Key Agency Considerations for Brazil: Overview
Article published by Thomson Reuters.
A Practice Note providing an overview of key issues for foreign counsel of a manufacturer or supplier of goods to consider when entering into an agency arrangement for the sale or purchase of goods and services in Brazil, including applicable laws and regulations, important considerations for appointing an agent, key provisions in agency agreements, and termination considerations.
An agent in the context of the sale or purchase of goods, services, or both in Brazil is typically an intermediary with authority to negotiate the terms of sale or purchase on behalf of another person or entity (the “principal”) but not to buy goods for resale or contract with customers on its own account. In Brazil, this type of agent is called a commercial representative, and the term “agent” or “agency” as used in the remainder of this Note refers to an intermediary in the context of the sale or purchase of goods and services.
The appointment of an agent is a commonly used channel for the sale of goods and services in Brazil and has many benefits for a foreign principal, including that the principal benefits from the agent’s knowledge of local laws, trading conditions, and customs. However, counsel to a foreign principal planning to appoint an agent to sell its products or services in Brazil should consider a number of risks and requirements that may arise.]
This Practice Note discusses:
- Key legal and regulatory requirements governing the appointment of an agent to market goods and service on behalf of a foreign principal in Brazil, including:
- legal formalities;
- tax requirements;
- competition laws; and
- product regulatory requirements and product liability laws.
- Key considerations for appointing an agent and structuring the agency relationship in Brazil, including:
- types of agents;
- relationship of the parties;
- import requirements;
- intellectual property issues; and
- online sales considerations.
- Key provisions in the agency agreement.
- Issues related to termination of the agency relationship in Brazil.
For an overview of agents and other participants in the global supply chain, see Practice Note, Global Supply Chain: Overview.
Agency agreements in Brazil are regulated by the following laws:
- Law No 4.886/1965 (Agency Law), which regulates the commercial representative (agent).
- Articles 710 to 721 of the Brazilian Civil Code (Law No 10 406/2002) (BCC).
If there is a conflict between the two laws, the Agency Law generally prevails over the provisions of the BCC (according to court practice and doctrine) since it is a specific statute. However, because the agent is deemed the more vulnerable party and the BCC is the more recent law, if there is a more favourable rule for the agent in the BCC, the BCC provision prevails (see Types of Agent for an exception to this rule).
In October 2019, a legislative proposal that could affect agency agreements (Bill No 5.761/2019), was presented to Brazilian Congress. The Bill intended to amend some provisions of the Agency Law related to the agent’s remuneration. However, the legislative proposal was withdrawn from the Chamber of Deputies in August 2021. Currently, there are no other legislative proposals regarding agency agreements.
There is no distinction between agency law for the sale of products and services and general agency law in Brazil. Any agency agreement is regulated by both the Agency Law and BCC, regardless of its object.
Legal Formalities and Due Diligence
The BCC and the Agency Law regulate agency agreements (see Legal Framework). Generally, an agent must be registered with the Council of Commercial Representatives (CORE) to perform its activities (Article 2, Agency Law).
Historically, case law had consistently held that a lack of registration with the CORE is a mere irregularity and therefore the rules of the Agency Law still apply to an unregistered agent (see for example, REsp 1539465, STJ, 14/09/2016, Justice Moura Ribeiro; AC 70075363135, TJRS, 16th Civil Court, 08/11/2018, Judge Rapporteur Niwton Carpes da Silva; AC 0020848-43.2016.8.26.0100, TJSP, 20th Private Civil Chamber, 09/04/2018, Judge Rapporteur Maria Salete Corrêa Dias, TJMG, 10/03/2022, 12 th Private Civil Chamber, Judge Rapporteur Saldanha da Fonseca).
In a 2018 precedent, however, one of the sections of the Superior Court of Justice (STJ) held that the lack of registration with the CORE does not prevent an agent from receiving commissions, but the provisions of the Agency Law do not apply
(including with regard to indemnification), and the case should be interpreted based on the BCC (REsp 1678551, STJ, 3rd Section, 06/11/2018, Justice Paulo de Tarso Sanseverino). This precedent has been endorsed in 2022 in a recourse questioning supposing diverging views of the STJ’s private law chambers. However, the decision stated that the STJ has a unanimous view on the matter considering the current rulings on the matter by the Court (EDcl no Resp: 1678551, Justice Antonio Carlos Ferreira, 08/02/2002). See further, for example Resp 1698761, STJ, 3rd Section, 09/03/2021, Justice Ricardo Villas Bôas Cueva; AgInt no AREsp: 1543568, STJ, 4th Section, 10/05/21, Justice Raul Araújo; AgInt no AREsp: 665999, STJ, 4th Section, 21/06/2021, TJSP, 20 th Private Civil Chamber, 22/07/2021, Judge Rapporteur Roberto Maia; AC: 00012761820218260168, TJSP, 17 th Private Civil Chamber, 13/09/2021, Judge Rapporteur Afonso Bráz.
In summary, even though historically registration in the CORE was not required to apply the Agency Law, as of 2018 a relevant change has taken place. Currently, in a dispute involving an agent in Brazil that is not registered with the CORE, the agent will have a much lower chance of success in obtaining rights under Agency Law (for example, the termination indemnification under Article 27 j of the Agency Law). In this regard, to reduce costs in case of an eventual termination, a supplier should expressly exclude the application of the Agency Law and align with the prospective agent that it should not register with the CORE.
Further, before entering into an agency agreement in Brazil, a supplier should conduct preliminary due diligence and vetting of the prospective agent. It is common that the supplier requires the agent to provide the below documents, both from the agent’s legal entity and its main shareholder’s (natural persons), including:
- Serasa or Boa Vista credit ratings/reports (can be obtained online).
- Updated certificate from the commercial registrar (certidão simplificada).
- The latest version of the agent’s articles of association.
- The following governmental certificates that attest to the tax and social security regularity:
- federal tax and liabilities clearance certificate (Certidão Conjunta Negativa de Débitos relativos a Tributos Federais e à Dívida Ativa da União);
- municipal tax clearance certificate (Certidão Municipal de Débitos Imobiliários e Mobiliários) from the cities where the agent conducts its business/is registered; and
- state tax clearance certificate (Certidão Estadual de Débitos Inscritos e não Inscritos) from the states were the agent conducts its business/is registered.
- If the agent has employees, the following certificates:
- Joint Labor Debts Clearance Certificate (Certidão Conjunta Negativa de Débitos Trabalhistas); and
- -Government Severance Indemnity Fund for Employees Clearance Certificate (Certificado de Regularidade do Fundo de Garantia do Tempo de Serviço).
Many of these certificates can be obtained online, but they are all written in Portuguese.
There are also relevant online resources that can be useful, such as UpMiner reports that can conduct a comprehensive public records search, and include keyword Google searches for compliance-related matters.
Language of Agreement
An agreement does not need to be executed in Portuguese or any other particular language to be considered valid or enforceable in Brazil. However, it must be accompanied by an official Portuguese translation when submitted to a Brazilian court. This also applies to any other document presented in court (Article 192, Brazilian Civil Procedure Code – CPC).
It is common for agreements executed between a Brazilian party and a party from a different country to be written in two languages (in two columns), with a clause providing that one of the versions prevails in the event of inconsistencies or divergence.
There are no execution requirements for the agreement to be valid and enforceable in Brazil. If the parties choose to have a written agreement, it is recommended that the parties initial all pages of the agreement and sign at the end. It is common for the parties’ signatures to be notarised, but it is required for the validity of the agreement. The agreement does not necessarily need to be written.
The agent needs no formal authorisation from the principal to perform the agreement. The agreement’s terms and conditions are sufficient to regulate its activities.
However, for the agreement to be enforceable directly through execution proceedings, without the need to produce evidence (so the contract is deemed an enforceable title), it must be signed in the presence of two witnesses. If the agreement is executed abroad and enforced in Brazil, it must be apostilled, according to the manner specified in the Hague Apostille Convention (if the foreign country is also a member). A Portuguese sworn or court-appointed translation must also be apostilled.
Although the agent must register with CORE (see Agent Registration), the agency agreement does not need to be registered to be valid and enforceable.
Authority of Agent
In an agent and principal relationship, the agent arranges offers and purchase orders from customers on behalf of the principal. The agent can only participate in the execution of the actual sales if the principal has expressly authorised this. It is common in Brazil for an agent to have as their sole responsibility the marketing of products and services on behalf of the principal. The agent transmits any orders to the principal who then closes the deals directly with the clients.
The parties can indicate in the agency agreement if the agent has the authority to conclude contracts on the principal’s behalf. The agent’s powers to bind the principal must be expressly agreed by the parties (Article 710, sole paragraph, BCC).
However, even without written authorisation granting the agent the power to enter into contracts on the principal’s behalf, it would be difficult for the principal to argue that it is not bound by a transaction concluded by the agent in its name if both:
- The agent consistently and habitually concludes contracts on the principal’s behalf.
- The principal accepts the transactions entered into by the agent on its behalf, without restriction.
This is based on the principle of good faith and a principle known as the “appearance theory.” Therefore, the parties should expressly regulate the agent’s powers to bind the principal in the agency agreement. The principal should also monitor the agent’s day-to-day transactions, to make sure the agent is not actually concluding (without the principal’s authorisation) contracts on its behalf, as otherwise there is a risk the principal may be bound by the agent’s actions (even where the agreement expressly disallows the agent to act in the principal’s name).
Liability of Agent for Sales Contracts
The agent can be personally liable for any problems in relation to essential activities under its responsibility in the conduct of its business, such as failure or delay in delivery when the agent was responsible for arranging the transportation. The agent is also personally liable for illicit conduct performed against the principal’s orders.
The general rule is that the agent does not conclude transactions in its own name (see Authority of Agent). In this context, the agent would only incur contractual liability itself to a customer in case of fraud, misconduct, or if the agent acts beyond the powers granted by the principal (Article 29, Agency Law and Article 712, BCC). However, even in this instance, the principal can be held jointly liable, and, in parallel, the principal can seek indemnification from the agent, if the principal is (unduly) held liable by the customer for acts solely attributable to the agent.
If the agent acts in its own name (which is not common) then all the relevant contractual rules apply as the agent would be acting in the capacity of a party to the agreement. If there are manufacturing defects attributable to the principal, such claims could still be made against the agent (see Product Regulatory Requirements and Product Liability Laws). If the agent acts outside the scope of the powers that were granted or practices acts of misconduct or negligence, the principal may terminate the agency agreement for cause (Article 35c, Agency Law) (see Terminating the Agency Agreement).
Agent’s Duties Implied by Law
Article 712 of the BCC states that the agent must act with diligence and observe the instructions given by the principal. This duty is derived from the general duty to act with good faith under the Article 422 of the BCC. Under Brazilian law, good faith is a general principle applicable to any type of contract, including agency agreements. If the agent acts in accordance with the principal’s orders or instructions and within the limits of the contract, then the agent complies with its legal duty to act with diligence and, ultimately, with good faith.
An agent must also:
- Supply detailed information to the principal regarding the business under its care.
- Dedicate itself to expanding the business.
- Promote sales of the principal’s products or services.
- Register with the CORE (see Agent Registration).
The general duty to present reports regarding the agent’s activity is set out in Article 28 of the Agency Law. The parties should set out in the contract the time and manner in which the information must be provided. In the absence of such a provision in the contract, it must be presented when requested by the principal (Article 28, Agency Law).
The following actions by the agent are considered a breach of its duties:
- Harming, intentionally or by negligence, the principal’s interests.
- Helping or facilitating, by any means, the performance of the profession (that is, of an agent) by those who are forbidden, prevented or unsuitable to exert it.
- Promoting or facilitating unlawful business, as well as any transactions, which may undermine the interests of the Tax Authority.
- Violating professional secrecy rules.
- Not reporting or presenting to the principal any accounts, receipts, or documents that may have been given to the agent for any purpose.
- Refusing to present its professional identification card, when requested.
Principal’s Duties Implied by Law
A principal must pay the agent’s commission within 15 days from the receipt of payment of the relevant sales invoice by the third- party buyer (Article 32, Agency Law). For more information on an agent’s remuneration, see Regulation of Agent Compensation.
Bribery and Corruption
Brazilian law does not specifically regulate acts of private corruption. However, secret commissions could generate, for example, tax penalties if they are not duly declared and the applicable taxes paid.
The issue of corrupt gifts in violation of the law only arises where national or foreign public entities, politicians, and public officials are involved (– Anti-corruption Law (Law No 12,846/2013) and Law on Conflict of Interests (Law No 12,813/2013)). In these cases, the principal can be held liable for the agent’s acts, depending on the circumstances, if these gifts are given to obtain a benefit for, or in the interest of, the principal (Article 2, Law No 12,846/ 2013). Further, under the Anti-corruption Law, the principal can be held accountable regardless of proof of guilt.
Regulation of Agent Compensation
An agent is entitled to remuneration once the third-party customer pays for the relevant good or service (Article 32, Agency Law) (see Principal’s Duties Implied by Law). The agent must present a commission invoice to the principal so it can make the corresponding payment.
While the law does not set any other rules specifically related to payment (such as minimum or maximum amounts), it does provide that the principal cannot change any terms of the agency agreement that would result in a direct or indirect reduction of the agent’s average remuneration obtained over the last six months of the agreement (Article 32, paragraph 7, Agency Law). The principal cannot, for instance, alter the agreement to reduce the agent’s percentage commission rate unless it increases the territory or gives the agent other means to maintain its average remuneration (see for example TJSP, AC 1012279-23.2018.8.26.0405, 18th Chamber of Private Law, 18/06/2019, Judge Rapporteur Ramon Mateo Júnior; TJSP, AC 0086504-02.2012.8.26.0224, 24th Chamber of Private Law, 17/12/2019, Judge Rapporteur Salles Vieira – both regarding reduction in commissions).
Tax and Exchange Control
If the agent acts as an intermediary for the principal by, for example, obtaining or forwarding requests or proposals, or other acts necessary to mediate between the principal and a third-party buyer, the principal will not be regarded as carrying on business for tax purposes in Brazil. However, if the agent (resident or domiciled in Brazil) of a legal entity domiciled abroad can enter into agreements or sales on the principal’s behalf in Brazil, the foreign entity will be regarded as carrying on business for tax purposes in Brazil. The applicable tax rate imposed on the foreign entity is based on its gross revenues, plus 20%.
There are also rules on the determination and taxation of income earned in Brazil by branches, agencies, or representatives of foreign companies authorised to operate in the country. An agent or representative of a foreign company authorised to operate in Brazil could, in theory, be treated as a branch of that legal entity and may be required to pay income tax on the entity’s behalf.
Withholding tax is levied on remittance monies, the amount of which varies depending on the activity involved. Where an agent acts as an intermediary for a foreign principal, the remittance of monies abroad and the withholding or other tax payable arises when products or services are imported by a Brazilian company. If the goods or services are purchased directly from a foreign company, that company issues an invoice to the customer and the withholding or other tax payable depends on the type of the imported product or service.
Under an agency relationship, the agent receives a commission for the services provided to the principal. The agent must pay the following taxes in Brazil on that commission:
- Income tax.
- Services tax.
- Social security contributions, such as:
- Contribution for the Social Integration Programme (Contribuição ao Programa de Integração Social)(PIS); and
- Federal Contribution for Social Security Financing (Contribuição para o Financiamento da Seguridade Social) (COFINS).
There are no difficulties in a domestic agent making payment to a foreign principal, either in local currency or in the currency of the principal’s country. However, the Brazilian Central Bank requires both:
- A written agreement in relation to a payment to a foreign principal.
- A declaration concerning the specific purpose of the payment.
Exclusive Sales Territory
Brazilian law does not prohibit a principal from appointing an agent as its sole and exclusive agent in a territory (exclusivity) or the imposition of territorial or customer restrictions. In fact, under Article 711 of the BCC, there is a presumption of territorial exclusivity applicable to both principal and agent, if there is no contrary arrangement in the agency agreement (see Types of Agent).
In this context, there is no assumption that exclusivity is itself illegal or breaches competition rules. Exclusivity may be deemed as a breach of antitrust law where the claimant can prove by a preponderance of evidence standard that the exclusivity was used in an abusive manner and the defendant is deemed a dominant player in a relevant market, however. The Brazilian antitrust authority (BAA) assumes that a party holds a dominant position if it has at least 20% of the market share in the relevant markets (Article 36, paragraph 2, Brazilian Competition Law).
Issues that are considered when evaluating the legality of an exclusivity arrangement include:
- Whether it causes harm to consumers or the market as a whole.
- The level of economic dependency.
As market dominance is not an antitrust issue by itself, both dominant and non-dominant players may enter into exclusive and selective agency arrangements, as long as those agreements do not lead to market foreclosure or any material limitations or harms to competition (which is subject to a case-by-case analysis).
Pricing and Other Practices
Resale price maintenance, refusal to deal, and the imposition of minimum or maximum prices may be prohibited or restricted if any of the below conditions are present:
- The principal has market power or a dominant position in the relevant market (or is part of a group of resellers or an economic group).
- Such practices somehow limit or damage competition.
The relevant market can be determined by assessing:
- The relevant product or service being offered (duly identified in its segment and when compared with its competitors).
- The principal’s market share in comparison to its competitors.
- The territory in which it carries out its activities.
- The actual power it exerts.
According to BAA decisions, an arrangement entered into by a principal and an agent may be considered anticompetitive in relation to transactions carried out with third parties if either:
- The principal has a dominant position.
- The effects of the arrangement can cause harm to competition in the form of higher prices, lower quality, market foreclosure, refusals to deal, or artificial limitations to input.
The following need special attention:
- Resale prices, discounts, terms and conditions of payment, minimum or maximum order quantities, profit margins, and any other sales conditions related to business with third parties (Article 36, paragraph 3, IX, Brazilian Competition Law).
- Tying (Article 36, paragraph 3, XVIII, Brazilian Competition Law).
- Refusal to deal (Article 36, paragraph 3, XI, Brazilian Competition Law).
- Allocation of markets or clients (Article 36, paragraph 3, I, c, Brazilian Competition Law).
There is a rebuttable presumption of a dominant position whenever an entity with at least 20% of the relevant market share imposes the above measures. Although the BAA will not necessarily find a breach in these circumstances, it may take other measures, for example, shifting the burden of proof onto the investigated company. The BAA makes a decision based on a detailed case-by-case analysis, taking into account the principal’s market position and the BAA’s view of whether or not these practices limit or damage competition.
Minimum Sales Targets
A principal can establish minimum sales targets for the agent. It is recommended that these targets are expressly set out in the agency agreement or in another document executed by the parties (it is relevant as a matter of burden of proof in case of eventual litigation). The relevant document must also state the consequences of a failure to meet sales targets (for example, contractual breach, termination, or loss of exclusivity).
However, establishing sales targets can be used by agents as corroborating evidence of the existence of an employment relationship between the agent and the principal under the Consolidation of Labor Laws (CLT). Setting of targets in isolation does not create an employment relationship. However, this can be an important element in evaluating the level of subordination of the agent to the principal, which is one of the principal characteristics of employment (see Employment Risks).
Since the BAA has not thoroughly assessed a significant number of antitrust complaints regarding agents, there is a lack of certainty or predictability in these cases. Therefore, it is important to consider the general principles and guidelines of the Brazilian Competition Law and decisions involving similar agreements, such as distribution agreements.
If the relationship between the parties is of a commercial nature, the parties can agree to and enforce a non-compete covenant during the term of the agency relationship. Article 711 of the BCC presumes that the agent will not engage in any business that is similar to that of the principal within the same territory. Brazilian law does not specify which activities can be restricted, allowing the parties to freely agree on such matters. In the absence of written clauses, the courts conduct a case-by-case analysis into whether the activity can harm the principal’s businesses or to mislead customers. Activities such as selling, marketing, or manufacturing products similar to those of the principal are likely to be included in these restrictions.
Post-termination restrictions are more controversial. They may be allowed if the agent has been duly compensated. To minimise the risk of the courts finding this type of clause abusive and, therefore, unenforceable, the parties should expressly define:
- The activities subject to restrictions.
- The geographical area of the non-compete obligations.
- The period of time in which they are enforceable (up to five years is usually deemed acceptable, depending on the term of the agency relationship and other elements to be assessed on a case-by-case basis).
Under the Consumer Defense Code (CDC), the principal and the agent are responsible for ensuring that products can be sold in Brazil and that the products comply with regulatory requirements issued by several regulatory bodies, such as:
- The National Sanitary Authority (ANVISA), which regulates all products and services that may affect public health (Law No 9.782/1999).
- The National Telecommunications Agency (ANATEL), which is responsible for the national telecommunications policy and for ensuring the enforcement of consumer rights by telecom companies (Law No 9.472/1997).
- The National Institute for Metrology, Standardization, and Industrial Quality (INMETRO), which is charged with introducing standards to ensure the quality and the safety of products and services provided in Brazil (Law No 5.966/1973).
Both the principal and agent are jointly responsible for any product recalls. Suppliers cannot make available on the market a product or service that is known to present harm or danger to health or safety (Article 10, CDC). A supplier that becomes aware that a product or service already on the market is harmful or dangerous must immediately notify the proper authorities (Article 10, first paragraphemic, CDC).
Any clauses in an agency agreement seeking to exclude or limit a supplier’s liability for product compliance, product recalls, or damages to consumers are null and void (Article 51, I, CDC), even if the parties to the contract agreed to include such clauses (Article 25, CDC). However, if the consumer is a legal entity, liability may be limited but not excluded, in certain justifiable situations (Article 51, subsection I, CDC). The courts tend to be quite restrictive in recognising this exception.
Under Article 34 of the CDC, agents and suppliers are jointly and severally liable towards the consumer in product or service liability claims. Because of the joint and several liability between agents and suppliers, the consumer can sue all parties in the supply chain for product defects (Article 18, CDC).
The general rule according to the CDC is objective liability, which does not depend on the proof of fault of the agent or the manufacturer. Therefore, one understanding is that, where the customer is the final recipient of the product or service, the agent can be personally liable for defects in the product or service.
The agent is considered as part of the chain of supply, meaning that the customer can seek compensation from the agent and from the principal, because of the joint and several liability between them (Articles 18 and 34, CDC). The statute also states that the provider will be held responsible for the defects in the quality and safety of goods and services even if it is not aware of them (Article 23, CDC). Therefore, since the agent only acts on behalf of the principal (Article 710, BCC), it is common for the agreement to stipulate an indemnity due from the principal to the agent if the agent is sued for product defects (see Indemnification and Insurance).
Appointing an Agent and Structuring the Agent Relationship
Both the Agency Law and the BCC define the relationship between agent and principal as one where the agent (either a legal entity or natural person) must promote the principal’s product or service on behalf of that principal (or multiple principals) within a specified territory by presenting offers or proposals to the client. The key characteristic of the agency agreement is that the agent only acts as an intermediary, but does not generally conclude any agreements with clients on behalf of the principal. In return, the agent receives remuneration, which is usually a commission or equivalent payment based on the sales concluded through the agent’s intervention or within the agent’s territory (in the case of an exclusive agency agreement).
Although agents generally do not have the authority to conclude contracts on behalf of the principal, the parties can indicate in the agency agreement if the agent has the authority to conclude contracts on the principal’s behalf. The agent’s powers to bind the principal must be expressly agreed by the parties (Article 710, sole paragraph, BCC) (for details, see Authority of Agent).
Agents with authority only to introduce customers to the principal (often referred to as marketing and introduction agents), are not considered agents, under the Agency Law or the BCC.
Under the Agency Law, the agent is known as “commercial representative” and the principal “represented party” (representado), or they can also be referred to as contractor and contracting party (contratado e contratante). Under the BCC, the principal is known as “offeror” (proponente) and the agent as “agent.”
Under the Agency Law, the term “exclusive” primarily means that the agent is entitled to commission for all the business conducted in the territory defined in the contract. Therefore, the principal can still directly market or sell to customers in that territory, but the agent is entitled to commission, even if it did not participate in the transaction (Article 31, Agency Law). The parties can agree to total or partial exclusivity of the territory and the duration of the exclusivity (Article 27(e), Agency Law).
Legislation does not clearly specify whether exclusivity is automatic or not. Under Article 711 of the BCC, if not expressly agreed otherwise, the principal cannot appoint other agents in the agent’s territory. The agent also cannot work in the same territory for other principals that sell products of the same type as the principal’s products. This presumption of exclusivity can be contractually changed by the parties. The STJ has also recognised the presumption of exclusivity in cases where there is no express provision stating the contrary in the agency agreement but there is proof (by other means, such as witness testimony) that the agent acted with exclusivity (see for example REsp 1634077, STJ, 3rd Section, 09/03/2017, Justice Nancy Andrighi; AC 10129777720188260001, TJSP, 14 th Private Civil Chamber, 27/03/2020, Judge Rapporteur Melo Colombi).
By contrast, there is no presumption of exclusivity under the Agency Law in the absence of express agreement by the parties. Despite the express provision in the BCC and the precedents from the STJ, lower courts tend to interpret the exclusivity presumption restrictively or even apply the rule under Article 31 of the Agency Law, a situation where the conflict between the BCC and the Agency Law is not uninformedly resolved (see, for example AC 70075586677, TJRS, 15th Civil Court, 25/04/2018, Judge Rapporteur Otávio Augusto de Freitas Barcellos; TJSP; AC 1000382-10.2017.8.26.0477, TJSP, 16th Chamber of Private Law, 08/11/2018, Judge Rapporteur Coutinho de Arruda).
The agency agreement can also define bilateral exclusivity. This means that the agent can only market and sell the principal’s goods in the specified territory.
The term “sole” agency is not generally recognised in Brazil. This type of arrangement is usually referred to as an exclusive agreement under the Agency Law, with the agent being entitled to payment of a commission if the principal sells in the agent’s territory. However, the principal can retain the right to make direct sales in the context of an exclusive agreement, without paying a commission to the agent, or even a reduced commission.
Brazil recognises the term “non-exclusive” agency agreement. In a non-exclusive agreement, the principal can appoint other agents and directly market and sell to clients in the specified territory, as well as appoint other agents in the same territory, without being obligated to pay commissions to an agent when that agent did not participate in closing a deal in its designated territory.
Del Credere Agents
Brazilian law prohibits del credere guarantees by agents. Therefore, clauses where the agent must guarantee the debts of customers that it finds for the principal are null and void.
There is a risk that an agent could be considered an employee of the principal. In Brazil, an individual who provides services on a regular basis for compensation, under the orders or co-ordination of a company, may be considered that company’s employee.
This risk derives from the “principle of reality” applied to labour law matters under which facts prevail over form. Therefore, any agreement signed by the parties is superseded by the reality of their day-to-day dealings (Articles 9 and 442, CLT). An agent who claims recognition of an employment relationship may be considered an employee by the labour court if a relationship of subordination exists between the agent and the principal.
In these cases, one of the principal factors in determining if an employment relationship exists is the level of subordination of the agent to the principal. Evidence to support the existence of an employment relationship may include situations where the principal has control over the agent’s work schedule and working hours, and the existence of performance targets. Although permitted in agency relationships, the imposition of sales targets is likely to be considered as evidence of subordination if the agreement can be terminated or the agent loses exclusivity if the targets are not met.
In addition to subordination, the following factors must be present for an employment relationship to exist:
- Personal nature of the relationship of the parties (the agent is hired specifically because of their personal characteristics).
- The agent is dependent on the principal.
- Continuity (as opposed to the agent being hired occasionally, therefore, relying on the contract).
- The agent is paid a salary (or any other form of habitual compensation).
If an employment relationship is established (dependent on a judicial ruling in this respect), the principal must comply with all obligations related to the employment relationship (including, for example, 13th salary, 1/3 additional for paid vacation, and mandatory pension fund payment).
