I. – CONCEPT
According to Article 1 of Law 12/1992 on the agency agreement (the “LCA”), we can define this type of contract as:
One for which a natural or legal person (agent) is obliged, stably and with remuneration, before another natural or legal person (called the principal), to promote business acts or operations for others, or to promote and conclude them by and on behalf of others, without assuming, unless otherwise agreed, the risk of such operations.
II -. COMPETITION
We can distinguish two types of competition between the agent and principal. The first one, which we will focus on, occurs when the agent competes against the principal. The second is the opposite, and is the case of competition from the principal to the agent. In the latter case, suffice it to say that if an exclusive agreement with the agent does not exist, the principal may develop business and sales in the same territory where the agent acts. Otherwise, where an exclusivity agreement exists, the agent would be entitled to so-called “indirect commissions” (art. 12.2 LCA).
As we said, and within the first option (agent competes against the principal), there are two possibilities for restricting competition:
During contract life:
According to Article 7 LCA, the agent will need in any case, the consent of the principal to exercise, on its own account or on behalf of another entrepreneur, a professional activity related to the same or similar, concurrent or competitive goods or services as those the agent had become obliged to promote by contract with the principal. Therefore, it is presumed that the agent is prohibited to compete, directly or indirectly, against the principal, and this presumption may only be invalidated by express agreement by the parties.
After the termination of the contract:
Article 20 LCA sets forth that parties may agree a limitation to agent’s professional activities after the contract is terminated. Therefore, the presumption is the opposite to the previous case: unless otherwise agreed, the agent is free to develop the activity he wants.
Such agreement shall be formalised in writing (High Court Judgement of July 1, 2005), and should be restricted to:
• The territory of the agent.
• Groups of people that had been entrusted by the agent.
• The class of goods or services operated by the agent.
• The agreement cannot have a duration of more than two years as from the termination of the contract. If the contract had been agreed for a shorter period, the agreement may not exceed one year.
However, doctrine (Mr. José Moxica Román, The Agency contract Law, edit. Aranzadi, 2001), deems that this restrictive pact should always be linked to products which are the same or similar to those sold by the principal, and an absolute or general ban on agent’s activity or in relation to any area or product should never be implied, since this would be contrary to Article 35 of the Spanish Constitution.
III -. CONCLUSION
The parties may freely agree on the competitive relationship between agent and principal, and there is no objection to establishing a prohibition of competition both during contract life, and following its termination, always in accordance with the aforementioned limits.
Vilá Abogados
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5th of December 2013
