An important issue in international agency contracts is the choice of law to be applied in the event of a dispute. Except in very rare cases, there are no specific international rules that can be applied to commercial relations between agents and principals from different countries. This means that the starting point is almost always domestic law. As a result, the same international contract may be governed by the law of both the agent's country and the principal's country.

Therefore, before entering into an international contract, one must carefully consider which law - German or Italian - applies or should apply to the contractual relationship. This question is always accompanied by the consideration of whether and which court would have jurisdiction, or should be agreed upon, in case there are contravesias to be resolved.

According to German law, a commercial agent is a person who carries out his activity as follows

- Self-employment (own trade, bears entrepreneurial risks or costs).

- Ongoing contractual relationship with the company

- Intermediation/conclusion of transactions and customer service on behalf of the represented company

- Free structuring of the business 

- Free determination of working hours

- Remuneration/commission as a freelancer

In principle, the commercial agency contract does not have to be in writing. The exception is when you want to conclude an agreement on the star del credere or insert a post-contractual non-competition clause.

In any case, the written form is recommended in order to clearly define the mutual rights and obligations. This is especially true if the legal model is to be waived (e.g., in the case of exclusive representation, payment in lieu, etc.). When drafting the contract, it is important to keep in mind that § 84 of the German Commercial Code (HGB), which provides for the independence of the agent, is in part mandatory, i.e. it cannot be waived by contract.

In the absence of a choice of law, the contract is governed by the law with which it is most closely connected. In the case of a German commercial agent operating in Germany who concludes an agency contract with an Italian company, the law of the place where the agent has his registered office or domicile will apply in the absence of a choice of law. If German law is applicable, a German court should be chosen as the place of jurisdiction, otherwise the Italian courts may have to apply German law in the event of a dispute, which would certainly not be advantageous.

In principle, a German commercial agent is entitled to a commission for business which he has arranged himself (§ 87 (1) HGB). However, the parties to a commercial agent's contract may also agree that the commercial agent is entitled to a commission for the customers he has acquired, so that the commercial agent is entitled to a commission not only for the business he has arranged with these customers, but also for subsequent business of the same type that he has not arranged directly. If an entrepreneur appoints a commercial agent in a limited territory to arrange business with customers and prospective customers residing in that territory, the commercial agent is entitled to commission on all transactions concluded by the entrepreneur with customers residing in that territory within the meaning of Section 87 (2) of the German Commercial Code, regardless of whether the commercial agent was involved in the execution of each individual transaction or not.

When does the right to commission arise?

According to German law, the right to commission arises upon conclusion of the contract. If the entrepreneur wants the right to commission to arise and become payable only upon actual payment by the customer, he or she must agree to this in writing.

The amount of the commission is contractually free. If the invoice value is agreed upon as the basis of valuation, discounts previously granted to the customer and already taken into account in the invoice are excluded from the calculation of the commission.

The costs of postage, transportation, customs or assembly, etc. reduce the basis for calculating the commission, but only if they have been separately invoiced to the customer.

If - which is rare in practice - the amount of the commission has not been agreed, the entrepreneur owes the commercial agent a commission calculated according to the usual rate (Section 87 b (1) of the German Commercial Code).

When is the commission due?

According to Section 87 a (4) of the Commercial Code, the commission is due on the last day of the month in which the claim is to be settled. Unless otherwise agreed, the Contractor shall pay the commission on a monthly basis, at the latest by the end of the month following receipt of the payment.

The right to commission expires if it is determined that the customer is no longer able to pay. (§ 87 a paragraph 2 HGB). Despite the customer's default, the right to commission only lapses if the entrepreneur himself is not responsible for the default (§ 87 a (3) HGB). In this context, problems arise in connection with so-called missed deliveries or credit notes for returns.

The retention of the right to commission cannot be contractually limited to the detriment of the commercial agent. It is mandatory not only for the return of defective or late delivered goods, but also in cases where the entrepreneur takes back the returned goods as a gesture of goodwill. 

Ordinary Termination 

According to § 89 (1) HGB, there are graduated notice periods for the ordinary termination of a commercial agency contract for an indefinite period of time. The notice period ranges from one month in the first year of the contract to six months for a contract of at least five years. The law provides for termination at the end of the calendar month, unless the agency contract provides otherwise.

In the case of successive fixed-term contracts, the agency agreement is treated as a contract for an indefinite period, including the notice periods set out in Section 89 (1) HGB. The calculation of the periods is based on the total duration of the contractual relationship.

