Agency and Commercial Representation

a. Formation of an Agency Contract.

There are three main forms of what may be called agency contracts in Russian law:
(1) delegation (Art. 163-165 (rules on representation); 971-979 of the RF Civil Code);
(2) commission agency (Art. 990-1004 of the RF Civil Code); and
(3) agency (Art. 1005-1011 of the RF Civil Code).

In the contract of delegation, one person (a principal) designates and authorizes another person (an attorney) to perform legally binding acts on its behalf and issues a power of attorney to such another person. In this relationship only the principal is bound by actions of the attorney-in-fact within the scope of its mandate.

In a contract of commission a principal (a comitent) appoints an agent (a commission agent) to conclude and perform a contract or series of contracts at the expense of a principal, but in the name of an agent. An agent is bound by and responsible before a third party under the contract concluded after the instruction of a principal even if a principal is mentioned in such contract and renders performance to the third party.

Under the contract which is defined as the agency contract in Russian law (genuine agency) one party (an agent) undertakes to perform legal and other actions after instruction of other party (a principal). The agency contract may be structured after the model of delegation (an agent performs actions on behalf of the principal at the principal’s expense) or commission relationship (an agent performs actions in its own name but at the expense of the principal).

Any person (legal entity or individual) may appoint an agent and may be appointed as an agent if qualified (has legal capacity and capability).

An agent may be authorized to perform any and all actions for a principal (general agency) or to perform only defined actions and/or actions related to specific transactions (limited agency). An agent is not responsible before the principal for performance of third parties under the contracts made through the agent unless the agent was negligent is selecting the counterparty to a contract for the principal. An agent may agree to provide a guarantee of proper performance by the third parties to the principal. Such guarantee by an agent is called “del credere” and the principal has to pay the agent an extra compensation for it.

The scope of authority of an agent is described in an agency contract and/or a power of attorney (mandate) issued to an agent. If the scope of authority of an agent in an agency contract is ambiguous or uncertain it is useful to request a written confirmation of agent’s authority by a principal in form of power of attorney.

If one or both parties to an agency contract are legal entities, such contract shall be made in writing.

b. Rights and Duties of Principal and Agent.

An agent is obliged to perform its commission in compliance with instructions of the principal. If circumstances require to deviate from such instructions, and it is not possible to obtain principal’s prior approval within the respective time frame, an agent must take actions in the interests of the principal and promptly inform him to this effect.

A principal must reimburse an agent for its expenses and pay an agent a fee. A delegation contract connected with commercial activity of either or both parties thereto is considered reciprocal unless otherwise is provided for by the contract.

An agency contract may limit rights of a principal to enter into similar agency contracts with other agents on specified territory or to engage in specified activity by itself on this territory. It may contain a provision restricting rights of an agent to represent other principals on part or entire of specified territory.

Provisions of an agency contract that force an agent to deliver goods, works or services to a limited category of customers or to designated customers only are void.

Unless it is stipulated otherwise, an agent may at its own discretion appoint subagents for performance of a contract, such delegation, however, does not include the right to conclude legally binding transactions in the name of a principal.

Delegation of the right to conclude legally binding transactions is only possible under consent of a principal, a power of attorney-in-fact issued by an agent to subagent in this case must be certified by a notary. An agent is liable before a principal for acts of subagents.

An agent has to keep a principal informed on performance of an agency and/or on completion of performance.

c. Liability of a Principal for Acts of an Agent.

An agent acting in its own name acquires all rights and obligations under the contract made for a principal, even if a principal is disclosed and/or directly deals with the third party to a contract. In such a contract, an agent, and not a principal is liable before the third party.

In an agency contract where an agent acts in the name of a principal and for a principal, a principal acquires all rights and obligations arising from the contracts made for him by an agent. In this case a principal is liable before third parties.

A principal is not liable before the third party for acts of an agent if the agent acts on behalf of a principal outside or without authorization. An agent itself becomes a party to the contract as if it was made in agent’s name.

d. Types of Agency Permitted in Commercial Relationships.

All three types of agency may be utilized in commercial relationships. In certain situations, agents are required to have special licenses or permits to represent the principal (for example, securities brokers and depositaries and customs brokers).

A special set of rules applies to commercial representation agency. For instance, an attorney permanently representing entrepreneurs on his own may represent both parties to the transaction, provided that it is specifically authorized to do so by his mandate. Normally, cross-representation invalidates the contract even if authorized by the mandate.

e. Termination of Agency.

An agency contract may be terminated by mutual consent of parties, or by a court in case of serious breach by one party.

Special grounds for termination are provided for specific types of agency contracts. A delegation contract is automatically terminated by death, insolvency or liquidation of either party, and may be unilaterally terminated by either party at any time.

A commission agency contract in which an agent acts in its own name may be terminated unilaterally by a principal.

Commission agency and genuine agency contract are terminated automatically if a businessman or commercial entity, which acts as an agent, becomes insolvent.

Genuine agency contract concluded for an undefined period of time may be terminated unilaterally by either party. It is also terminated by death or incapacity of an agent.