For Thai manufacturers, working with a Swiss agent can be an attractive way to enter the market without immediately having to build their own sales team or establish a Swiss subsidiary. The agent knows the local market, looks for customers and facilitates business transactions. Unlike a distributor the agent does not generally purchase the products itself.
Swiss law contains specific provisions governing agency agreements in Articles 418a et seq. of the Swiss Code of Obligations. Some of these rules may come as a surprise to foreign companies. The provisions on exclusivity, commissions, customer relationships and termination are particularly important.
What is an Agent?
An agent is an independent individual or company that acts on a continuing basis to broker transactions for a principal or to conclude transactions in the principal’s name and for the principal’s account.
A brokering agent brings the Thai manufacturer and the Swiss customer together. The sales contract is then concluded directly between the manufacturer and the customer. A contracting agent, by contrast, may conclude the sales contract itself in the manufacturer’s name if it has been granted the necessary authority.
The scope of the agent’s authority should be clearly defined in the agreement. In particular, the contract should specify whether the agent is only responsible for acquiring customers or may also submit offers, sign contracts, handle notices of defects or receive payments.
What should an Agency Agreement cover?
An international agency agreement should specify in particular the products and territory covered by the agent’s activities, whether the relationship is exclusive and how the agent’s commission is calculated. The agreement should also address powers of representation, marketing duties and marketing support, expenses, collection of payments, customer information, use of trademarks, the term of the agreement and termination.
With a Swiss agency agreement in particular, parties should not assume that unresolved issues can simply be dealt with later. Swiss law contains a number of default rules that may apply automatically if the parties have not agreed otherwise.
Be careful with exclusivity
Particular care is required under Swiss law when assigning a sales territory or customer group.
If an agent is assigned a specific territory or customer group, the agent is generally deemed to have been appointed to the exclusion of other persons, unless otherwise agreed in writing.
Where such an exclusive territory has been assigned, the agent is generally entitled to commission on all transactions concluded during the agency relationship with customers in that territory, even if the specific transaction was concluded directly between the manufacturer and the customer without the agent’s involvement.
If a Thai manufacturer wishes, for example, to manage certain key accounts directly, appoint additional agents in parallel, or exclude direct sales from Thailand from the commission calculation, this should be expressly agreed in writing.
A separate question is whether the agent may also work for other companies. Under Swiss law, an agent may generally act for other principals unless otherwise agreed in writing. If the agent’s activities for competitors are to be restricted, the special rules governing non-compete obligations must also be taken into account.
Commissions and collection of payments
Agents are typically remunerated through commissions. The agreement should clearly define which transactions generate a commission and when the entitlement arises. It should also specify whether the agent is entitled to any post-termination commission and, if so, under what conditions.
A separate issue is collection of payments. An agent is not automatically authorised to receive customer payments on behalf of the manufacturer. If the agent is to collect invoices or accept customer payments, appropriate authority should be expressly granted.
The so-called del credere obligation goes a step further. Under such an arrangement, the agent assumes the risk that a customer will fail to meet its obligations. Swiss law treats this type of risk assumption separately and entitles the agent to appropriate additional remuneration.
For international manufacturers, it is important not to confuse the agent’s brokering activities, collection of payments and assumption of customer default risk.
What happens to the customers after the agreement ends?
A central question in many agency relationships is: Who “owns” the customers acquired by the agent?
The agent does not acquire ownership of customers. Swiss law nevertheless protects the agent’s contribution to building up a customer base in another way.
If the agent has significantly expanded the company’s customer base and the manufacturer continues to derive substantial benefits from those business relationships after termination, the agent may be entitled to a goodwill indemnity.
This entitlement cannot be excluded in advance. The compensation is capped at one year’s net earnings from the agency relationship, generally calculated based on the average of the previous five years or, if the agreement lasted for a shorter period, the average over that shorter period.
This can be particularly relevant for a Thai manufacturer: terminating a successful agency relationship may therefore result in an additional payment obligation even if the agreement itself does not expressly provide for such compensation.
This is not a genuine “buy-out” of individual customers. Rather, the indemnity compensates the agent for the continuing economic benefit that the manufacturer obtains from the customer base developed by the agent.
Agency agreements and Swiss competition law
Swiss competition law must also be considered when structuring an agency agreement. A distinction must be made between an agent under Swiss contract law and a “genuine agent” for competition law purposes.
