AGENCY IN INTERNATIONAL TRADE

By Amita Sinwar (1535)

B.A. LL.B. (Sec A)

Due to globalization and increasing world market, it has become almost impossible for the
parties to be physically present for the purposes of contract. This leads to the concept of agency
in international sale transactions. Agency is not linked with the only reason of physical necessity
but also required when there is a need for expertise and knowledge in business operations; it may
stem out of an emergency situation when there is a delay in the transportation and perishable
goods are going bad, or where the goods are left uncollected, for a long period either due to
illness or death of proprietor or break out of war, in such case the person in possession of the
goods, if finds it difficult to contact the owner, may sell or dispose of the goods as an agent of
necessity; and lastly but not exclusively when the need for secrecy arises, the owner can employ
an agent who works for him.
As can be concluded from above, Agency is a contract between an agent and the principal
whereby the principal explicitly or implicitly gives the authority to the agent to represent him or
act on his behalf. The agent consents to do the same in order to create legal relations between the
principal and the third party. The principal-agent relationship is fiduciary in nature based on the
trust and confidence.
Every contract of agency has internal and external relationship: internal relationship exists
between the principal and the agent while external relationship exists between the third party and
the agent or the principal or both. The 1983 Geneva Convention on Agency in the International
Sale of Goods governs the contract of agency.
Internal relationship:
The relationship between the principal and the agent is known as internal relationship. This is
subjected to The E.C. Council Directive on the Co-Ordination of the Laws of the Member States
Relating to Self-Employed Commercial Agents (adopted on December 18, 1986) and The ICC
Model Contract on Commercial Agency, 2015.
This relationship is subjected to international conventions and treaties or law of the nations
where the business is conducted. There has to be express agreement regarding the law governing
internal relationship. The problem may arise when the principal has his place of residence or
business in one country and the agent in another country. This problem is resolved by
recognizing the ‘autonomy of the parties’ or their intention while ascertaining the choice of law.
However, the situation would be different if the parties have not agreed on the law governing the
internal relationship. In such scenario, the relationship is subjected to the law of the country in
which the agent resides or intended to act.
Agents:
The word ‘agent ‘has wider implications. Scrutton L.J. in the case of W. T. Lamb & Sons v.
Goring Brick Co. said that many difficulties have arisen when the word ‘agent’ is used without
any reference to the law of principal and agent. Article 1 and 2 of The E.C. Council Directive on
the Co-Ordination of the Laws of the Member States Relating to Self-Employed Commercial
Agents (adopted on December 18, 1986) defines ‘commercial agent’ as a self –employed
intermediary having a continuing authority to negotiate and conclude the sale or the purchase of
goods on behalf of the principal. So different types of agents in international trade are discussed
below:

Mercantile agents:
A mercantile agent is one who has authority either to sell goods or to buy goods or to raise
money on the security of goods. The various kinds of mercantile agents are as follows:

(a) Factor: Factor has been defined under sec 1(1) of Factors Act, 1889. A factor is a mercantile
agent to whom goods are entrusted for sale. He has wide discretionary powers in respect to the
sale of goods. He sells the goods in his name on such terms as he thinks fit. He may also pledge
the goods if desires.

(b) Del credere agent: There are situations where the agent in lieu of extra commission
guarantees the principal against default of the buyer. In this way he performs the role of a surety
as well as of an agent. Such liability usually arises where the agent has already obtained the order
of the goods and the same has been accepted by the principal.

(c) Commission agent: A commission agent is also a mercantile agent who purchases or sells

(d) Broker: He is employed to make contracts in the name of his principal. He is not vested with
the possession of the goods but simply acts as a connecting link between the principal and the
buyer and brings them together to bargain. If the transaction materializes, he becomes entitled to
his commission called brokerage.

Other agents: They include advocates, attorneys, insurance agent, bankers, forwarding agents,
wife, housekeeper, etc.

Duties of agent:
The duties have been defined under Article 2 of the ITC Model Contract for an International
Commercial Agency, 2010 and Article 3 of EEC Directive 86/653.

 To use reasonable diligence: The agent shall undertake his duty with reasonable care and
due diligence. He must possess such skill or care which a reasonable or prudent man is
expected to have. Both the parties must act dutifully and in good faith.
 Negotiate and conclude transactions: The agent must negotiate sale transactions in
accordance with the instructions given by the principal. He shall also inform the third
party about the conditions and stipulations made by the principal in order to secure
smooth transactions.
 Duty to inform the principal: The agent shall keep the principal duly informed about the
market conditions; laws and regulations of the territory governing the contract; financial
 status of the customers; information regarding the products; etc. He should disclose
conflict of interest, if exists any. He should keep the principal updated with the activities
by sending a notice to him.
 No secret profits: The agent shall strictly observe the contractual provisions which are
communicated to him by the principal. Therefore he must not do anything contrary to the
authority vested in him, e.g. making secret profits or receiving double commission from
both the principal and the third party. It may be provided that the agent must credit the
money received by him on behalf of the principal to a separate bank account in order to
avoid misappropriation by the agent and protect the principal’s money from aggregating
with the assets of the agents in the event of bankruptcy. In such a situation the principal
has the right to claim the profits made by the agent or dismiss him.
 Non competition clause: The agent shall not reveal any confidential information gathered
during his course of employment to third party. Article 20 of EEC Directive 86/653
provides for restraint of trade after the termination of agency. It provides for the clause to
be made in writing and should be related to same geographical area and goods as those in
the agency contract. This is valid for not more than 2 years after the termination of the
contract. However the rule is subjected to the provisions of national law. It has also been
instated in Article 3 of the ICC Model Confidentiality Clause 2006.
 Minimum Sales Objective: The agent shall undertake to pass on orders for a minimum
sale (it can be in money or goods or both) for each year and if he fails to meet this
objective, the principal has three options:
(i) Termination of the contract with the agent;
(ii) Reduction of the size of the territory given for the operation of the contract; and
(iii) Cancellation of Agent’s exclusivity
The principal must give a notice indicating his choice within 30 days of the end of the
year (Article 4 of the ITC Model Contract for an International Commercial Agency,
2010).
 The liability towards sub-agents: For the convenience of the business, the agent may
appoint sub-agents but he will be alone responsible for their work and shall pay to them
out of his own pocket. There shall be no relationship whatsoever between the principal
and the sub-agents if the former has not consented to their appointment.
Duties of principal:
The duties and obligations of the principal have been defined under Article 3 of the ITC Model
Contract for an International Commercial Agency, 2010 and under Article 4 of EEC Directive
86/653.

 The Principal shall provide the Agent, free of charge, with all the information,
correspondence, documentation and invoices needed for the performance of the contract
and shall not be merely limited to the terms and conditions of sale, terms of payment and
delivery, time related issues, technical specifications, etc.
 The principal shall inform the agent of his acceptance, rejection or non performance of a
commercial transaction involving the agent.
 The principal must also notify the agent in reasonable time if he anticipates that the
volume of business will be lower than expected.
  The Principal shall remunerate the agent in accordance with the commission and terms of
payment provided for in the contract of Agency. Remuneration is a commission which is
payable on the purchase price actually acquired by the agent. The principal shall also pay
in case the agent has suffered the actual loss due to wrongful act of the principal. In the
case of Alpha Trading Ltd v Dunnshaw Pattern Ltd. the agent had introduced a Dutch
party to the principal for the sale of a quantity of cement which was to be shipped c. & f.
to an Iranian port. The contract was concluded between both the parties by the buyer
opening a letter of credit in favour of the principal (seller) and the latter providing a
performance guarantee in favour of the buyer. Later, the seller refused to entertain the
contract of sale but the agent was entitled to the damages for the lost commission. Three
things to be considered while giving remuneration to the agent are:
(i) If the agent while working under the authority of the principal incurs any liability, for
instance the expenses incurred by the agent while suing the defaulting buyer in the
country where he (buyer) resides, then he shall be indemnified for any losses sustained by
him.
(ii) The agent to get the commission if the principal accepts order for the goods from the
buyers with whom the agent had negotiated.
(iii) The agent can get entitled to the commission in the case of repeat orders as such orders
are considered to be continued effect of the original efforts of the agent. However
intention of the parties has to be ascertained.
The contract of Agency can be terminated by mutual agreement between the parties; on
expiration of a definite period for which the contract was created; on destruction of the subject
matter; by impossibility of performance or commercial hardship like war; and death or insanity
of principal or agent or both (Article 14, 16 and 17the ITC Model Contract for an International
Commercial Agency, 2010).