Agency: some outlines

Questions are regularly asked in practice with regard to the legal nature of a franchise agreement in relation to agency constructions in particular. It is sometimes wrongly thought that franchising is a form of agency. Although mixed forms may exist, in general this is not the case.

An agent essentially does not act for its own account and risk, but mediates in the sale of products or services for the benefit of its principal. The principal invoices and delivers, and agreements are made between the ultimate uses and the principal and not with the agent. Agency is regulated in Book 7 of the Dutch Civil Code and as such is subject to some mandatory rules. An important rule for practice is that at the end of the agency agreement, the agent is in principle entitled to a goodwill compensation from the principal. The reason for this lies in the fact that the agent cannot generate a business profit from the sales proceeds of the principal’s products. For this he only receives a commission agreed in advance between the parties. In order to compensate for the lack of pure profit from the business, the aforementioned goodwill arrangement has been included in the law.

The opposite of agency is the resale agreement referred to by the general term. In principle, this also includes a franchise agreement. As a customer of the supplier/producer, the reseller buys the products independently and also sells them independently to his own customers. The reseller bears the full risk and full responsibility and can therefore determine his own prices and thus also his own margin and profit, of course within the bandwidth that the market offers. The choice whether, within a particular partnership, agency or resale is preferable cannot be made in general. This is strongly organization and industry dependent. It is true, however, that in principle agency falls outside the scope of competition regulations, as a result of which more far-reaching agreements can be made with regard to, for example, prices and area demarcations than in the case of a resale or franchise construction. In this way, a supplier/producer who uses an agency construction can, in principle, exert more influence on, for example, marketing than in a resale construction.

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