AGENT AND PRINCIPAL “Loyalty and good faith shore up the fiduciary relationship”

Marcello Mantelli
Lawyer in Milan and Turin


The obligations of agent and principal, established in an EU country, may derive from the precepts of European Directive 86/53/EEC, from the specific discipline provided for by the national law applicable to the commercial relationship and directly from the clauses of the contract concluded.

The directive, in addition to the obligations to pay commission and customer indemnity to the agent under certain conditions, provides for some other, mandatory, which seem to target, veiledly, the “cooperation” behaviour that each party should have to achieve the common goal: increase sales. In fact, unlike other commercial relationships in which there are opposing interests, the particularity of the international agency contract is characterized by the fact that the actions of agent and principal are moved by a common purpose, the assumption of which can only be based on the ability to work together based on a solid fiduciary bond. The directive therefore lays down in the first place, on both sides, an marked form of loyalty to each other and an express obligation to act in good faith.

Then, on the one hand, the obligations of the agent (to the principal) are outlined, who must:

i) make adequate efforts to deal with and, where appropriate, conclude the affairs of which he is in charge;

ii) communicate all the necessary information available to him;

iii) follow the reasonable instructions given to him.


On the other hand, the obligations of the principal (towards the agent) are indicated, who must:

i) make the necessary documentation on the products to be promoted available;

ii) provide all the information necessary for the execution of the contract, in particular those relating to sales forecasts;

iii) promptly inform of the acceptance or rejection of orders or of the failure to execute a procured deal;

iv) periodically make the information necessary to ascertain the correctness of the calculation of commissions available.

In a nutshell, the agent must develop the business of the principal at his best (“promotion obligations“) and the latter must put him in the best condition to carry out his work (“assistance obligations“), all with the “mutual information obligations” to be the background to the entire relationship.

Partial harmonisation

However, since the directive brought about only partial harmonisation of the discipline (the more or less substantial differences between the laws of the various European countries have not been eliminated), the problem of the applicable law remains current.

Indeed, if the mandatory obligations indicated above at the Community level draw clear boundaries as to what the macro-legal framework of the relationship is, it is equally evident that these obligations are identified in a rather general way, which has meant that the national laws of the Member States, in transposing them, have sometimes better specified them, identifying more specific obligations than those of the directive. These obligations may therefore vary from State to State, perhaps also generating situations of potential conflict with the directive itself, possibly to be brought to the attention of the Court of Justice of the European Union.

Despite the frequency with which they are provided for, Community legislation disregards itself from the obligations of exclusivity and non-competition.

Right of exclusivity


The right of exclusivity for most countries is not a natural element of the contract; therefore, without a specific clause the agent will not claim the right in the territory in which he operates. In this majority approach, very few countries (including Italy) are exceptions, which expressly provide, unless otherwise agreed, the right of exclusivity in case of assignment to the agent of a certain “area” or customers; there are also some countries in which it would seem possible to infer the existence of an “implicit” exclusive right in the event of the designation of a work area.

Non-competition obligation

A similar argument applies to the non-competition obligation of the agent during the validity of the relationship: very few countries expressly provide it automatically for the agent (including Italy), while in others it could be deduced “implicitly” as a corollary of the general obligation of loyalty and good faith or because the consent of the principal is required to sell competing products, while in others it would be necessary, or in any case strongly recommendable, the written agreement.

Another obligation not provided for in detail in the directive is that of confidentiality of the agent on confidential information or trade secrets and know how. Also in this case, without prejudice to the stipulation of an ad hoc contract, it will be necessary to check what the law applicable to the relationship provides and, in particular, whether this obligation refers only to the period in which the relationship takes place or even for a period after its termination.

Otherwise, the directive provides for the possibility of entering into a post-contractual non-competition agreement which must, in order to be valid, be in writing, provide for a maximum duration of two years following the termination of the relationship and be limited to the area or customers or products subject to the assignment entrusted to the agent. The agreement is accepted in almost all EU countries except, for example, Austria but can vary its duration.

Tailored agreement

For the good management of the relationship and in order to avoid unexpected disputes, based on more or less alleged non-fulfilment of contractual obligations that could give rise to the resolution of the relationship and/or in any case to claims for damages, it is therefore advisable (both with European counterparts, and, even more so, with extra-European counterparts) to draw up a complete contract (at EU level you could also evaluate a standard model adaptable from time to time with clauses ad hoc to the target country), starting from a conscious choice of the law applicable to the relationship.

A good contract, tailored to the company’s objectives and the peculiarity of the business, will be able to specify the obligations outlined above, giving greater transparency to the relationship, thus reducing misunderstandings in its execution and ensuring greater certainty in case of litigation (just think of, for example, the possibility of specifying the type of organization that an agent should have, or, to identify precisely what information, or to specify the obligations relating to the management of trademarks or those relating to warranty or assistance activities).

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Marcello

Dear Aurelia, the information you have provided are not sufficient for an answer which is subject to a professional engagement. In any case, we should study the provisions of the contract and identify governing law of the contract.If it does not provide anything on governing law then conflict law shall apply (in the most part of the countries likely the governing law will be the law of the country where the agent is domiciled). best regards Marcello Mantelli

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Aurelia

I signed a contract with a fashion agency but there were no termination clauses in the contract and decided to withdraw it before one week after signature so sent them an email but after 14 days they sent me an email and asserted that because i didnt withdraw in legal deadlines i have to perform the contract and pay whole money.Noboday told me about any deadlines and nothing was in the contract!! Why did they claim such a thing?

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