Agency contracts are a distinct type of mandate agreement, alongside brokerage and commission agreements. However, when examining the legal provisions related to agency contracts, it becomes clear that the law offers enhanced protection to agents compared to the legal rights available to representatives in mandate agreements. So, what legal protections does an agent have?
Agent’s Compensation
Since an agency contract stipulates that compensation is paid after the agent has completed certain work, disputes often arise in practice over when the agent can claim their fee.
Frequently, the dishonest behavior of the other party is aimed at maximizing the benefits of the agent’s work and then, at the very last moment, when everything is ready for the transaction, rejecting the agent’s services and acting behind their back, creating a false impression of a failed deal or loss of interest. The party then takes advantage of the situation to complete the intended transaction without the agent’s involvement.
Therefore, according to Sections 678 (1) and 679 (1) of the Law of Obligations, the agent is entitled to compensation during the term of the agency contract if the principal fulfills their obligations arising from the contract in which the agent mediated or that the agent concluded. In addition, according to Section 678 (2) of the Law of Obligations, if the agent has been assigned a specific area of activity or a circle of clients, the agent is entitled to compensation for contracts concluded without their participation during the validity of the agency contract, provided the contracts were made with clients within the assigned area or circle.
I would also like to highlight several other important provisions regarding the agent’s compensation. Section 678 (3) of the Law of Obligations states that the agent is entitled to compensation for contracts concluded after the termination of the agency contract if the agent facilitated the conclusion of the contract or prepared it in such a way that its conclusion can largely be attributed to the agent’s efforts.
According to Section 679 (4) of the Law of Obligations, the agent is not entitled to compensation if the contract is not fulfilled due to circumstances beyond the principal’s control.
However, Section 679 (5) of the Law of Obligations provides that the agent is entitled to compensation if the contract is not fulfilled due to circumstances within the principal’s control.
Additionally, in case No. 3-2-1-10-14, the Supreme Court concluded that even if it is not possible to prove the existence of an agency contract, there may still be a mandate contract between the parties. In the same ruling, the Supreme Court indicated that the agent might have the right to access documents in the possession of the other party, provided those documents affect the agent’s interests and legal position. The agent may request documents (such as negotiation records, invoices, orders, and other relevant materials) that the agent would not otherwise have access to.
While the Supreme Court’s position is clear and reasonable, in practice, the other party may deliberately avoid providing the necessary documentation, claiming that the information does not exist. In such cases, it may be necessary to request the required documentation from the principal’s clients with whom the agent has worked. Thus, for procedural effectiveness, the Supreme Court’s position should be combined with other procedural options to catch the opposing party in dishonesty and prove one’s case in court.
It is also essential that the agency contract related to compensation is as clear and straightforward as possible. This will help avoid ambiguous interpretations. It is necessary to specify when the agent’s work is considered completed and, therefore, eligible for payment. A more complicated situation arises when the parties have not agreed on the amount of compensation. In such cases, a reasonable amount of compensation will be determined, which increases the agent’s burden of proof. The agent must prove the market rate for similar services.
Agent’s Right of Retention
The agent has additional protection through the right of retention, which allows the agent to retain the principal’s movable property or securities provided under the agency contract. The agent can also exercise this right over payments received from third parties if they are authorized to accept such payments.
It is important that the agent’s claim for compensation or reimbursement is due at the time of exercising the right of retention. If the agent uses the right of retention without justification, the principal may demand compensation for damages from the agent.
Termination of the Contract
As a legal remedy, the agent can also exercise the right to terminate the contract. When terminating the contract, the agent must pay attention to the notice periods.
If the termination occurs without prior notice, the agent must specify the reason for the termination.
Furthermore, the agent must ensure that the intention to terminate the contract is communicated in the proper form. While the law allows for verbal termination, in the event of a dispute, the agent would need to prove the termination. If the parties agree that termination must be in writing or in a reproducible form (such as via email), this standard should be adhered to.
Agent’s Right to Severance Pay and Compensation for Damages Due to Contract Termination
Since the agent invests their efforts into promoting the principal’s business, effectively acting as a driving force, the termination of the contract and final payment for the completed work cannot be considered sufficient. Therefore, the law grants the agent additional protection in the form of severance pay and the right to claim damages.
Section 688 (1) of the Law of Obligations provides that upon the termination of an agency contract, the agent is entitled to severance pay if:
- the agent has established business relationships with new clients for the principal or significantly expanded existing relationships;
- the principal will continue to benefit from these relationships after the termination of the contract;
- the agent loses the right to compensation that would have been earned had the contract continued;
- the payment of compensation is deemed fair considering all circumstances.
Section 688 (3) of the Law of Obligations further clarifies that severance pay does not exclude or limit the agent’s right to claim damages for losses resulting from the termination of the agency contract. However, there are also limitations regarding severance pay and damages as stipulated in Section 688.
Summary
The choice of legal remedies to protect one’s rights and interests always lies with the party to the contract. The law offers agents multiple avenues for legal protection. Therefore, it is essential to use these protections as effectively as possible.
Author: Attorney Ilya Zuev
The article was published in “Delovye Vedomosti”, dv.ee