It should be noted that the statutory minimum notice periods cannot be shortened, but can be extended by contract. 

Extraordinary termination

An agency agreement may be terminated at any time without notice for good cause. German law provides that the right of extraordinary termination cannot be excluded or limited. The Commercial Agency Act guarantees both the principal and the commercial agent the right to extraordinary termination.

A good cause for extraordinary termination exists if the terminating party cannot reasonably be expected to maintain the agency contract until the agreed end of the contract or until the end of the ordinary notice period, taking into account all circumstances and interests of both parties.

In principle, in the case of extraordinary termination, it does not matter whether one of the parties is at fault. However, the question of fault plays a role when it comes to claims for damages or compensation.

In Germany, both the principal and the agent may exercise the right to terminate the agency agreement for cause.

Extraordinary termination by the principal

Good cause for extraordinary termination by the principal may exist in the event of the commercial agent's breach of his contractual obligations resulting in a decrease in turnover, or in the event of the commercial agent's persistent negligence, e.g. in the event of inadequate supervision of his sales staff. A classic case of just cause for termination is the agent's violation of the non-compete clause. Unlawful competition is almost always an exceptional reason for termination. The existence of a non-compete clause and its scope must be assessed on the basis of the existing contractual relationship and the given circumstances.

Notice should be given within a reasonable time. It is advisable to act within one month so that the right to terminate is not affected by any possible forfeiture.

Extraordinary termination of the commercial agent

The commercial agent may give notice of extraordinary termination if the principal repeatedly fails to adjust and pay commissions, arbitrarily refuses orders or unjustifiably reduces commissions, or, for example, reduces the sales territory of the commercial agent in violation of the contract. Good cause for termination usually also exists if the contractor attempts to steal the distributor's customers and do business directly with them in order to save commissions. Extraordinary, illegal termination of the agency agreement by the principal also gives the commercial agent a reason for extraordinary termination.

When does the agent's right to indemnity arise?

In principle, the agent's right to indemnification from the principal ceases when the agent terminates the contract. However, the law provides an exception in Section 89b (3) No. 1 of the German Commercial Code (HGB), stating that the claim shall continue to exist if the commercial agent's termination was a justified reaction to the conduct of the principal. If the principal has caused the termination of the agency contract, the post-contractual claim may remain valid.

In the case of an extraordinary termination of the agency contract by the principal, there is no right to compensation if the termination was due to the agent's negligent conduct (Section 89b (3) No. 2 of the Commercial Code). The question of whether there is a good cause for termination and whether the contractor's termination has become effective is often disputed in commercial practice. If the parties cannot reach a mutually satisfactory agreement, the agent's lawyer will usually bring the dispute to court.

The first prerequisite for the commercial agent's right to indemnity is the termination of the contract, with the above-mentioned reasons playing a decisive role.

As a general rule, termination by the principal within the prescribed period will give rise to a right to indemnity, while termination by the agent within the prescribed period will give rise to a right to indemnity only in exceptional cases.

In principle, a claim for compensation may arise if the commercial agent terminates the agency contract because of serious illness (the commercial agent bears the burden of proof!) or because of age (in principle up to the age of 65), if the principal terminates the agency contract without the commercial agent having given him good cause to do so through culpable conduct, or even if the agency contract is terminated by mutual agreement, or even if the agency contract was for a fixed term and expires, or if the commercial agent dies.

On the other hand, the right to compensation is generally excluded if the commercial agent terminates the contract without notice or without good cause, or even if the commercial agent has given the principal good cause to terminate the contract without notice, or if 

a successor takes over the commercial agent contract with the consent of the principal.

The commercial agent must notify the principal of the claim for indemnification within one year after the termination of the contract.

Amount of the indemnity due to the commercial agent in Germany

As a rule, the determination of the amount of the indemnity is not a trivial matter. The calculation is complex and depends on many factors. The widespread assumption that the agent is always entitled to an average annual commission calculated over the last five years of his activity is incorrect. Section 89 b (2) HGB merely sets an upper limit in favor of the entrepreneur.

The claim for compensation must be submitted by the agent in due time and must be quantified. It is not sufficient that he only states the average commission income of the last 5 years of the contract, but he must justify his claim in detail. Only after a precise calculation of the compensation can it be determined whether the commercial agent is entitled to the maximum amount or only to a possibly lower net compensation. A distinction must be made between ordinary and extraordinary termination. Either party may terminate the agency contract by ordinary or extraordinary termination.