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Definition and authority

1. How is the relationship between agent and principal defined under national law?

Agency relationships are regulated by Chapter 52 of the Civil Code of the Russian Federation (Russian Civil Code). According to Article 1005 of the Russian Civil Code:

“Under an agency agreement, one party (the agent) has the duty for remuneration to take, on delegation from the other party (the principal), legal or other actions in his own name, but at the expense of the principal or in the name and at the expense of the principal.”

Therefore, the agency comprises two kinds of relationships:

• When the agent performs legal and other actions in his own name, but at the expense of the principal.

• When the agent performs legal and other actions in the name and at the expense of the principal.

2. What authority under national law does an agent have to bind the principal by its acts?

How far can an agent bind its principal to third parties, when it does not have express authority from the principal to do so?

The agent’s authority depends on what type of relationship is established between the principal and the agent (in other words, whether the agent acts in his own name or in the name of the principal).

“Under a transaction concluded by the agent with a third person in his own name and at the expense of the principal, the agent acquires rights and becomes obliged even though the principal was named in the transaction or entered into direct relations with the third person for the performance of the transaction.

Under a transaction performed by the agent with a third person in the name and at the expense of the principal, rights and duties arise directly with the principal.”

(§§2-3 Clause 1, Article 1005, Civil Code).

Under Russian law, if the agency agreement provides general powers for the agent to enter into transactions in the name of the principal, the principal does not have the right to refer to the agent’s lack of the necessary authority, unless he can prove that the third person knew or should have known of the limitation of the agent’s powers.

It must be noted, however, that if it is proved that the agent did not have enough power to enter into a specific transaction or exceeded the power granted to him, such a transaction will be considered as concluded by the agent, not by the principal (if the principal does not approve the transaction later on) (Article 183, Civil Code).

Before the principal approves such a deal, the other party may unilaterally repudiate it, except when it had been aware that the agent entered into the deal without the necessary powers.

Unless the principal approves the deal or replies to the request to approve it within a reasonable time, the other party may claim that the agent complies with the deal, or may repudiate it and claim damages from the agent (unless the other party was aware of the lack of powers of the agent).

In practice, it may be quite difficult to prove that the agent did not have authority if the agency agreement grants general powers to the agent.

Regulation and legal formalities

3. Are agencies specifically regulated by national law?

Is any legislation pending, which is likely to affect agency arrangements?

Are there any formalities that a principal must comply with when appointing an agent, for example, any registration or disclosure requirements?

Agency is regulated by Chapter 52 of the Russian Civil Code. The rules of delegation (Chapter 49 of the Russian Civil Code) will also apply to the agency relationship if the agent acts on behalf and at the expense of the principal. If the agent acts on his own behalf but at the expense of the principal, the rules of commission (Chapter 51 of the Russian Civil Code) will apply to the agency relationship.

A number of significant changes has been introduced recently to the Russian Civil Code.. However, these changes do not affect the agency rules.

There are no formalities under Russian law for the principal to comply with when appointing the agent.

No particular form is required for the agency agreement. The agency relationship may be established either by written contract, or by oral agreement between the principal and the agent.

In practice, in addition to the agency agreement the principal also issues a power of attorney to the agent, empowering him to act on behalf of the principal.

Competition law

4. Are there any national laws or regulations that would affect the following business practices:

• Grant of exclusive territory?

• Tied selling?

• Territorial restrictions?

• Customer restrictions?

• Resale price maintenance?

• Refusal to deal?

• Imposition of minimum or maximum prices?

• Imposition of minimum sales targets?

Competition issues are regulated by Federal Law No. 135-FZ "On the Protection of Competition" of 26 July 2006 (the Russian Competition Law) which has undergone significant changes over the past few years.

Since the agent must act at the expense and for the benefit of the principal, he does not purchase any goods from the principal, and depends on the principal’s decisions. He is therefore not a separate market participant, and the provisions of the Russian Competition Law will not directly apply to the agency relationship.

As stated in Explanations N2 of the Presidium of the Federal Antimonopoly Service, agency agreements do not fall within the meaning of "vertical agreements". . Please note however that if an agent concludes a supply agreement or a resale agreement on behalf of the Principal, such a supply or resale agreement may be considered as a “vertical agreement”.

However, agency relationships are regulated by the Russian Civil Code, which allows the parties to introduce some restrictions on competition into the agency agreement (see Question 5).

5. Are there any laws or regulations relating to restrictive covenants or covenants not to compete during the agency agreement?

To what extent is it possible to continue the restrictions after the agreement has expired?

In particular, to what extent does the geographical extent and or the length of time of the restriction affect its enforceability?

