairs or replacements.

Relationship between distributors and dealers:  This may take many forms but the concept is more or less similar.  The manufacturer or producer sells the goods in bulk to the distributor who in turn re-sells them wholesale to dealers or retailers who in turn sell them to the consumer.  There can be multiple levels of distributors and dealers, and in some situations dealers may even sell to the distributors of another retail chain.

The distributor-dealer terminology is common in automotive goods e.g. cars, trucks, heavy farm and construction vehicles (mechanical sector), yard and garden goods (green sector), home appliances goods (white sector), electronic goods (hi technology sector), and industrial equipment goods (machinery sector).

Distributor-dealer relationships with producers have many features in common with franchises.  However the franchise model has basic differences from distributor-dealer model. It is not customary for distributors and dealers to pay an up-front fee to the producer for selling the producer’s goods, but there may be required to buy a minimum amount.  Unlike franchisees, distributors and dealers may be relatively strong against producers because they have an established name in a market of the territory.  It is also usual for strong distributors and dealers to carry goods from competing producers.

The laws affecting relationships regarding agents, commission agents, brokers, distributors and dealers cross over into many areas of law.  Contract, quasi-contract and fiduciary (trust) law are involved.  Also there may involvement of shipping law, tax law consumer protection law, and intellectual property and licensing law.

Agency law regulates the:

Authority:  Agents who act within the scope of the authority given by the principal legally bind the principal in all the obligations that are created in an agreement with a third party.  There are essentially three kinds of authority recognized in the law:

Liability:  As set of three liabilities exist:

Duties:  The duties of the parties in an agency agreement are the following:

Non-competition clause:  This is legal as long as it is a part of a written agency agreement, it concerns the territory, area or location of the agency, and is for no more than two year after termination of agency.

Termination:  An agency may be terminated as follows:

When an agency is terminated this operates as a termination of any existing sub-agency.  If the principal terminates the agency without any fault on behalf of the agent then the agent may be entitled to compensation according to principles of the legilation.

The EU Directive on self-employed paid commercial agents defines a commercial agent as a self-employed intermediary not working in commodity exchanges or in the commodity market, who has continuing authority to negotiate the sale or the purchase of goods on behalf of another person (principal) or to negotiate and conclude such transactions on behalf of and in the name of that principal.  A person who is an officer of a company or association and may bind the company or association is not a commercial agent.  The same applies to a partner and a partnerhip and a receiver an administrator, a liquidator or a trustee in bankruptcy.

This directive makes provisions on rights and obligations of commercial agents, remuneration including commissions and Conclusion and termination of the agency contract.

In Cyprus two laws have been incorporated to fulfil the provisions of the above EU Directive.  Namely:

The provisions of the Cypriot law are in line with all the principles stated above for agency and agency agreements.

Our services include all agency law matters, claims and disputes such as: