This content is from: Local Insights

Colombia

Colombian law affords substantial protection to those who act as commercial agents. Agents may claim compensation on termination of the agency relationship, regardless of the cause of termination, and regardless of the law which governs their contract, so long as the contract is performed in Colombia.

The compensation payable consists of one-twelfth of the average commission paid to the agent during the last three years of the contract, multiplied by the number of years' duration of the contract. If the agreement lasted less than three years, the principal must pay the agent one-twelfth of the total commissions received by the agent while the agreement was in force.

If the contract was terminated without just cause, the principal must pay the agent an indemnity for damages over and above this amount, as determined by court-appointed experts.

The substantive criteria for a commercial agency relationship are as follows:

  • The agent acts on behalf of the principal, but independently;
  • The agent's activities aim to promote the products and/or services of the principal (as opposed to providing services of a technical or other nature);
  • The agent carries out its activities within a defined territory for an indeterminate period of time.

Recent court and arbitration decisions in Colombia have stated commercial agency necessarily involves the representation of the principal by the agent. The distinction between a commercial agency and a distributorship involves primarily economic criteria: a commercial agent, although independent, acts for the account of another, whereas a distributor purchases products and assumes for his or her own account the economic risks and rewards of marketing those products.

Thus, the compensation payable on termination of the relationship recognizes the agent develops a market for products, whereas the principal derives long term economic benefit from this activity.

Distributorships, supply contracts and franchise agreements for Colombia should be reviewed in light of these criteria, to ensure they are not construed as creating a commercial agency, especially those involving the consignment of goods and/or payment of fixed fees or percentage of sales as compensation. The obligations of a commercial agency relationship can sometimes be avoided by the use of a joint venture structure between manufacturer and distributor, provided the joint venture is properly constituted.

Luis Nieto

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