Suppose a foreign company appoints an Iranian company or individual as its “exclusive agent” in Iran, expecting the agent to develop the market for its products in return for commissions on completed transactions. A few months later, a dispute arises between the parties. The extent to which the foreign company, as the principal, may sell directly to Iranian customers while an exclusive agent is in place should be determined by the agreement. Similarly, the treatment of orders placed through the principal’s website within the agent’s exclusive territory should be addressed from the outset. The position of customers introduced by the agent also requires careful consideration, particularly with regard to direct transactions after termination and the agent’s entitlement to commissions. These issues demonstrate that the use of the term “exclusive agency” alone is not sufficient to establish a clear legal relationship.

An international exclusive agency agreement is more than an arrangement for developing sales in a particular country or region. It may determine the scope of the agent’s authority, the manner in which customer relationships are established and managed, the agent’s entitlement to commissions, the permitted use of trademarks and other intellectual property rights, performance obligations, confidentiality, regulatory compliance, termination conditions, and even the mechanism for resolving disputes.

Where one of the parties is an Iranian individual or legal entity, the legal and practical considerations become more complex. In addition to the contractual terms themselves, the parties may need to consider the governing law, mandatory rules, commercial and corporate requirements, payment restrictions, sanctions and export-control regulations, and the enforceability of court judgments or arbitral awards. At the same time, it should not be assumed that every international agency agreement involving Iran is necessarily governed by Iranian law. The governing law should be selected deliberately, and its implications for the parties’ relationship and for any applicable mandatory rules should be assessed.

Accordingly, the starting point for a well-structured exclusive agency agreement should not be a standard contract template. It should be the identification of the actual nature of the relationship, followed by the allocation of the parties’ rights and obligations in a manner consistent with the underlying commercial arrangement.

1. The Parties Should First Determine the Nature of Their Actual Relationship

One of the common mistakes in international commercial contracts is relying on contractual labels without giving sufficient attention to the substance of the relationship. An agreement may be titled an exclusive agency agreement while its provisions, in practice, reflect the characteristics of a distribution arrangement, an intellectual property licence, a marketing agreement, or even a combination of several contractual relationships.

This is not merely a theoretical distinction. The legal characterization of the relationship may affect the parties’ liabilities, payment arrangements, ownership of goods, relationship with customers, scope of authority, termination, and post-termination consequences.

Agency vs. Distribution

Under an agency relationship, the agent generally acts on behalf of the principal. Depending on the scope of its authority, the agent may introduce customers, negotiate transactions, or even enter into contracts on behalf of the principal.

A distributor, by contrast, will generally purchase goods and resell them to customers in its own name and for its own account. In such a structure, risks relating to inventory, purchase prices, customer credit, and resale may rest with the distributor.

Accordingly, the fact that both arrangements are intended to promote the sale of products in a particular market does not mean that they have the same legal consequences.

Agency vs. Franchise and Licensing

A franchise agreement generally involves a broader package of rights and obligations relating to a business model, brand, know-how, operating standards, and ongoing supervision. In a licensing agreement, the principal subject is usually the grant of a right to use a particular asset or right, such as a trademark, technology, or other intellectual property.

An agency agreement may itself include permission to use a trademark or contain certain elements that resemble a franchise arrangement. This does not, however, make the two types of agreement legally identical. The parties should therefore focus on the actual rights and obligations created by the agreement rather than relying solely on its title.

2. The Scope of the Agent’s Activities Should Be Defined Before Addressing Exclusivity

Once the nature of the relationship has been established, the parties should define precisely what the agent is expected and permitted to do. Depending on the transaction, the agreement should identify the products or services covered by the agency, the geographical territory, relevant customer groups, and sales channels.

For example, the phrase “exclusive agent of the principal in Iran” may initially appear clear. Without further contractual detail, however, the scope of the agency may remain uncertain.

The agreement should establish whether the agency covers all of the principal’s products or only specific products listed in an annex; whether the agent is authorized merely to conduct marketing activities or may negotiate prices and contractual terms; whether the agent may execute contracts on behalf of the principal; whether the agent may receive payments from customers; and whether it may appoint third parties such as brokers or sub-agents.

In this context, and in order to define the scope of the agent’s activities and authority, the agency agreement should clearly state whether the agent is authorized to:

  • merely introduce customers;
  • receive orders;
  • negotiate commercial terms;
  • execute contracts on behalf of the principal;
  • receive payments;
  • create obligations relating to warranties or after-sales services; or
  • conduct marketing activities only.

This distinction is important for both parties. The principal needs to prevent the agent from creating unintended obligations on its behalf, while the agent needs to have a clear understanding of the limits of its authority when dealing with customers.

3. Exclusivity Should Be Defined Both Legally and Operationally

One of the most important provisions in many exclusive agency agreements is the exclusivity clause. A common mistake is to state simply that “the agent shall have exclusive rights in the territory” and assume that the consequences of exclusivity are self-evident. In practice, exclusivity may impose a range of different obligations on the principal.

