Export Agency Agreement

Agency agreement is a legal document which establishes commercial relationship between the principal and
the agent. It incorporates the conditions mutually agreed upon by the concerned parties Ior the conduct oI
business. When negotiating an agency agreement, Indian Iirms should be careIul on certain points. These
are:
Parties to the contract: The identity oI the parties must be made explicit; especially whether the agency is
assignable or not, should be made clear.
Contractual Products: The agreement should indicate speciIic products Ior which the agency is being
concluded. II products are not speciIically mentioned, this implies that the agent is working Ior the entire
product range, both present and Iuture oI the Iirm which will be very unsatisIactory Irom the standpoint oI
the exporter.
Contracted Territory: The territory Ior which the sole agency is being granted is to be explicitly mentioned.
Customers: Generally the agent may be required to contact all potential customers. But in some cases the
principal may like to reserve the right to himselI to contact directly some speciIic group oI buyers. II so, this
is to be mentioned in the contract. International Buying Groups` operations are becoming increasingly
important. There principal thereIore may like to reserve the right to negotiate directly with such buying
groups on his own country Ior orders which ultimately will be executed in the agent`s territory. Whether the
agent will be eligible to commission on such sales should be made explicit in the agreement.
Acceptance Ior rejection oI orders: The principal may also like to reserve the right to accept or reject any
order secured by the agent. This may be especially important when credit terms are involved and the
principal is not sure oI the creditworthiness oI the buyer. Reservation oI this right also will have to be
mentioned in the agreement.
Payment oI Commission: Payment oI commission is the crucial clause oI the agreement. First, the rate at
which the commission will be paid has to be indicated. Secondly, since commission payable is calculated on
percentage basis, the base Ior such calculation is to be determined. Thirdly, the time when the commission
becomes payable should also be indicated. Legally speaking, commission becomes due when the principal
accepts the order. But there is a time gap between the acceptance oI the order and the receipt oI the payment.
Many uncertainties are involved within this time gap. The exporter may make the shipment but overseas
buyer may deIault. The result will be the same in either case, because the principal will not get the payment
while the commission has already Iallen due. To avoid such problems, it should be made that the
commission will be paid o the basis oI the invoice value and will become payable only on realization. The
provision in Iact, is necessary also in view oI the RBI regulations.
Settlement oI Disputes: With a clearly draIted agency agreement there should normally be no reason Ior
disputes to arise. But in case disputes do arise, the mechanism Ior settling such disputes should be agreed
upon in advance by both the parties and indicated in the agency agreement. ReIerring the disputes to
arbitration is the best procedure. Care, however should be taken as to the venue and the proper law oI the
agreement. The Indian Iirm may attempt to get a place in India as venue and Indian law as the proper law. In
case it is not acceptable to the agent, there are two possibilities oI compromise viz., (1) that the venue will
be in a third country, or (2) that the venue will be the place oI the deIendant.
Renewal and Termination: The agreement should in itselI also provide or the renewal or termination
procedure. II the agent is sound, obviously no principal will think oI terminating the agreement. The
problem oI termination arises only when the agent is not eIIective. In the civil law countries termination may
pose Iinancial problems to the principal because oI compensation to be paid to the agent.
Agency Agreement Vs Distribution Agreement
It may be worthwhile to compare an agency agreement with a distribution agreement. A distribution
agreement is one which is signed by the Indian exporter with a distributor abroad. The basic distinction
between an agency agreement and a distribution agreement relates to the title oI the goods. Under an agency
agreement, the agent is responsible only Ior the procurement oI orders. Subsequently, there is a direct
contractual relationship between the exporter and the party placing the order. Title oI the goods, even when
stocked at the agent`s premises, remains with the principal. So does the risk.
Under a distribution agreement, on the other hand, the contractual relationship is only between the principal
and the distributor. But there is no subsequent contract between the principal and the ultimate buyers. The
distributor purchases the goods Irom the principal on his own account and, thereIore, both risk and title to
the goods pass on to the distributor.
Similarly, credit risks are to be borne by the principal in the case oI an agency agreement, unless del credere
terms are involved, while in the case oI distribution agreement credit risks will be borne by the distributor.
Further, on the case oI an agent, the principal may be subject to third party liability because oI any action on
the part oI the agent taken during the course oI business. However, when a distributor is appointed such third
party liability does not go back to the principal. Liabilities on account oI product warranties, oI course will
remain with the principal even when a distribution agreement has been concluded.