The Swiss Cartel Act does not contain its own definition of when an agent should be treated, for competition law purposes, as part of the manufacturer’s distribution organisation. Swiss courts and competition authorities draw on the European principles governing the so-called commercial agent privilege.
The allocation of economic risk is particularly important. A genuine agent for competition law purposes bears only insignificant contract-specific and market-specific risks in connection with the transactions it brokers or concludes. In particular, the agent should generally not acquire ownership of the contractual goods for its own account, bear significant warehousing or delivery costs, assume the risk of customer payment defaults, or finance product-specific investments and sales promotion activities at its own expense.
Such activities are not necessarily excluded in every case, however, if the manufacturer actually assumes or fully reimburses the relevant costs and risks.
General costs associated with operating an independent business, such as ordinary office expenses or staff costs, and the fact that the agent’s income depends on its sales performance do not, by themselves, make the agent an independent distributor for competition law purposes.
If the relationship meets the requirements of a genuine agency, the agent is generally not regarded as an independent market participant in relation to the transactions it brokers. The manufacturer may therefore, for example, determine the price at which the agent offers the products in the manufacturer’s name.
If significant contract-specific or market-specific risks are transferred to the agent, the competition law privilege may no longer apply. The term “non-genuine agent” is sometimes used in this context. This does not automatically mean that the agent becomes a distributor as a matter of contract law. Rather, agreements between the manufacturer and the agent must then be assessed under competition law in the same way as agreements between economically independent undertakings.
Price restrictions and certain territorial or customer restrictions may become particularly relevant in such cases. These clauses are not automatically unlawful simply because the arrangement does not qualify as a genuine agency. However, minimum or fixed resale prices and certain restrictions on sales into other territories may constitute serious and potentially sanctionable restrictions of competition under Swiss law.
For a Thai manufacturer, it is not enough simply to label the agreement an “agency agreement”. What matters is who actually bears the economic risks of distribution. If the Swiss agent is intended to qualify as a genuine agent for competition law purposes, the allocation of costs and risks should be structured accordingly.
Agent or Distributor?
The distinction between an agent and a distributor is fundamental to the legal structure.
An agent brokers transactions or concludes them in the name of the Thai manufacturer. The sales contract is generally concluded directly between the manufacturer and the Swiss customer. The agent receives a commission for its services.
A distributor, by contrast, purchases the products from the Thai manufacturer and resells them in its own name and for its own account. It earns its margin from the difference between the purchase price and the resale price and generally bears its own sales risk.
For the manufacturer, the agency model usually means a closer relationship with end customers and greater control over the market. At the same time, however, more contractual, payment and potentially liability risks remain with the manufacturer.
An exclusive agent is therefore not legally the same as an exclusive distributor.
Differences compared with Thai agency law
Thailand also has agency rules under its Civil and Commercial Code. However, the legal framework differs in several respects from the Swiss commercial agency regime.
One particularly important difference concerns termination. While Thai law gives the principal and the agent relatively broad rights to terminate the agency relationship, Swiss agency law provides statutory notice periods and specific protective provisions.
An even more significant difference is the Swiss goodwill indemnity. Thai agency law does not provide for a directly comparable statutory entitlement compensating the agent for the customer base it has developed.
Terminology can also cause misunderstandings. Under Thai law, a “Commission Agent” may conclude transactions in its own name but for the account of the principal. This does not correspond to the classic Swiss contracting agent, who acts in the name and for the account of the manufacturer.
Thai contract templates should therefore not simply be translated and used for a Swiss business relationship without further review.
Conclusion
An agent can be an efficient first step for a Thai manufacturer entering the Swiss market. The manufacturer can benefit from local market knowledge and existing customer relationships without immediately building its own distribution organisation.
But, the agency agreement should expressly address a number of Swiss-specific issues. Exclusivity and commission entitlements should be clearly defined, collection of payments should be separated from the assumption of customer default risk, and potential claims arising upon termination should be taken into account. It should also be assessed whether the chosen structure is permissible from a Swiss competition law perspective.
The central question is not only who acquires customers in Switzerland. It is equally important to determine who concludes the contracts with those customers, who bears the economic risks, and what rights the agent has both during the relationship and after it ends.
This article provides a general overview of B2B agency agreements between Thailand and Switzerland and does not constitute legal advice for any specific case.