The exclusivity clause should expressly address whether, within the contractual territory, the principal:

  • will refrain from appointing another agent;
  • will refrain from making direct sales to customers in the territory;
  • will refrain from selling through distributors;
  • will refrain from selling through its affiliated companies;
  • will handle online orders from customers in the territory according to the mechanism established in the agreement;
  • will continue providing direct services to existing customers under agreed contractual arrangements; and
  • will treat transactions involving multinational customers in accordance with the contractual rules governing the exclusive territory.

Online Sales and International Customers

In modern commerce, the concept of territory is not necessarily limited to the physical location of the customer. For example, where an agent has been granted exclusivity in Iran, the agreement should address from the outset how an order placed by an Iranian company through the principal’s website in Europe will be treated.

The same issue may arise where a customer is located outside Iran but conducts a substantial part of its business in Iran. The agreement should determine how the agent’s commission will be calculated and whether the resulting transaction falls within the agent’s exclusive territory.

In the absence of such provisions, disputes may arise over the scope of exclusivity and the agent’s entitlement to commission. Exclusivity should therefore be defined, where appropriate, by reference to territory, customers, products, and sales channels.

4. The Geographical Territory Should Be Defined Carefully

Expressions such as “Iran,” “the Middle East,” or “the Asian region” may not, by themselves, provide sufficient precision. A territory may consist of a single country, several countries, particular provinces or cities, or even a specified category of customers. Cross-border transactions and multinational customers should also be addressed.

For example, the agreement should clarify how the following situations are to be treated:

  • the customer is located in Iran, but the contract is executed with its headquarters in another country;
  • the order is placed outside the territory, but the goods are delivered within the agent’s territory;
  • a multinational customer operates in several countries and the purchase is made by one of its entities;
  • the customer is located outside Iran, but the goods or services are ultimately used in Iran.

The definition of territory should therefore be sufficiently comprehensive to take into account, where relevant, the customer’s location, the place of contracting, the place where the order is placed, the place of delivery, and the place where the goods or services are used.

5. Commission Should Be Structured in a Way That Makes It Calculable

In many agency agreements, commission is expressed as a simple percentage—for example, “the agent shall be entitled to five percent of sales.” Such a provision, however, may not be sufficient to prevent disputes. The agreement should establish precisely what amount the percentage applies to.

Depending on the transaction, the agreement should address:

  • taxes;
  • transportation costs;
  • insurance;
  • customer discounts;
  • returned goods;
  • cancelled transactions;
  • refunds;
  • banking charges;
  • payment currency;
  • payment dates;
  • sales reporting procedures; and
  • repeat transactions with customers introduced by the agent.

This is particularly important for the agent because the principal should not be able to eliminate the agent’s commission simply by restructuring a transaction or making the sale directly. From the principal’s perspective, the agreement should likewise establish that commission is payable only in respect of transactions that satisfy the contractual criteria and have a sufficient connection with the agent’s activities.

6. Performance Obligations Should Be Proportionate to the Grant of Exclusivity

The grant of exclusivity is generally accompanied by an expectation that the agent will develop the market. The principal may expect the agent to generate a minimum level of annual sales, attract a specified number of customers, or carry out particular marketing activities.

At the same time, achieving sales targets may depend on the principal’s ability to supply products consistently, provide information and training, offer competitive pricing, or provide marketing support. Performance obligations should therefore be considered alongside the principal’s own contractual obligations.

The agreement may impose obligations on the agent such as:

  • minimum sales targets;
  • minimum numbers of customers;
  • promotional activities;
  • periodic reporting;
  • customer-network development; and
  • participation in trade fairs or marketing programmes.

Failure to meet a sales target should not automatically be treated as creating a right to terminate the agreement without considering its terms. The parties should determine the contractual consequences of failing to meet performance targets, which may include reducing or withdrawing exclusivity, granting a cure period, renegotiating the contractual terms, or creating a right of termination.

7. Intellectual Property and Confidential Information in the Agency Relationship

An agency relationship will often require the agent to have access to certain intellectual property and commercial information belonging to the principal in order to promote and offer its products or services. Trademarks, trade names, logos, catalogues, technical information, customer lists, pricing information, and other commercial information may be made available to the agent during the course of the relationship.

The scope of permitted use should be clearly defined in the agreement, and such use should remain limited to activities carried out within the agency relationship and for the purposes agreed by the parties.

The use of trademarks requires particular attention. The agreement should address the territory and manner in which the trademark may be used. Its use in advertising, websites, social media, catalogues, and other marketing materials, as well as any changes to logos or other visual elements of the brand, may be subject to brand guidelines and, where appropriate, the principal’s prior approval.

The agreement should also specify when and how the use of the trademark must cease following termination, so that continued use does not create a misleading impression that the agency relationship remains in force.

Another issue that is often overlooked in agency agreements is ownership of materials created by the agent. If the agent develops a website, catalogue, advertising content, or other marketing materials for the Iranian market, the ownership of and rights to use those materials should be addressed from the outset. Otherwise, termination of the contractual relationship may give rise to a separate dispute concerning ownership or continued use of such materials.

