Intermediation in concluding a certain contract is often found in international trade practice. Due to its importance and frequency, the International Chamber of Commerce (ICC) addressed this issue and drafted the model of the Non-circumvention non-disclosure agreement, which outlines the desirable content of such agreement. Considering that the name of the agreement is a Non-circumvention non-disclosure agreement (NCNDA), it reflects the essence of the intermediary's interest, which is that the counterpart (principal) does not bypass the intermediary in concluding the deal. There are 3 parties involved in such situations: intermediary, principal, with whom the intermediary concludes a mediation agreement, and a third party. The third person is e.g. a company (client) with which the intermediary will connect the counterpart in order to conclude a contract. Commercial contracts are essential for business, which is why Pekić Law Office, as a renowned office, focuses on assistance in international trade, and constantly points out to clients the need to specify the most important contractual clauses. These clauses are:
- Specific obligations of the intermediary
To avoid misunderstandings regarding the obligations, it is necessary to specify them in the contract. Will the intermediary be obliged to act more actively or passively? The scope of obligations ranges from the most passive, in which the intermediary only provides information, to the most active scope of obligations in which the intermediary is obliged to assist in the execution of the contract between the counterpart and the client with whom the counterpart is connected. There is a possibility of only providing information, in which case the intermediary is only obliged to provide the counterpart with the names and contacts of the persons with whom the counterpart should conclude the deal. The obligations of the intermediary end there. He is not obliged to introduce the counterpart to a potential client or to assist in negotiations. If it is agreed that the intermediary also assists in the execution of the contract, he must assist in the delivery of goods or services and assist the contracting parties in the lawful performance of their obligations. If it is agreed that the intermediary is obliged to assist in the execution of the contract and he does not do so, he jeopardizes his right to the payment of the intermediary’s remuneration, due to non-performance of the obligation from the NCND agreement.
2. The intermediary’s remuneration
The amount of the intermediary's remuneration is the essence of the intermediary's interest. However, it is necessary to more precisely define whether the compensation is paid in a fixed amount per unit of measure, percentage amount, a specific amount regardless of the amount and number of contracts for which mediation was mediated. Some brokerage contracts contain flexible compensation in the sense that the percentage of compensation becomes lower as the volume of work increases. In this way, the broker is entitled to a lower percentage of brokerage fees but earns effectively more money due to the large volume of concluded deals. It is necessary to determine the moment in which the intermediary acquires the right to mediation compensation. This is related to point 1 and the clause on specific obligations of the intermediary. When he executes them, the intermediary acquires the right to compensation. In addition, it is necessary to define whether the intermediary exercises the right to any future work that the client and the client conclude or only for the initial work.
3. Exclusivity - the possibility of hiring other intermediaries
With regard to the engagement of an intermediary, most of the counterparts (principals) will reckon that, by concluding the NCNDA, they did not commit themselves exclusively to that one intermediary. However, in some cases, the value of intermediation provided by the intermediary is extremely high that the counterpart undertakes an obligation not to conclude an intermediation agreement with any other intermediary in respect of a particular business or territory that is the subject of intermediation. Also, it is necessary to define the rights of the intermediary in terms of future cooperation between the principal and the client, with whom the intermediary connected the principal, not only in terms of the initial cooperation.
4. Non-compete - cooperation of intermediaries with the competition of the principal
This clause represents the reverse situation of the previous clause. It indicates whether the intermediary has the right to conclude an intermediation contract or some similar contract with the principal's competition.
5. Confidentiality of information
One of the most important clauses of the contract is the clause on the prohibition of disclosing information to uninvited third parties about the contract, clients, business opportunities, etc. Since confidentiality is essential, this agreement in ICC practice is named the Non-circumvention non-disclosure agreement, which indicates that, in addition to the Non-circumvention of intermediaries, it is essential that information from the contract is not disclosed to the third parties. This confidentiality must be effectively protected by a precise provision of the contract with an adequate sanction for non-performance, otherwise, it loses its practical significance.
6. Contract duration
The contract can be concluded for a definite or for an indefinite period. The intermediation contract is rarely concluded indefinitely, but it is important to avoid uncertainty regarding the duration of the contract, among other issues due to the future obligations of the intermediary and his rights.
7. Dispute resolution and the applicable law
In international trade, there is often an agreement to resolve disputes in an alternative manner - arbitration. This must be prescribed by the contract. By agreeing on arbitration, as a method of resolving disputes, one avoids resolving the dispute before the state court. Judicial proceedings can be very slow and do not provide the adequate confidentiality that the businesses expect. In contrast, arbitration is fast and guarantees the necessary confidentiality of the proceedings. Concerning the applicable law, it is necessary to decide whether the law of the intermediary’s state, the principal’s, or some third law will apply, in case something is not regulated by the contract.
This blog presents the most important provisions of the contract. It serves exclusively for informational purposes, so it does not constitute a legal service, as each contract depends on the specific circumstances and the agreement between the parties.
For legal assistance, tailored to your needs, contact the Law Office Pekić at: [email protected]
Author: attorney at law Stefan Pekić