Generally, the agent does not receive the products directly, as the agent’s activity is usually limited to intermediating orders and therefore the principal sends the products directly to the customers. In this case, the principal is responsible for payment of customs duties. However, the parties can agree otherwise, in which case the agent may be held responsible for payment of the corresponding duties.
If the agent is responsible for importing the goods, the agent must pay customs duties corresponding to that import when registering the Import Declaration for customs clearance which are, normally, as follows:
- State Value Added Tax on Sales and Services (ICMS). The rate depends on the Brazilian state to which the goods will be imported.
- Import Tax. The rate depends on the NCM code under which the product is classified.
- Excise Tax (IPI). The rate depends on the NCM code under which the product is classified.
- PIS/PASEP-Import (Federal Contribution for the Social Integration Program levied on imports). The rate is normally 2.1%.
- COFINS-Import (Federal Contribution for Social Security Financing levied on imports). The rate is normally 10.65%.
In addition to these customs duties, there is also the additional tax for the renewal of the merchant marine (AFRMM), which is a tax levied on sea freight fees on imports. The rate is 25% (on freight fees).
For customs clearance, the importer must present the following documents to the Brazilian Federal Revenue Service for assessment:
- Original copy of the Bill of Lading (BL), Air Waybill (AWB), or equivalent document.
- Original copy of the invoice signed by the exporter.
- Packing List, if applicable.
- An authorisation from government regulatory agencies, if applicable.
- Depending on the country of origin of the goods, other documents may be required due to applicable bilateral treaties signed between the countries (if any).
According to Information Siscomex-Import No 0017/2020 and No 0018/2020, any documents used in customs clearance that are digitalized under Law No 13.874/2019 (Economic Liberty Law) and Decree No 10.278/2020 have the same legal effects as the original documents. In this case, hard copies of these documents are not required to be presented.
Intellectual Property IssuesBrazilian customs authorities do not require the importer to be registered as the owner or the user of the trademark to import the goods bearing the trademarks. However, the import of goods bearing unauthorised trademarks (counterfeit goods) is not allowed and is also a crime under Article 190 of Law No 9.279/96 (Industrial Property Law).
Under Article 130 of the Industrial Property Law, the owner of a trademark registration or application cannot, among other restrictions:
- Prevent traders or distributors from using distinctive signs that are their own, together with the product’s brand, in their promotion and commercialisation.
- Prevent accessory manufacturers from using the brand to indicate the destination of the product, provided that fair competition practices are followed.
- Prevent the free circulation of products placed on the internal market, by themselves or by others with their consent.
- Prevent the citation of the brand in speech, scientific, or literary work or any other publication, if it does not have a commercial connotation and without prejudice to its distinctive character.
The agent usually has, depending on the nature of the agency agreement, the right to present themself as the principal’s representative. On the other hand, the agency agreement does not automatically grant the agent the right to use the principal’s trademarks. The agency agreement should therefore address such intellectual property (IP) issues.
For the enforcement of trademark rights against a third party by a licensee, such as a contract manufacturer, the corresponding trademark license agreement must be registered with the Brazilian Patent and Trademark Office (PTO). Alternatively, the licensee can obtain a specific authorisation from the trademark owner.
The agent does not gain rights in a trademark or other IP rights by selling the principal’s trademarked products on behalf of the principal in Brazil.
Online Sales Considerations
The commercial aspects of online transactions are subject to the general contract rules set out in the BCC, which has no express provisions regarding online trade. However, other statutes can also apply to online sales, depending on the nature of the parties involved, the products/services that are offered, and especially who the final purchaser of the product is (if they are considered consumers, for example), such as:
- The Brazilian Internet Civil Framework (Law No 12,965/2014) which provides principles, guarantees, rights, and duties for using the internet in Brazil.
- The Brazilian General Law for Protection of Personal Data (Law No13,709/2018).
- The Brazilian Online Sales Decree (Decree No 7,962/2013).
In addition to these statutes that have specific rules regarding online sales, which apply to agents and suppliers alike, the rules of the CDC may also apply, regardless of the nature of the network, whether online or otherwise.
Under the Brazilian Online Sales Decree, companies selling online must make available, in a prominent and easy-to-view place, relevant information such as the company’s name, physical address, and CNPJ enrolment (tax ID), as well as information about a consumer’s right to withdraw from the sale, which can be exercised within seven days of receipt of the product or service.
The Brazilian Competition Law does not provide specific considerations about online sales, a trait that is quite frequent when it comes to consumer affairs. However, parties active as online agents to intermediate the purchase and sale of products and services must be aware of recent cases affecting Most Favoured Nation (MFN) clauses in the travel and leisure markets.
On 27 June 2016, the Forum of Brazilian Hotel Operators (FBHO) filed a complaint before BAA based on potential anticompetitive effects on consumers and hotels caused by MFN clauses entered into and enforced by online travel agencies such as Booking, Decolar.com and Expedia. By enforcing those MFN clauses, the defendants were able to get the most favorable commercial conditions offered by hotels to users.
According to the complaint, the defendants prohibited hotel operators from offering prices lower than those provided on Booking, Decolar.com, and Expedia platforms to encourage consumers to book through the online travel agency.
The case was settled on 29 March 2019, since Booking, Decolar.com, and Expedia agreed to stop the above commercial practices and allow hotel operators to offer lower prices in direct negotiations with customers (that is, cutting double margins and passing on cost savings and efficiencies to consumers). To reduce incentives for freeriding, if a hotel operator is found via the platform, but the transaction is completed by bypassing the online travel agency, hotel operators cannot charge lower prices and circumvent the MFN price clauses.
The need for attention to MFN and price parity clauses is in line with recent European Commission guidelines published due to cases analyzing similar practices by Booking and other online platforms.
The Agency Agreement
Agency agreements generally address many issues, including those related to the terms for the supply of goods and services between the principal and end-user customers. While all the provisions in the agency agreement are important, those specific to the agency relationship that foreign counsel should pay particular attention to include the following provisions.
Marketing, Promotion, and Advertising
There are no immediate implications of an agent spending its own money on advertising. The default position is that any costs related to the agent’s activity will be borne by the agent (Article 713, BCC). Such costs might include advertising of the products, participation in business fairs, and other marketing related activities. This is usually set out expressly in the agency agreement, although the parties are free to stipulate otherwise.
Competition law implications arise whenever a party demands or grants exclusivity in relation to advertisements in mass media, which is prohibited under Article 36, paragraph 3, VI of Law No 12.529 /2011.
Stocking of Principal’s Products
Under Brazilian law, no provisions require agents to store the principal’s products, nor is it common practice, but this may be stipulated by the parties in the agreement. The parties may include this obligation, as well as the conditions in which the goods are to be stored and the party responsible for bearing storage costs.
There are no legal provisions that regulate whether the agent bears the cost of insuring the principal’s property at its own expense. If the agent undertakes to store the principal’s goods, the agreement should expressly define the term of delivery of those goods from the principal to the agent. If Incoterms® Rules are used, responsibility for insurance costs depends on the specific Incoterm rule the parties choose. The parties can also determine who bears the insurance costs once the goods are delivered to the agent.
The agent is not legally obliged to give the principal access to its premises to inspect the agent’s bookkeeping or to inspect stock. The parties can decide this in the agreement.