Agency agreements can include some specific restrictions relating to competition. In particular, under Article 1007 of the Russian Civil Code:

“An agency agreement may provide for an obligation of the principal not to conclude similar agency agreements with other agents acting on the territory defined in the agreement or to refrain from the independent activity on this territory, which is analogous to the activity that makes up the subject of the agency agreement.

The agency agreement may provide for an obligation of the agent not to make with other principals analogous agency agreements that must be performed on a territory coinciding in full or in part with the territory indicated in the contract.”

Restrictions of competition must not, however, affect customers. Therefore, the Russian Civil Code states that:

"Terms of the agency agreement, by virtue of which the agent shall have the right to sell goods, perform work, or render services exclusively for a defined category of buyers (customers) or exclusively for buyers (customers) having a place of location or a place of residence in a territory defined in the agreement are void".

(Clause 3, Article 1007).

Russian law does not provide for a continuation of the restrictions after the agency agreement has expired. In practice, however, parties to agency agreements quite often set out restrictions on competition for a certain period after the expiry of the agreement.

Employment issues

6. Is there a risk that an agent may be treated as an employee of the principal?

When the agent is an individual, there is a possibility that the agency agreement will be considered an employment agreement. The Russian courts have held in a number of cases that the terms of the agreement concluded by the parties corresponded to those of an employment agreement.

The agreement will be interpreted as an agency or employment agreement after determining the actual meaning of its terms by comparison with the other terms and the substance of the agreement as a whole.

As opposed to an employment agreement which regulates the labour relationship and its terms, the agency agreement presumes that a certain result will be achieved (for example, the conclusion of a transaction).

The risk of an agency agreement being treated as an employment agreement may increase if the principal has a number of "agents" (individuals) performing their duties on the basis of agency agreements made in the same form and with the same terms.

If the agency agreement is deemed to be an employment agreement, the Social Security Fund may charge the supplier who recently qualified as employer security fees for the whole period of the agency agreement.

Tax

7. Will a foreign principal that appoints an agent directly in the national territory be regarded as carrying on business for tax purposes in that territory?

There is a risk that a foreign principal could be regarded as having a permanent representation (permanent establishment) in Russia for tax purposes. Permanent establishments bear the same tax burden as Russian legal entities.

If the agent performs his actions in the name of the foreign company, has and regularly uses powers to conclude contracts or to agree essential terms of contracts in the name of the foreign company, thereby creating legal consequences for that foreign company (dependent agent), then the foreign company will be considered to have a permanent establishment in Russia.

However, the foreign company will not be regarded as having a permanent establishment in Russia if it performs business operations in Russia through a broker, commission agent, professional participant of the Russian securities market or any other person acting within its main (usual) scope of business (Clause 9, Article 306, Russian Tax Code). The Russian Tax Code considers such a person to be an independent agent of the foreign company.

Therefore, the agent will be able to prove that he acts within his main (usual) scope of business and only has powers to conclude transactions, but not to negotiate their essential terms with customers in Russia. In this case, the permanent establishment of the foreign principal will not have been established.

It would be easier for the agent to prove that actions under the agency agreement with the foreign principal fall within his main and usual scope of business if he has concluded agency agreements with several principals.

It must be noted that treaties on the avoidance of double taxation may provide other criteria for deeming that a foreign company has a permanent representation in Russia.

8. Are any withholding or other taxes levied in the territory on remittance monies? When and by whom are they payable?

If the agent is regarded as a dependent agent, the principal will have to pay all applicable taxes in Russia, including, among other things, corporate profit tax and corporate property tax.

Currently, the profit tax rate is 20% of the revenue of the permanent establishment less its documented deductible expenses, taking into account its functions, assets used and commercial risks taken.

Profit tax must be paid directly by the permanent establishment. The reporting period for corporate profit tax can be a quarter, half a year or nine months, and the tax period is one year. Tax returns are to be filed with the tax authority on or before the 28th day following each accounting period, and on or before 28 March of the year following the respective tax period.

The corporate property tax rate is established regionally, but it cannot be higher than 2.2% of the average annual book value of the taxable fixed assets. The reporting period for corporate property tax can be a quarter, half a year or nine months, and the tax period is one year. Tax calculations on the corporate property tax are to be filed on or before 30 calendar days upon expiry of each reporting period, and tax returns must be submitted on or before the 30th of March of the year following the tax period.

9. Will there be any difficulties in a domestic agent making payment to a foreign principal, either in local currency or in the currency of the principal’s country? Are there any exchange controls in operation?

The agency agreement may provide for payment either in Russian roubles, or in a foreign currency. To make a payment in roubles, the foreign principal must have a bank account in Russian roubles.

