The export contract

The contract that you sign with your export agent may have dramatic implications for the success of your firm. If you plan to sign such a contract, we recommend that you consider certain issues. Click here to learn more about possible clauses in the agency contract.

Parties to the contract?Services being contracted for?Legal status of the agent?Product(s) represented by the agent?Export agent's commission?Cancellation of buyer's contract?Price of product?Responsibility for expenses?Agent's geographic region?Support?Contract length?Expectations?Communication?Termination of contractOrders accrued before termination?Copyright and trademarks?Jurisdiction?Confidentiality?Sending of notices?Other clauses?
Every contract should clearly indicate who are the individuals or companies involved in the contract. There will also normally be a clause in the contract that requires both parties to keep the other informed of any change of ownership, control, or management. Normally, if there is any change in the control or management of the agent that is unacceptable to the exporter, or if the agent uses the services of anyone unacceptable to the exporter, or if the agent ceases to do business or becomes insolvent, then the exporter will have the right to cancel the contract.

It is also not uncommon to include a clause which requires the agent to agree not to use anyone other than a principal officer, or regular employee of its firm to sell the company’s products (i.e. no sub-contracting is permitted)

Again, each contract should indicate exactly what services are expected of the export agent – that is, what are the agent’s responsibilities. These responsibilities might include undertaking marketing research, advising the exporter on adapting their market strategy to meet customer needs, promoting and demonstrating the exporter’s products to customers, participating in trade exhibitions, liaising with potential customers, undertaking sales promotion and selling activities, providing product training, providing after-sales support, handling enquiries and complaints, and keeping the exporter informed of developments affecting their activities in the country/region in question.
It is essential that the contract clarify the legal status of the agent as an independent contractor to the exporter and highlight whether the agent has any legal authority to enter into legally binding contracts on behalf of the export – this is seldom the case.
It could be that the exporter is interested in negotiating that the agent represents only specifically products and not all of the products of the exporting firm. This is an important issue. If an agent is appointed ‘generally’ then one might reasonably assume that he/she has the right to market all of the products of the exporter and the exporter may not want this!
Normally a commission is applicable, but it is essential to spell out how this commission will be calculated. For example, it is not uncommon to use the FOB price of the product rather than a CIF or landed price, as you will then be paying commission on top of insurance, freight and duty costs. You also need to agree as when this payment will be made – say 14 days after receiving payment from the buyer. Sometimes a fixed fee is negotiated, and this needs to be clearly stated. Who will pay for any expenses incurred by the export agent? In what currency will commissions or fees be paid?
Will you still pay the agent his/her commission?
It is important for the exporter to keep some control over the pricing of the product(s), otherwise the agent may take pricing decisions that are harmful to the company.
Sometimes the exporter will agree that the agent can incur certain expenses such as the printing of brochures, business cards, or the placing of advertisements. Other expenses that may be incurred by the agent on behalf of the exporter include: Travel and accommodation expenses, as well as expenses related to telecommunications, research, legal services, administrative services, etc. Who will pay for these fees and if the agent is to incur these expenses on the exporter’s behalf, will the exporter pay everything or only a portion thereof; will approval first need to be obtained; will the exporter be expected to pay these expenses him/herself; will payment of expenses be made up to a fixed level?
It is not uncommon to appoint an agent for a sub-region within a country (such as for certain states in the US). If this is not specified then it could be assumed that the agent is responsible for the entire country, of worse still, for the entire world. Make sure you specify the country and the sub-region (e.g. province, state, city, etc.) within the country, if this is applicable.
Besides for paying the agent commission and perhaps paying for certain expenses, the agent might expect the exporter to provide promotional material, samples, training and any other related support. These expectations need to be clearly specified.
It is very dangerous to agree to a contract that has no end. Perhaps you need to add a revision period after which time the contract will be revised (or renegotiated).
Besides expecting the agent to perform certain task such as undertaking research, promoting the product, taking part in exhibitions, etc., it is also reasonable to expect the agent to actual close some deals. Will you specify how many sales or what value of sales the agent is expected to achieve within a period of time? What will happen if the agent does not achieve these sales levels (after all, it might not always be the agent’s fault – perhaps your product is just not suitable for the marketplace)?
Will the agent be expected to keep you informed of developments? Perhaps, but how often and in what form should this happen? Expecting an agent to report back every week is perhaps asking too much and expecting a ten page report from the agent is also perhaps overly optimistic. Perhaps you might require the agent to provide brief feedback via e-mail on a monthly basis and to report back more formally every six-month or annually.
If the contract is for a specific period, then presumably it will come to an end at the end of this period, unless renewed by written agreement by the two parties. But what happens if either party wishes to cancel the contract for any other reason? You may wish to include a clause that allows either party to terminate the contract before its expiration for any reason say 30/60 days after providing written notice thereof. Finally, the contract can be terminated if either party is in breach of the contract or any clause therein.
Normally the contract will include a clause indicate what the exporter’s and agents obligations are on expiration or termination of the contract as far as any orders received before or six months (or any other negotiated period) after expiration/termination of the contract, if such orders/sales are as a result of the agent’s efforts
Normally the contract will specifically state that agent agrees to respect and protect (i.e. not misuse) any trademarks, trade names, copyrights or other intellectual property belonging to the exporter. The contract may also state that the agent will not do anything to harm or jeopardise the exporter’s reputation or that of its products.
If there is disagreement and the two parties need to resolve the matter in court, which country’s courts will have jurisdiction over the matter? While one might argue that it must be the South African courts, some countries have laws in place requiring their courts to decide on the matter, and you will need to abide by these requirements if you wish to do business in that country.
It is important to include a clause that requires the agent to keep confident and safeguard all business and technical information that it receives from the exporter and the exporter’s clients.
All contracts have a clause which indicates where all official communication and notices i.r.o. the contract should be sent (postal address, fax number, e-mail address, etc.).
Contracts represent a mind field of potential legal loopholes and most contracts contain standard clauses intended to protect and/or clarify the liability of the parties involved. These clauses include; limitations on liability which states that neither party has any liability to the other party in contract, except as spelt out in the agreement; right to enforce which states that if the agent fails to enforce any provision of the agreement at any time, the exporter still retains the right to do so later on; execution and modifications which states that this is the only and entire agreement between the parties when duly executed with regard to sales rights in the specified country or region and also states how the contract may be modified, if and when necessary.