It is, thereIore clear that the extent oI legal liabilities under an agency agreement tends to be higher than
under a distribution agreement. But this has to be viewed against the relative disadvantages in terms oI
marketing Iactors, which are implicit in a distribution agreement. When a distributor is appointed, he
operates as an independent organization buying and selling on his account. ThereIore the control oI the
principal on the distributor cannot be IoolprooI. Under an agency agreement, on the other hand, the agent is
always under the direct control oI the principal and thereIore the latter can eIIectively manage the marketing
operations in the way, he likes. Moreover, it is more diIIicult to get a distributor than a good agent.
,s rel,ting to products:
Trade Marks: Trade Marks are words or designs or combination oI these. The words may be manuIactured
words, i.e. words which do not exist in any language but have been invented speciIically Ior the purpose oI
trade mark, viz., XEROX or KODAK, aIaqs! Etc. Trademarks are expected to perIorm many marketing
Iunctions. Some oI these are:
1. to enhance or create distinctiveness;
2. to help identiIying the product;
3. to lead to easier recognition oI the product;
4. to symbolize the quality oI the product and
5. to simulate the desire to buy
Protection oI Trade Marks:
A manuIacturer can apply Ior registration oI his trade mark to the registering authority oI the country where
he is exporting or wants to export. Certain names cannot be registered. Names, surnames, geographical place
names, descriptive words or numerals are generally not allowed to be registered. BeIore registering a trade
mark, the registering authority will conduct a check whether this or a similar trade mark has already been
registered. II no evidence oI such a trade mark is Iound, the trade mark being applied Ior will be published in
the oIIicial journal oI the registering authority. Anybody can raise objections to the granting oI registration
within a speciIied period aIter the publication. II the ground Ior objections, iI any is Iound to be not in order,
the registration is given. This is more or less the practice Iollowed in most countries though there are minor
variations. An exporter has to assign the task oI trademarks registration to attorney Iirms which are
specialized in such matters.
PRODUCT LIABILITY:
Product liability is the area oI law in which manuIacturers, distributors, suppliers, retailers, and others who
make products available to the public are held responsible Ior the injuries those products cause. Although
the word "product" has broad connotations, product liability as an area oI law is traditionally limited to
products in the Iorm oI tangible personal property.In the United States, the claims most commonly
associated with product liability are negligence, strict liability, breach oI warranty, and various consumer
protection claims.
Types oI liability
Section 2 oI the Restatement (Third) oI Torts: Products Liability distinguishes between three major types oI
product liability claims:
O manuIacturing deIect,
O design deIect,
O a Iailure to warn (also known as marketing deIects).
ManuIacturing deIects are those that occur in the manuIacturing process and usually involve poor-quality
materials or shoddy workmanship. Design deIects occur where the product design is inherently dangerous or
useless (and hence deIective) no matter how careIully manuIactured; this may be demonstrated either by
showing that the product Iails to satisIy ordinary consumer expectations as to what constitutes a saIe
product, or that the risks oI the product outweigh its beneIits. Failure-to-warn deIects arise in products that
carry inherent nonobvious dangers which could be mitigated through adequate warnings to the user, and
these dangers are present regardless oI how well the product is manuIactured and designed Ior its intended
purpose.
re,ch of ,rr,nty : Warranties are statements by a manuIacturer or seller concerning a product during a
commercial transaction. Warranty claims commonly require privity between the injured party and the
manuIacturer or seller; in plain English, this means they must be dealing with each other directly. Breach oI
warranty-based product liability claims usually Iocus on one oI three types: (1) breach oI an express
warranty, (2) breach oI an implied warranty oI merchantability, and (3) breach oI an implied warranty oI
Iitness Ior a particular purpose. Additionally, claims involving real estate may also take the Iorm oI an
implied warranty oI habitability. Express warranty claims Iocus on express statements by the manuIacturer
or the seller concerning the product (e.g., "This chainsaw is useIul to cut turkeys"). The various implied
warranties cover those expectations common to all products (e.g., that a tool is not unreasonably dangerous
when used Ior its proper purpose), unless speciIically disclaimed by the manuIacturer or the seller.
Negligence: A basic negligence claim consists oI prooI oI
1.a duty owed,
2.a breach oI that duty,
3.the breach was the cause in Iact oI the plaintiII's injury (actual cause)
4.the breach proximately caused the plaintiII's injury.
5.and the plaintiII suIIered actual quantiIiable injury (damages).
Over time, negligence concepts have arisen to deal with certain speciIic situations, including negligence per
se (using a manuIacturer's violation oI a law or regulation, in place oI prooI oI a duty and a breach) and res
ipsa loquitur (an inIerence oI negligence under certain conditions).