If payments are provided in a foreign currency, the Russian rules on foreign exchange regulation and control (see Federal Law No. 173-FZ “On the Foreign Exchange Regulation and Control” of 10 December 2003 and the relevant regulations of the Central Bank of Russia) require that the Russian agent have a transaction passport issued by his bank.

As evidence that the payment is lawful, local banks may require a copy of the signed agency agreement. The agent must also provide documents confirming the transaction and performance of services for the principal. In accordance with the Instructions of the Bank of Russia No. 138-I of 4 June 2012 (as updated on 30 November 2015), certain details of the procedure for obtaining a transaction passport have been altered (for example, requirements for certain documents to be submitted to obtain the transaction passport).

A transaction passport is not required if the total amount payable under the agreement does not exceed USD50,000 at the exchange rate of the Central Bank of Russia as of the date of signing the agreement, or as of the date of introducing the latest amendments to the agreement if the agreement has been amended.

Duties of the agent

10. What duties does national law impose upon an agent?

Under Russian law, the agency agreement can only provide a list of general duties of the agent, but not details of specific tasks. The reason is that agency relationships are of a continuing nature, and at the moment of signing the agreement the parties may not be aware of the range of transactions to be performed by the agent.

Therefore, the main duty of the agent is to perform actions (legal and actual) for the benefit and at the expense of the principal.

The agent also has a duty to provide the principal with reports on his actions within the time periods set out by the agreement. In the absence of relevant terms in the contract, the reports must be presented by the agent in the course of performing the agreement, or at the conclusion of the agreement (Article 1008 (2), Civil Code). The agent’s reports must also be accompanied by proof of all expenses incurred by the agent, which must be reimbursed by the principal, unless the agreement provides otherwise.

Duties of the principal

11. What obligations does national law impose on a principal?

The main obligation of the principal is to provide the agent with necessary powers and resources so that the agent can perform his duties.

The principal is also under a duty to pay the agent’s remuneration in the amount and following the procedure set out in the agency agreement.  

Remuneration

12. How does national law regulate remuneration to the agent? Does national law contain any compulsory provisions concerning the level of remuneration?

The amount and details of payment of the agent’s remuneration will be defined in the agency agreement.

If the amount of the agent’s remuneration is not provided in the agreement, and cannot be determined from the terms of the agreement, it will be the amount usually payable for this type of services in comparable circumstances (Clause 3, Article 424, Civil Code).

If the agreement does not include the procedure for payment of the agent's remuneration, the principal pays, within a week of the time of presentation by the agent of a report covering the preceding period, unless another procedure for payment can be inferred from the nature of the agreement or commercial practice (§3, Article 1006, Civil Code). 

13. How does local law regulate corrupt gifts and secret commissions?

Under Russian law, receiving and giving bribes may constitute a crime (Articles 290 and 291, Russian Criminal Code). If a corrupt gift is given to a management body of a commercial or other legal entity, the person who gave such a gift can be held criminally liable for commercial bribery (Article 204, Russian Criminal Code).

If the actions of the person giving the bribe do not constitute a crime, it can bear administrative liability in accordance with Article 19.28 ("Unlawful Remuneration on behalf of a Legal Entity") of the Russian Code of Administrative Offences.

Duration

14. What term is commonly agreed for an agency? Does national law regulate the length of notice periods to terminate an agency agreement?

An agency agreement can be entered into for either a defined term, or indefinitely (Article 1005 (3), Civil Code). Therefore, the parties are free to decide on the term of the agreement. In practice, agency agreements are often concluded for an indefinite period, so that the parties have the right to unilaterally terminate the agreement.

The parties are free to determine the length of a notice period to terminate the agency agreement, provided that it is not less than 30 calendar days (Article 977 (3), Article 1004 (1), Civil Code).

Rights of ownership

15. Where the agent holds stock or money or other property belonging to the principal, can the principal assert its rights of ownership against third parties:

• In the event of insolvency of the agent?

• In the event that the agent has dishonestly disposed of them to third parties?

• To what extent do these rights extend to enable the principal to take the proceeds of sale of that property disposed of by the agent:

• Where the sale was authorised by the principal?

• Where the sale was not authorised by the principal?

If an agent performs a transaction in his own name but at the expense of the principal, all goods acquired by the agent as a result of such transaction are considered to be owned by the principal. In addition, the agent bears liability to the principal for loss of, shortage of, or harm to property of the principal which has been transferred to the agent’s possession.

The issue of returning any property belonging to the principal but transferred to the agent is not expressly regulated by the Russian Civil Code. The general rules on property returns also apply to agency agreements.