The agent is not obliged, under statute, to stock certain or specific volumes of a product and deliver that product to the customer. Therefore, the parties can agree on this type of provision in the agency agreement.
After-Sales Services Obligations
After-sale product/service support is not provided by agents in Brazil according to Agency Law and BCC. Typically, agency agreements do not cover this kind obligation. On the other hand, the so-called concession agreement for vehicles is a specific type of contract, close in its nature to the agency agreement, in which agents (concessionários) must offer after-sale product/ service support to its clients. Concession agreements for vehicles are ruled by Law No 6.729/1979. Therefore, there is specific legislation requiring agents to provide after-sales support in the resale of vehicles by agents, but this is not applicable to other agency agreements.
The agent is entitled to commissions for all deals it concludes in the territory for which it is responsible. If the agent has exclusivity in relation to this territory, this right applies even if the principal or third parties close the deals directly with the clients (Article 31, Agency Law).
The amount of the commission is calculated based on the total value of the products (Article 32, paragraph 4, Agency Law), which should include applicable taxes over the amount invoiced to the client (on the issue of the mandatory use of the gross value of the invoices as a basis for commissions, see AC 70066355918, TJRS, 13/07/16, Judge Rapporteur Otávio Augusto de Freitas Barcellos; AC 0012115-45.2011.8.26.0462, TJSP, 36th Civil Chamber, 11/09/2017, Judge Rapporteur Hélio Nogueira; AgInt nos EDcl no AREsp 269.483/SP, 4th Cahmber, STJ, 29/09/2016, Justice Maria Isabel Gallotti; and AC 16848801, TJPR, 04/04/2018, 12nd Private Civil Chamber, Judge Rapporteur Antonio Domingos Ramina Júnior).
Agents must be paid commission within 15 days after the final customer pays the relevant invoices to the principal, if the agent presents in a timely manner the invoices related to the services provided before payment (Article 32, Agency Law).
Despite the express prohibition of payments in foreign currency in force in Brazil and the set-off of the difference between foreign currency and local currency, payments can be agreed to in foreign currency when related to contracts that refer to the import or export of goods (Article 318, BCC and item I, Article 2, Decree No 857/69). This is only applicable if the foreign currency is converted into local currency at the applicable exchange rate on the payment date.
Generally, when the agency agreement is terminated, the agent’s right to commission also terminates, even if the commission relates to business introduced to the principal during the term of the agreement. Statutory indemnification is paid precisely as a form of liquidated damages for matters such as this. However, if the parties wish to include a provision allowing or disallowing for payments of commissions after termination, this would be valid under Brazilian law.
If the principal terminates the agreement without just cause or if the agent terminates the agreement due to breach of the principal, the agent will receive commission for deals it initiated (even if not concluded) before termination, plus the indemnification provided in the Agency Law (see Terminating the Agency Agreement).
If termination was for cause (due to a breach of the agent), the agent will only receive compensation for the services actually rendered to the principal until termination (Article 717, BCC). However, it is not common for courts to award damages in such instances to agents. In relation to commission, the agent will only receive payments related to deals concluded during the term and for which payment was received by principal.
Whenever the principal grants the agent exclusivity, the agent receives commissions even when the principal or third party makes a direct sale to customers in the territory, as if the agent closed the deal (Article 31, Agency Law). In this context, the agreement can provide that the commission paid to agent will be lower. However, it should be expressly included in the agreement from the onset, to avoid the agent claiming that its average proceeds were unduly reduced. There is no restriction on excluding commission payments for sales by previous agents that are concluded after the current agent’s appointment.
Brazilian law does not regulate the agent’s right to retain commission from sale proceeds. Usually, the principal receives payment from the customers and sends the agent its corresponding commission. The agreement could stipulate that the agent receive payment on the principal’s behalf and sends the payment to the principal after deducting its commission. Article 37 of the Agency Law regulates the principal’s right to retain commission from the agent if these two requirements are present:
- Just cause for the termination of the contract (including those established in Article 35 of the Agency Law).
- Damage suffered by the principal.
Only under these circumstances the principal can set off or deduct from payments of commission due to the agent (see AgInt no AREsp 1309230/PR, 4 th Chamber, STJ, 04/10/2018, Justice Luis Felipe Salomão).
If the agent collects payments for the principal, there is no equivalent of the common law concept of holding the payments in trust in the Brazilian legal system. As agents do not usually receive payments on the principal’s behalf, the problem of separating bank accounts also does not frequently arise. However, the parties can create an investment fund or even an escrow account for the principal’s benefit if the parties wish to establish separate funds to collect money from sales.
Under Article 28 of the Agency Law, the agent must provide detailed information about the progress of the business at the principal’s request or as established in the contract. The parties can establish a bilateral obligation to keep accounts and records
of all transactions held during the agreement. Ownership of the records is not specifically regulated by law, but it can be freely agreed on by the parties.
The access to the courts in any dispute between the parties concerning matters related to the agreement cannot be excluded. Therefore, parties cannot agree to refer disputes over the value amount of commissions due to the principal’s auditor for settlement. The dispute must be resolved in court or in arbitration, in accordance with the parties’ contractual choice of forum (see Choice of Law and Forum).
For more information on legal requirements related to the agent’s commission in Brazil, see Regulation of Agent Compensation.
Term of the Agreement
When the agency agreement has a fixed term (for new agents), the term usually agreed is one to two years. The parties can also establish the agreement for an indefinite term. Any renewal (expressly in writing or tacit) of a fixed-term agreement is automatically deemed to be for an indefinite term (Article 27, paragraph 2, Agency Law).
The required notice period for termination of an indefinite term agreement is at least 90 days. If the required notice is not given and the agreement has been in force for more than six months, the agent is awarded specific indemnification of one third of the remuneration (commissions) received in the three months before termination (in addition to any other indemnification that may be due).
In relation to fixed-term agreements, any termination before the end of the term is deemed a breach and generates indemnification rights for the agent.
For more information on terminating agency agreements, see Terminating the Agency Agreement.
Compliance with Laws and Principal’s Policies
Anti-bribery or anti-corruption clauses are common in all types of commercial contracts. These clauses normally survive the term of the agreement, for a duration that is to be determined in court according to the specifics of the particular relationship between the parties. Brazilian law does not specifically regulate these clauses in relation to agency agreements.
All legal entities incorporated in Brazil (including branches and subsidiaries) must abide by the Anti-Corruption Law No 12,846/13 (see Bribery and Corruption). Therefore, parties to any contract, including agency agreements, must comply with the Brazilian Anti-Corruption law, whether a clause is expressly included in the agreement or not. In addition, if a company is held liable under the terms of the Anti-Corruption Law, the existence of an effective compliance programme will be considered to mitigate any applicable penalty.
Confidentiality and Protection of Personal Data
The Agency Law and the BCC do not address confidentiality in agency agreements. However, based on the principle of freedom of contract, the parties can negotiate this issue. It is highly recommended (and typical) that the agency agreement includes a confidentiality clause, because of privacy and ethical reasons.
The confidentiality obligation may remain effective after the termination of the agreement, allowing the principal’s information and even contractual arrangements to be kept confidential.