Strict li,bility: Rather than Iocus on the behavior oI the manuIacturer (as in negligence), strict liability
claims Iocus on the product itselI. Under strict liability, the manuIacturer is liable iI the product is deIective,
even iI the manuIacturer was not negligent in making that product deIective.
The diIIiculty with negligence is that it still requires the plaintiII to prove that the deIendant's conduct Iell
below the relevant standard oI care. However, iI an entire industry tacitly settles on a somewhat careless
standard oI conduct, then the plaintiII may not be able to recover even though he or she is severely injured,
because although the deIendant's conduct caused his or her injuries, such conduct was not negligent in the
legal sense. As a practical matter, with the increasing complexity oI products, injuries, and medical care
(which made many Iormerly Iatal injuries survivable), it is quite a diIIicult and expensive task to Iind and
retain good expert witnesses who can establish the standard oI care, breach, and causation.
Even iI there is no negligence, however, public policy demands that responsibility be Iixed wherever it will
most eIIectively reduce the hazards to liIe and health inherent in deIective products that reach the market. It
is evident that the manuIacturer can anticipate some hazards and guard against the recurrence oI others, as
the public cannot. Those who suIIer injury Irom deIective products are unprepared to meet its consequences.
The cost oI an injury and the loss oI time or health may be an overwhelming misIortune to the person
injured, and a needless one, Ior the risk oI injury can be insured by the manuIacturer and distributed among
the public as a cost oI doing business. It is to the public interest to discourage the marketing oI products
having deIects that are a menace to the public. II such products nevertheless Iind their way into the market it
is to the public interest to place the responsibility Ior whatever injury they may cause upon the manuIacturer,
who, even iI he is not negligent in the manuIacture oI the product, is responsible Ior its reaching the market.
However intermittently such injuries may occur and however haphazardly they may strike, the risk oI their
occurrence is a constant risk and a general one. Against such a risk there should be general
onsumer protection : In addition to the above common law claims, many states have enacted consumer
protection statutes providing Ior speciIic remedies Ior a variety oI product deIects. Statutory remedies are
oIten provided Ior deIects which merely render the product unusable (and hence cause economic injury) but
do not cause physical injury or damage to other property; the "economic loss rule" means that strict liability
is generally unavailable Ior products that damage only themselves. The best known examples oI consumer
protection laws Ior product deIects are lemon laws, which became widespread because automobiles are
oIten an American citizen's second-largest investment aIter buying a home.
Laws relaLlng Lo leLLer of credlL
A leLLer of credlL ls a leLLer lssued by a bank know as Lhe openlng of Lhe lssulng bank aL Lhe lnsLanL of lLs
cusLomer know as Lhe opener addressed Lo a person beneflclary underLaklng LhaL Lhe bllls drawn by Lhe
beneflclary wlll be duly honored by lL openlng bank provlded cerLaln condlLlons menLloned ln Lhe leLLer
have been complled wlLh A leLLer of credlL represenLs a conLracLual relaLlonshlp beLween Lhe openlng
bank and Lhe beneflclary vlz Lhe exporLer 1he bank ln facL makes a commlLmenL under Lhe L/C LhaL lL
would make Lhe paymenL of Lhe agreed sum as lndlcaLed ln Lhe L/C sub[ecL Lo Lhe condlLlon LhaL all
documenLs as asked for are submlLLed Lo Lhe bank and on scruLlny found Lo be ln order Cpenlng
negoLlaLlon of Lhe leLLers of credlL are governed by Lhe lnLernaLlonal Chambers of Commerce brochure no
600 enLlLled unlform CusLoms and pracLlces for documenLary credlLs commonly known as uC
art|es to the |etter of cred|t
AppIicant
Applicant is the buyer of the goods or services supplied by the seller. Letter of credit is opened by the issuing bank as
per applicant's request. However, applicant does not belong one of the parties to a letter of credit transaction. This is
because of the fact that letters of credit are separate transactions from the sale or other contract on which they may
be based.
Beneficiary
Beneficiary is the seller of the goods or the provider of the services in a standard commercial letter of credit
transaction. Letter of credit is opened by the issuing bank in favor of the beneficiary.
Issuing Bank
ssuing Bank is the bank that issues a letter of credit at the request of an applicant or its own behalf. ssuing bank
undertakes to honor a complying presentation of the beneficiary without recourse.
Nominated Bank
Nominated bank is the bank with which the credit is available or any bank in the case of a credit available with any
bank.