In the event of insolvency of the agent, the principal will have the right to claim the agent’s property. In particular, Russian case law has confirmed that in such a case monetary claims of the principal will be included in the register of creditors' claims. In relation to claims in property, the procedure for claiming it will depend on the particulars of the specific case.

If the agent has dishonestly disposed of the principal’s property to a third party, the principal has the right to bring a lawsuit against such third party under the general rules of vindication (Article 301, Civil Code), which also apply to agency relationships.

However, it can be difficult in practice for the principal to claim property back from a third party in the event that such third party is a bona fide acquirer.

If the property is recovered from a third party who knew or should have known that his possession was illegal (a mala fide acquirer) the principal will also have the right to compensation for all income that this third party acquired or should have acquired during the whole time of his illegal possession. The principal will have the right to claim from a bona fide acquirer the return of or compensation for all income acquired when he knew or should have known of the unlawfulness of his possession, or was put on notice of the owner’s claim for the return of the property (Article 303, Civil Code).

Termination

16. What events will be regarded in law as justifying termination of the agency agreement?

Do any statutory obligations arise on termination?

What provision is usually made in the agreement for termination?

Under the Russian Civil Code, an agency agreement can be terminated for the following reasons:

• One of the parties refuses to continue performing the agreement, if the agreement does not have a defined term and expiry date.

• If the agent dies, or is declared missing, legally incapacitated, or of limited legal capacity.

• If the agent is declared insolvent (bankrupt).

If the agency agreement has a definite term, it cannot be unilaterally terminated by one of the parties. Such an agreement can only be terminated by entering into a termination agreement.

In the termination agreement the parties usually state that the agency agreement will be deemed terminated from the moment of signing the termination agreement, or from another specific date.

A further clause which is often used in termination agreements is that the parties confirm they do not have any claims against each other in connection with the agency agreement.

No statutory obligations arise on termination of the agency agreement.

If a power of attorney has been issued (see Question 3), it shall be returned to the principal upon signing the termination agreement.

17. What rights does the agent have to compensation or indemnity upon termination of the agency agreement? How is compensation or indemnity for termination calculated?

Are there any formalities which must be complied with for lodging a claim for compensation or indemnity?

An agency agreement concluded for a definite period cannot be unilaterally terminated (see Question 16), while an agency agreement concluded for an indefinite period of time can be unilaterally terminated at any time by either party.

Therefore, Russian law does not set out any compensation or indemnity on termination of an agency agreement. 

The agency agreement

18. Are any particular formalities required for an agency agreement to be legally valid and enforceable under national law?

There are no particular formalities for the conclusion of an agency agreement. The agency agreement may be entered into either in writing or orally. 

19. Where the agent is required by the principal to enter into a guarantee of the debts to the principal of customers that it finds for the principal (del credere guarantee) or that it concludes contracts with on behalf of the principal, what formalities and documentation are required to ensure that the guarantee is legally binding? Is any special set of words required for such a guarantee?

As a general rule, the agent will not be liable to the principal for non-performance of a transaction by a third party.

A del credere guarantee is only possible if the agent enters into transactions with customers in his own name, but at the expense of the principal (Article 993 (1), Civil Code). The Russian Civil Code does not provide any requirements for formalities or documentation for such a guarantee. In practice, it is enough to include a statement into the agency agreement, to the effect that the agent bears liability for performance by the customers of transactions. There is no requirement to enter into a separate guarantee agreement.

In the event of non-performance by a third party of a transaction entered into with the agent, the agent must report without delay to the principal, gather the necessary evidence and, on the principal’s request, transfer to the principal the rights under such a transaction. If the third party does not perform its obligations under the transaction, the principal then has the right to claim against the agent.

If the transaction is entered into by the agent on behalf and at the expense of the principal, all rights and obligations are with the principal. The agent does not bear any liability for the actions of the customer with whom the transaction is concluded. However, the principal and the agent may enter into a surety agreement to protect the rights of the principal in the case of third party non-performance. Such a surety obligation may also be included in the agency agreement.

Sureties are regulated by paragraph 5, chapter 23 of the Russian Civil Code. Under a surety, the principal has a right to sue both the agent and the third party for non-performance of the latter's obligations. The agent and the third party are jointly liable to the principal. The guarantee agreement (or the guarantee obligation established in the agency agreement) may, however, provide for subsidiary liability of the agent for the actions of the third party.

If the agent performs any of the obligations of the third party, it assumes all rights of the principal and may claim against the third party for the main debt, as well as interest and damages.

The surety agreement has specific grounds for termination, listed in clause 4 Article 367 of the Russian Civil Code.