Regarding personal data, the Brazilian framework for data protection includes:
- General Data Protection Law (LGPD) (Law No 13.709/2018).
- Law No 12.965/2014, which settles several restrictions regarding the international transfer of personal data.
The LGPD has a whole chapter regarding the international transfer of personal data (chapter V). Article 33 of the LGPD provides that international transfer of personal data is only allowed on the cases explicitly provided by items I through IX of this Article.
Item I of Article 33 was inspired by the GDPR and provides that personal data cannot be transferred to countries or organisations that do not provide the protection level established by the LGPD, or higher. However, this provision may be overlooked if the controller offers and proves guarantees of compliance in accordance with the principles and the rights of the data subject and the regime of data protection provided in by LGPD. Whether a country’s protection level reaches the necessary requirements established by LGPD will be determined by National Data Protection Authority (ANPD) under Article 34.
Ever since the publication of the LGPD in 2018, agency agreements have been addressing the protection of personal data. They generally provide that all parties agree to comply with all applicable legislation on information security and privacy and protection of Personal Data, including (whenever and wherever applicable) the Federal Constitution, the Consumer Defense Code, the Civil Code, the Marco Civil da Internet (Federal Law No 12,965/2014), its regulating decree (Decree No 8,771/2016), the LGPD, and other sectoral or general rules on the subject.
In the agreement clauses addressing the protection of data, it is common for the parties to establish a limitation of liability between the parties, under which each party is solely liable for the data it handles.
Indemnification and Insurance
The parties are allowed to negotiate indemnification provisions in agency agreements based on the principle of freedom of contract. Therefore, the parties can agree on the indemnity due and over which causes.
It is not usual for the agency agreement to provide indemnity due from the principal to the agent, even if the agent is sued for product defects, since the agent is a mere intermediator on the sales.
If, however, the agency agreement contains these indemnification duties, to successfully claim under an indemnity, the aggrieved party must:
- Prove the damages suffered and their extent.
- Demonstrate a solid causal link between the other party’s act and the damages or losses.
“Damage” to property in an indemnity can include harm to intangible property. These damages must be stipulated in the agreement or claimed and duly proven in court.
For agency agreements subject to the Agency Law (that is, agents registered with CORE, see Agent Registration), in case of breach of the agreement and termination of the agreement, the agent can only claim the amount under the Agency Law (Article 27, paragraph 1). These are deemed liquidated damages and a way to limit the liability in case of termination (see Agent’s Rights to Compensation on Termination or Failure to Renew).
For agency agreements not subject to the Agency Law, any form of indemnification in case of breach by either party is subject to the general liability rules under the BCC. In general, there are no restrictions on such liabilities, except in case of limitation of liability clauses, or if the case involves third parties, especially consumers.
It is uncommon for an agent in Brazil to obtain insurance to cover personal or product liability, or for either party to require that the other party maintains any form of insurance.
Limitation of Liability
There are no legal provisions that specifically regulate liability limitations and exclusions in agency agreements. General contract law applies in this case.
The duty to indemnify (even if contractual) derives from statute. Contractual liabilities can be limited under the agreement. If there is no limitation of liability clause in the agreement, contractual liability will be limited to the extent of the actual damages suffered (Article 389, BCC). Under Article 944 of the BCC, the indemnity is measured by the extension of the damage. If there is an excessive disproportion between the damage caused and the fault of the agent, the judge can reduce the indemnity proportionally.
To measure the indemnity, it is necessary to calculate the losses and damages actually suffered. These damages consist of:
- Direct damages, which are those proven to be directly caused by the breaching party.
- The profits the aggrieved party reasonably lost due to the damage as a direct and immediate consequence.
(Article 402, BCC.)
Lost profits must be sufficiently proven in court. This is usually a difficult task, as the aggrieved party must:
- Produce evidence of the profits it normally would have earned.
- Demonstrate a causal link between the breaching party’s actions and the failure to achieve those profits.
Punitive damages are not permitted under Brazilian law.
Regarding tort (non-contractual liability), gross negligence and willful misconduct are classified as illegal acts under Brazilian law, demanding adequate compensation. This liability can never be excluded contractually (Article 186 and 927, BCC).
Moreover, the agency agreement cannot limit or exclude product liability to the final customer. Both the agent and the principal (and any other parties in the supply chain), are jointly and severally liable for any consumer claims related to the purchased products (Article 12, CDC; see also Product Regulatory Requirements and Product Liability Laws). Therefore, the courts do not enforce any limited liability clauses that exempt one of the parties’ responsibilities to the consumer for product defects.
A clause in a consumer contract that precludes, limits, or exonerates the obligation to indemnify for vices or defects of the services or products is prohibited under Article 25 of the CDC. The CDC also provides that the warranty of a product or a service does not depend on an express term, and excluding this warranty with a contractual clause is prohibited (Article 24, CDC). These clauses will be considered abusive and declared null and void by courts, even f agreed by the parties (Articles 24, 25, and 51, CDC).
However, there is an exception to this general rule. If the consumer is a legal entity, the supplier’s liability can be limited, but not excluded, if the limitation clause is visible, that is, the written in bold and capital letters (Article 51, I, CDC). Whether the clause is enforceable depends on the circumstances of each case and the consumer’s business activities. Even this exception only applies if the situation justifies the limitation of liability. Brazilian courts tend to be restrictive in accepting this exception, ruling on a case-by-case basis.
It is not common for agency agreements subject to Brazilian law to contain limitation of liability clauses, as they are not as generally used as in common law jurisdictions. However, they can be used and are enforceable to the extent they do not contravene certain statutory limitations (CDC and BCC provisions), or the indemnification and payments are provided for under the Agency Law, if the agent is registered with CORE.
Choice of Law and Forum
Agreements executed and performed in Brazil (that is, for goods or services sold in the Brazilian territory) are generally governed by Brazilian law and the local courts will be deemed to have at least concurrent jurisdiction to deal with the case, if also submitted to a foreign court. Under Article 39 of the Agency Law, the forum for resolving disputes should be the city where the agent is domiciled. However, there have been several precedents (in Brazil) where the choice of other locations by the parties to resolve disputes (the STJ deems this a case of relative jurisdiction) have been accepted, if the change in location does not greatly hinder the agent’ ability to defend itself in court or have access to the judiciary (see for example: REsp 1076384/DF, 4th Chamber, STJ, Justice Antonio Carlos Ferreira, 18/06/2013).
Further, Article 12 of the Decree Law No 4.657/42 provides that Brazilian courts have jurisdiction over cases in which either:
- The respondent is domiciled in Brazil.
- The obligations assumed in the contract will be executed in the Brazilian territory.
The matter of choice of forum is not uniformly treated by the courts. For example, several recent precedents by the TJSP have deemed the provision of the Agency Law as a case of absolute jurisdiction that may not be changed by the parties (see for example: AI 2237248-89.2017.8.26.0000; 11th Chamber of Private law, TJSP, Judge Rapporteur Renato Rangel Desinano, 11/10/2018).
There are some isolated precedents where courts have allowed a foreign choice of governing law in international transactions over Brazilian law. However, most case law does not support this, and the application of a foreign governing law varies depending on the court’s interpretation.