Advising Bank
Advising bank is the bank that advises the credit at the request of the issuing bank. An advising bank that is not a
confirming bank advises the credit and any amendmend without any obligation to honor.
Confirming Bank
Confirming bank is the bank that adds its confirmation to a credit upon the issuing bank's authorization or request.
Confirming bank may or may not add its confirmation to a letter of credit. This decision is up to confirming bank only.
However, once it adds its confirmation to the credit confirming is irrevocably bound to honor or negotiate as of the time
it adds its confirmation to the credit. Even if the issuing bank fails to honor, confirming bank must pay to the
beneficiary.
Reimbursing Bank
Reimbursing Bank shall mean the bank instructed and/or authorized to provide reimbursement pursuant to a
reimbursement authorization issued by the issuing bank.
octr|ne of Str|ct Comp||ance Any d|screpancy makes the document ||ab|e for non acceptance
ethods of Dispute Settlement
Arbitration Vs Litigation: There are two well recognized methods Ior settlement oI disputes i.e. litigation
and arbitration. Litigation is not suitable Ior settlement oI trade disputes as it is beset with inordinate delays
high costs and uncertainty oI the Iinal decision. The basic limitations oI litigation are:
1. Court process is proverbially slow, time consuming and Iormalistic. It easily takes a Iew years Ior
settlement oI a dispute in a court oI law.
2. Avoidable necessity oI expert witnesses and other evidence. A judge, however expert or eminent in the
Iield oI law, cannot be expected and is not well versed in the practices, procedures and customs oI various
lines oI trade particularly the international trade. When a commercial dispute is tried in a court oI law, the
trade practices and procedures have to be proved beIore the court by expert witnesses having knowledge and
experience oI such matters.
3. Inconvenience to the parties: The time and date oI hearings in a court oI law are not exactly convenient or
suitable to the litigants. Some times one has to wait Irom morning till evening beIore his case is called; may
be only to learn that the case is adjourned.
The basic advantages oI arbitration are:
1. Quickness: Arbitration is much quicker than litigation. It can be completed as quickly as the parties want
it, depending on the circumstances and the nature oI the particular case. Under the Arbitration Act, the
arbitrators have to make the award within Iour months Irom the date oI entering on the reIerence. Usually an
arbitration case may be settled between Iour months to one year.
2. In expensiveness: The costs and expenses in arbitration are also much less than in litigation. Apart Irom
the arbitration Iees which usually is round 2 percent oI the claim value or less in institutional arbitration, the
other incidental expenses are rather moderate and low:
3. Promotes goodwill: Arbitration is a process oI goodwill and it helps promote Iriendly trade relations
between the parties. The arbitrator is a person chosen by the parties themselves on the basis oI their Iaith and
conIidence to him.
4. Sound and cogent decision: In arbitration it is possible to choose a person having knowledge and
experience in the particular line oI trade to which the dispute relates, thereby avoiding the necessity oI
expert witnesses Ior educating the judges or Ior proving trade customs and practices.
5. Privacy: Arbitration proceedings are not open to public and arbitrators` decisions are not published in law
reports like the court decisions. ThereIore, arbitration preserves the privacy and trade secrets oI the parties.
International Arbitration:
In the case oI international transactions arbitration becomes international when at least one oI the parties
involved is resident or domiciled outside India or the subject matter oI the dispute is abroad. The law
applicable to an arbitration proceeding may be the Indian law or a Ioreign law, depending on the terms oI the
contract and the rules oI conIlict oI laws.
In the case oI international transactions arbitration can take place ether in the exporter`s or importer`s
country. It is, thereIore necessary to have a legal system Ior the recognition and enIorcement or arbitral
award given in another country. The International New York Convention on Recognition and EnIorcement
oI Foreign Arbitral Awards, 1957 has been ratiIied by 109 countries which recognize and enIorce arbitral
awards given in the countries which are signatories to this Convention.
Procedure Ior EnIorcement in India: Any person interested in Ioreign award may apply in writing to any
court having jurisdiction over the subject matter oI the award praying that the award be Iiled in the court.
The application shall be numbered and registered in the court as a suit between applicant as plaintiII and the
other parties as deIendants. The court shall direct notice to be given to the parties requiring them to
showcause why the award should not be Iiled. There upon the court on being satisIied that the Ioreign award
is enIorceable under the Act shall pronounce judgment according to award. Upon the judgment so
pronounced a decree shall Iollow and no appeal shall lie Irom such decree except insoIar as the decree is in
excess oI or not in accordance with the award.