Commission Agreement (A132)

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A Commission Agreement between a company and a “consultant” where the company, which is likely to be a manufacturer or distributor, pays the consultant a commission on business introduced by the consultant.

This commission agreement contains 8 clauses covering

  • appointment
  • duties of consultant
  • commission
  • duration
  • agency
  • confidentiality
  • law and disputes
  • a general clause addressing notices, language and the scope of the agreement

This is a general purpose commission agreement for use by an individual or company who, in return for a commission, introduces business to a third party.

This is not a formal agency agreement but is more suited to a ‘one-off’ arrangement between someone who has good contacts in a particular area and a company wishing to sell into that area.

The commission agreement contract has a fixed but renewable duration and is subject to confidentiality, with an arbitration clause in the event of disputes.

You need this commission agreement if you want to appoint a consultant on fixed amounts and payment terms for commission.

This Agreement is very simple and straightforward and is intended to cover a situation where an individual or company introduces business to a manufacturing company and the manufacturer pays commission on sales made as a result of each introduction.

This is not a formal agency agreement but is more suited for a ‘one-off’ arrangement between someone who has good contacts in a particular area (called ‘the Territory’) and a company wishing to sell into that area.

We hope the terms of the Agreement are reasonably self-explanatory but a few comments by reference to the clauses are as follows:

1. APPOINTMENT

This confirms the appointment of the Consultant and defines the Territory which is covered by the Agreement. If the Agreement is not intended to be restricted to any particular Territory, then the wording would need to be adjusted accordingly.

2. DUTIES OF CONSULTANT

While this sets out the obligations of the Consultant, it is different from an agency agreement where, for example, the agent has clear obligations to develop its principal’s business in the territory. Here the Consultant does have duties to try to find customers but there will be no penalty if he fails to do so. The only incentive is that commission will become payable only if business is introduced to the Company.

3. COMMISSION

This clause specifies the commission which is payable – it will normally be a percentage of the sale price, but whether this should be the F.O.B price (i.e. Free On Board – excluding delivery and insurance charges) or the ex-works price or some other formula will depend upon the individual circumstances.

As written, commission only becomes payable once payment is received by the Company. If, for example, a customer is found but fails to pay for the goods which it orders, the Consultant will not receive any commission.

4. DURATION

The length of the Agreement is clearly a matter for negotiation between the parties as is any arrangement with regard to its renewal. Here we have provided for an initial period, to be specified, with one automatic renewal period unless either the Company or the Consultant terminates prior to the renewal date.

In clause 4.2 we have made it clear that if the Agreement is terminated, commission on sales which have arisen as a result of the Consultant’s efforts (in a specified period prior to termination), will still be honoured.

5. AGENCY

This paragraph clarifies the relationship between the parties and, in particular, makes it clear that the Consultant has no authority to make or enter into any commitments on behalf of the Company.

6. CONFIDENTIALITY

Commission arrangements are usually kept strictly confidential and this is reflected in our wording.

7. MISCELLANEOUS

This clause contains some standard ‘boiler plate’ clauses:

Clause 7.1 provides for any notices to be in writing and sets out a procedure for dealing with notices. When the Company and Consultant are based in different countries, we suggest this clause is revised to refer to airmail instead of mail with 5 days instead of 2 days. Alternatively you may prefer to use email, but that creates risks and it is less easy to prove the notice has been received.

Clause 7.2 establishes the ruling language of the agreement – i.e. the language to be referred to if there is a dispute. This can be useful when an agreement is prepared in more than one language.

Clause 7.3 makes it clear that this agreement defines the deal between the parties and any previous arrangements are no longer effective. So, if, for example, there is an exchange of emails that set out some terms before the agreement is signed, you can no longer rely on those emails after signature; so if they are important, make sure their terms are incorporated in the agreement before you sign it.

8. LAW & DISPUTES

Since commission arrangements relating to a particular territory are likely to be international and cover more than one country, it is advisable to specify what country’s law will govern the interpretation of the Agreement if there is a dispute.

Largely because of the confidential nature of the transaction, an arbitration clause has been incorporated. Arbitration is a private method of resolving disputes and more appropriate in an arrangement such as this than the courts of a particular country. Arbitration awards are frequently enforced by the courts if a party against whom an award is made fails to honour that award.

ContractStore’s free document Z138 provides guidance on arbitration and Z139 gives guidance on governing law and jurisdiction clauses.

As already mentioned, this is a very short and simple Agreement and it is not intended for use in a sophisticated transaction or one which is more akin to a formal agency agreement.

There is another point for a company to consider when appointing a commission agent such as this – that is the potential risk if the agent pays bribes in order to get business. In a number of countries, this is illegal and in the UK, for example, when the Bribery Act 2010 is fully implemented in 2011, a company whose agent bribes a foreign official could itself be prosecuted. It is therefore sensible for a company to have a code of conduct in place and to get the agent to agree to comply with it and/or to have a clause which expressly deals with bribery. For example:

“The Consultant undertakes to comply with the code of conduct which has been supplied to him by the Company and not, in his dealings with third parties, to act in any way that is illegal or that might adversely affect the reputation of the Company.”

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