Martes, 16 Mayo 2023

Unwritten contracts and the application of the Agency Contract Act

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The multiplicity of commercial contracts, even if verbal, whose termination regime determines the application, by analogy, of the regime provided for in the Agency Contract Law, particularly with regard to compensation for breach of the notice period and client indemnity, its relevance in business life and the growing number of lawsuits that the litigation department of Belzuz Abogados, SLP in Portugal has been monitoring, justifies that we focus on this subject.

It is common practice for foreign companies that establish commercial relations with Portuguese companies with a view to, for example, reselling their products, not to put in writing the rules that such relations must obey. It is therefore commonly assumed that such relations do not constitute a concession or distribution contract and, as such, are not subject to that legal regime.

The truth is that this is not always the case and, although it will always depend on the evidence produced at trial and on the assessment thereof by the judge, the commercial relationship can be classified as one of concession or distribution and, in consequence, the companies are obliged to respect the prior notice provided for in Decree-Law nr 178/86, of July 3rd, amended by Decree-Law nr 118/93 and subject to the payment of the customer indemnity.

Considering the evidence produced, namely if there are reciprocal obligations of purchase and sale between the parties, if there is autonomy of who acquires the products, what is the stability of the bond, if there is interference in the fixing of prices and in the advertising of the products, the judge will analyse the legal nature of the verbal contract that united the parties.

And if he concludes that it is a concession or distribution contract, he will apply the legal regime of the agency contract, subjecting to periods of notice of termination (without just cause) which, if not observed, will determine the right to compensation corresponding to the missing period of notice.

The legally stipulated minimum notice periods are 30, 60 or 90 days depending on whether the contract has lasted less than 6 months or less or more than 1 year respectively and are based on an amount calculated on the average monthly remuneration earned during the preceding year, multiplied by the missing time.

On termination of the contract by non-consensual agreement, there is also a client indemnity intended to compensate the agent for the benefits or advantages that, once the contract is terminated, the principal will continue to with the clients gained or retained by the agent.

And this compensation is due irrespective of the way the contract is terminated or the duration of the contract, even if it was entered into for a definite or indefinite period and adds up to any other compensations that may arise from contract termination.

Only just cause removes the right to this indemnity.

Strictly speaking, this is not a real compensation, as it does not depend on the agent proving any damages caused. In this case, the agent is not indemnified but compensated for the benefits that the counterparty will keep on enjoying and that are essentially the result of agent activity developed until contract termination. It is in fact understood that it is not inclusively necessary that such benefits have already occurred, being only necessary that they may come to occur.

Its attribution only depends on cumulatively meeting the requirements established by the above provisions, that are: (i) the agent has gained new clients for the counterparty or has substantially increased turnover with existing clients; (ii) the counterparty will benefit considerably from the activity developed by the agent after contract termination; (iii) the agent is no longer receiving any consideration for negotiated or ended contracts with the clients after contract termination.

Such compensation is calculated according to article 34 of the aforementioned DL, which refers to fairness and to the determination of a maximum compensation limit that takes as a starting point the average annual remunerations gained over the last five years, balanced by fairness.

In other words, the determination of this client compensation does not depend on the specific ascertainment of turnover as it is subject to a fair judgement that must be kept between the limits established by article 34 of DL 178/86 in the wording given by DL 118/93.

Lastly, it is worth to highlight that the agents, under the penalty of extinction of their respective right, must communicate to the principal within one year after contract termination their intention to receive such compensation and, if required, lodge a judicial claim in the year following such communication.

To avoid the application of this regime it is essential that the parties, within the principle of contractual freedom, define, in writing, the rules to which they intend to submit the relationship that they intend to establish.

 

 Teresa Lopes Ferreira Teresa Lopes Ferreira 

 

Belzuz Abogados SLP

La presente publicación contiene información de carácter general sin que constituya opinión profesional ni asesoría jurídica. © Belzuz Abogados, S.L.P., quedan reservados todos los derechos. Se prohíbe la explotación, reproducción, distribución, comunicación pública y transformación total o parcial, de esta obra, sin autorización escrita de Belzuz Abogados, S.L.P.

 

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