The parties can elect a different governing law and jurisdiction by submitting any disputes arising from the agreement to arbitration. The parties can choose the law applicable to the arbitration proceedings, if the foreign law or its provisions does not violate public policy and good moral values (Article 2, paragraph1, Arbitration Law (Law No 9,307/1996)).
Terminating the Agency Agreement
Legal and Contractual Obligations on Termination
Under Article 27C of the Agency Law, agency agreements can be entered into for a pre-established period or for an undetermined period. Despite this differentiation in the law, the period of the agreement does not usually impact the formalities or remedies on termination. That is because, an agency agreement does not qualify as an employment contract or a non-equal contractual relationship, and for that reason the principle of freedom of contract applies to agency agreements. This means that a party is not obliged to remain bound by the contract if they do not want to, but termination may lead to remedies.
In general, termination can occur in two ways:
- Termination with cause. The principal can lawfully terminate the agency agreement for the reasons established in Article 35 of the Agency Law (these include the agent’s lack of care in complying with obligations under the
agreement; acts that affect the principal’s commercial image, especially those that discredit its trademark, products, or the principal itself; breach of, or lack of compliance with, any of the obligations under the agreement; unappealable conviction of the agent for a serious crime; and force majeure).
- The case law is inconsistent as to whether Article 35 of the Agency Law is an exhaustive list of just causes for terminating the agency agreement. For example, when the contractually stipulated targets are not met and this non-compliance is duly documented, case law has accepted this breach as allowing for termination with cause, if
termination is carried out in good faith and not in an abusive manner (see for example AC 0027004-34.2004.8.06.0000, TJCE, 4th Chamber of Private Law, 16/10/2018, Judge Rapporeur Raimundi Nonato Silva Santos and AC
1009443-61.2019.8.26.0011, TJSP, 18th Chamber of Private Law, 01/12/2020, Judge Rapporteur Israel Góes dos Anjos).
- Article 36 of the Agency Law also lists situations in which the agreement can be lawfully terminated by the agent. These include:
- the reduction of activity (territory) of the agent in breach of the agreement;
- the direct or indirect breach of the exclusivity obligation in the agreement;
- the practice of abusive pricing in the agent’s territory with the exclusive means to prevent its regular activity;
- non-payment of the agent’s compensation when it is legally due; and
- force majeure.
- Besides the reasons established by law to lawfully terminate the agreement, the agreement itself usually includes the steps for termination, such as notice, as well as other reasons for termination, or expressly defines actions that are deemed to be a fundamental breach of the agreement. For example, violation of anti-corruption regulations is typically deemed as a fundamental breach.
- Termination without cause. When terminating without cause, the principal must give the agent the required notice of termination and the agent has the right to compensation (for further information, see Agent’s Rights to Compensation on Termination or Failure to Renew). Regardless of the principal’s freedom of contract, in general, there are no other obligations other than compensation and payment of commission that arise from termination. Termination procedures can be stipulated by the parties in the agency agreement. In case of termination without cause the required period for termination is at least 90 days (Article 720, BCC). Lack of compliance with this provision will result in obligation
of indemnification by the breaching party (see for example AC 0186728-97.2010.8.26.0100, TJSP, 33th Chamber of Private Law, 20/05/2019, Judge Rapporeur Leonardo Grecco and AC 0048488-49.2018.8.21.7000, TJRS, 20th Chamber of Private Law, 31/07/2019, Judge Rapporteur Carlos Cini Marchionatti).
There are no specific provisions in Brazilian law regarding the handling of any remaining inventory being held by the agent on behalf of the principal, so this should be properly addressed in the agency agreement. It is not common for an agent to hold inventory for principal (see Stocking of Principal’s Product), but if it does, any such inventory is the property of the principal on termination, and should be returned or sold, accordingly. In general, the parties can establish the rules related to inventory and the term for selling stock and repurchasing in the agreement.
Agent’s Rights to Compensation on Termination or Failure to Renew
If the principal terminates an indefinite term agreement without just cause, it must give the agent the required notice of termination (see Term of the Agreement). The BCC also stipulates that indefinite term agreements cannot be terminated until sufficient time has elapsed for the agent to recover their investments made to execute the agreement (Article 720, BCC). Therefore, the parties should include information in the agreement on the approximate amount invested by the agent (if any) and a provision estimating the time to recover that investment.
Even if adequate prior notice is given, the agent is entitled to receive indemnification equivalent to 1/12 of the total remuneration paid during the term of the agreement, adjusted for inflation (Articles 27, paragraph 1 and 33, paragraph 3, Agency Law). If the agent claims that it should have received commissions for other sales not paid during the term of the agreement (such as sales made by the principal within the agent’s exclusive territory) those amounts should also be included in the indemnification calculation.
The calculation of this indemnification takes into account all commissions paid (or that should have been paid) to the agent during the term of the agreement (adjusted for inflation). According to case law, the statute of limitations for this type of case does not impact the period that can be claimed for in relation to the indemnity. It only affects the time limit for filing a claim for indemnification, which is five years from the date of the termination of the agreement. If the claim is regarding insufficient payment of commissions, the statute of limitation runs from the date the commissions should have been paid.
If the agreement has a fixed term, while it is not a legal requirement, it is advisable to give 90 days’ prior notice of any termination of the agreement (Article 27, paragraph 1, Agency Law). On termination of a fixed-term agreement, the agent must receive indemnification equivalent to the monthly average of the remuneration obtained until the date of termination, multiplied by half the number of months of the agreement term. If a fixed-term agreement succeeds another within a period of six months, the latter agreement will be converted to an indefinite term agreement (Article 27, paragraph 3, Agency Law).
There are no formalities for lodging a complaint for indemnification. If any of these situations occur, the principal must make the relevant payment. If no payment is made, the agent can claim the amount of indemnification due in court or in arbitration proceedings.
It is common for the parties to sign a bilateral termination document (distratos), in which the agent releases the principal from any further liability in return for indemnification specified in the document.
If the supply of a product is discontinued because the supplier ceases manufacturing that product, the agent will not have any rights to compensation. This is permitted even if it reduces the agent’s average remuneration. If, however, the supplier decides to stop selling certain products or services through the agent, while choosing to continue selling the product through other means, even directly, the agent can claim compensation if this change leads to a reduction of their commissions earned on average during the last six months of the agreement’s term. This reduction is strictly prohibited (Article 32, paragraph 7, Agency Law and Article 715, BCC), which gives the agent cause for termination under Article 36 of the Agency Law. (For more information, see Regulation of Agent Compensation.)
On termination with cause by the agent due to the principal’s breach, the agent is equally entitled to indemnification of 1/12 of the total remuneration paid during the entire term of the agreement, adjusted for inflation (Article 27, paragraphs 1 and 33, paragraph 3, Agency Law).
Competition Law Issues Related to Termination
Brazilian antitrust case law has not yet developed to a stage where discussions affecting agency agreements are thoroughly analysed, including the termination stage. As such, the rationale applicable to distribution agreements is mostly applied in the context of agency agreements as well. For more information, see Competition Laws.