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  • QA 213
    Question:
    How can brokers/agents safeguard against being cut out of the loop after bringing exporters/importers together? And, can they charge commission to both?
    Background:
    Is it common practice that brokers/agents require a written signed commitment from the exporter and the importer to avoid direct trade between them for a period of time assuming that the broker is located in the U.S. (importing country)? How do brokers/agents secure that the importers and exporters he/she has contacted will continue to use his/her services for future transactions? (Assuming that samples were approved). Is it ok for the broker/agent to charge a commission from the exporter and the importer on the same transaction? Let's say X% of the total F.O.B. price to the exporter for getting an order and X% of the total F.O.B. price of the same order to the importer for getting the product? When do brokers get paid? Do brokers get paid regardless of the condition of the merchandise at arrival or even if merchandise doesn't arrive (is the broker's pay included in the insurance)? In a previous answer you mentioned that brokers/agents are not responsible for the execution of contracts. What type of liabilities are brokers/agents exposed to if any?
    Asked by:
    Aspiring trader - USA
    Answer:

    This is a multi-faceted question requiring a number of comments…

    First, to clarify, brokers mostly deal with anyone whereas agents represent specific parties, usually on an agreed, long-term basis. Your questions lead us to concentrate on the agent function in importing countries. See QA 212 in the Q&A Archive for more on brokers and agents generally.

    Second, in the coffee world an agent sells on someone else's behalf, usually an exporter or producer/exporter in a producing country, with whom an agency agreement has been signed. Such an agreement may bind the exporter (the principal) to limit sales offers to the agent in the specified market(s), whereas the agent may have undertaken not to represent anyone else from the producing country in question.

    Thirdly, it is unusual for an importer to appoint a procurement agent but if this was done then this agent would undoubtedly be located in a producing country. Such an agent would canvass offers or look for purchases based on instructions from the importer, using his or her knowledge of the local market.

    Specific answers…

    1. An exporter may well sign an agency agreement that protects the agent against subsequently being by-passed after bringing seller/buyer together. It is difficult to see however why an importer would sign any such agreement.

    2. The only potential security for the agent is in the agreement he or she signs with the exporter. However, enforcing such an agreement may be difficult and one should rather expect that, as is the norm in the green coffee trade, mutual trust and honesty will ensure both parties will respect their undertakings.

    3. Usually, only the seller pays commission. In an extreme case an individual importer might perhaps agree to pay commission as well but, we believe, the circumstances would have to be quite unusual. Or, a procurement agreement is in place. But basically we would say the answer is no.

    4. In the US the Green Coffee Association's contract states that commission is payable at the time coffee is tendered. For sales subject approval of sample, if no approval is made then no commission is payable. The GCA contract requires the parties to state who (seller or buyer) will pay commission.

    5. In Europe the European Contract for Coffee (ECC) states that brokerage/commission becomes due on the conclusion of the contract and is payable on fulfilment of the contract, or on the default by either of the parties, or on cancellation of the contract. Sales subject approval of sample are not mentioned because, if a buyer does not approve the sample then there is no contract.

    6. Usually, exporters would pay commission when they themselves have received payment. Commissions are not affected by subsequent disputes over quality or loss but, again, where an exporter refuses to honour an obligation it may be difficult to enforce this. As to insurance, the insured value is normally at least the sales price but sometimes a certain percentage is added. However, this has nothing to do with commission payments - these remain the responsibility of the party that originally undertook to pay the commission.

    7. Most green coffee exporters at origin sell basis free on board (FOB) where the buyer is responsible to cover the maritime insurance. Therefore, the exporter will get payment when the shipping documents are presented and, yes, commission would then be due irrespective of whether the goods were subsequently lost or not.

    8. As stated in QA 212 brokers and agents are not liable for contract execution unless they take a contract over their own name, hence becoming the Principal. But, they are liable to facilitate contract execution in all possible ways, to provide honest and factual information to both principals: seller and buyer, and to ensure all relevant information and instructions are correctly and timely passed on.  Of course brokers and agents are subject to the normal laws of the land. In addition, under GCA and ECC a seriously aggrieved buyer or seller who blames an agent's actions could seek recourse to arbitration - if it were agreed to hold such an arbitration and the result was an award against the agent then the claimant could pursue settlement through a court of law.

    Posted 26 February 2009

    Related chapter(s):
    Related Q & A:
    Q&A 079, 142, 191, 212