Confidentiality likewise requires careful drafting and should not be reduced to a general undertaking. Customer information, pricing strategies, business plans, technical information, contractual terms, and supplier information may constitute an important part of a business’s commercial value. The agreement should therefore define the scope of confidential information, applicable exceptions, permitted use and disclosure, and the period for which confidentiality obligations will continue after termination.

8. Legal Requirements, Sanctions, and International Payments

An agency agreement connected with Iran may simultaneously be subject to requirements arising from several legal and regulatory regimes. Depending on the goods or services, transaction structure, location of the parties’ activities, and payment arrangements, issues relating to business licences, import and export requirements, sector-specific regulations, export controls, anti-bribery rules, sanctions, and taxation may arise.

With respect to sanctions, a general and non-transaction-specific assessment is rarely sufficient. Whether a particular transaction may be carried out can depend on factors such as the nationality and legal status of the parties, the nature of the goods or services, the individuals and entities involved, the banks and financial institutions used, and the overall structure of the transaction.

For example, a company subject to U.S. jurisdiction may face restrictions that do not necessarily apply with the same scope or intensity to a non-U.S. company. Export-control rules are also a separate issue and should be assessed independently from sanctions regulations.

The agreement may therefore include specific obligations concerning compliance with applicable regulations, export controls, required licences, counterparty screening, and notification of regulatory changes. Such contractual provisions, however, do not replace independent legal advice tailored to the particular transaction.

Currency and Payment Arrangements

The method of paying commissions is of particular practical importance in agreements connected with Iran. The agreement should specify the currency of payment, when the entitlement to commission arises, the payment deadline, transfer costs, taxes and statutory deductions, and the treatment of currency fluctuations.

It may also be useful to establish an alternative payment mechanism for circumstances in which the initial payment method becomes unavailable due to banking or regulatory restrictions.

In all cases, the payment mechanism should be structured in compliance with applicable laws and regulations and should not be designed to circumvent sanctions or other financial restrictions.

9. Governing Law and the Role of Iranian Law

The fact that one of the parties is Iranian or that the agent operates in Iran does not, by itself, determine the governing law of the agreement. In international agency agreements, the parties will generally have the ability to select the governing law and should assess the legal consequences of that choice before entering into the agreement.

Under Iranian law, Article 10 of the Civil Code provides an important basis for the validity of private agreements, subject to the limits imposed by law. Contractual freedom, however, is not absolute, and the parties cannot contract out of applicable mandatory rules and legal requirements.

An international agreement may designate Iranian law, the law of the principal’s jurisdiction, the law of a third country, or another legal system as its governing law. The choice should nevertheless be accompanied by an assessment of mandatory rules and other provisions that may apply to the relationship regardless of the parties’ chosen law.

Accordingly, simply stating that “this agreement shall be governed by the laws of Country X” does not necessarily resolve all questions concerning applicable law. The choice of law should be considered in light of the nature of the relationship, the place of performance, and the agreed dispute-resolution mechanism.

10. Dispute Resolution and Enforcement

In international commercial relationships, the parties’ places of residence, the place where obligations are performed, and the location of their assets may all be in different countries. For this reason, selecting a dispute-resolution mechanism involves more than choosing between a court and arbitration. The practical enforceability of the resulting decision should also be considered from the outset.

Depending on the circumstances of the transaction, the parties may choose litigation before state courts or arbitration. Where arbitration is selected, the arbitration clause should address matters such as the seat of arbitration, the arbitral institution, the number and appointment of arbitrators, the language of the proceedings, and the law governing the contract and the arbitration agreement. Where relevant, the availability of interim and conservatory measures should also be considered.

For agreements connected with Iran, enforcement should not be treated as an issue to be considered only after an award has been issued. Iran acceded to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 2002, subject to certain reservations. Accordingly, choosing arbitration does not, by itself, guarantee enforcement of an award in every jurisdiction. The legal framework of the enforcement jurisdiction, the applicable Convention requirements, and the location of the losing party’s assets may all be relevant.

The agency agreement should also be distinguished from any sales contracts that may subsequently be concluded as a result of the agent’s activities. Iran is not currently a party to the United Nations Convention on Contracts for the International Sale of Goods (CISG). Therefore, the mere international nature of a commercial relationship does not, by itself, result in the automatic application of the CISG to an Iran-related transaction.

11. Term and Renewal

The term of an exclusive agency agreement is generally closely connected to the agent’s investment in and development of the market. During the initial months or years, the agent may incur significant costs in establishing a customer network and developing the brand. The principal, on the other hand, may wish to assess the agent’s performance after a defined period.

The duration of the agreement and its renewal mechanism should therefore reflect the nature of the business. The agreement may be concluded for a fixed term, with renewal subject to advance notice, achievement of sales targets, or the parties’ further agreement.

Where automatic renewal is provided for, the deadline for giving notice of non-renewal should be expressly stated. The expiry of the agreement should also not leave matters such as pending orders, existing customers, outstanding commissions, and intellectual property rights unresolved. These matters should be addressed in the original agreement.

12. Termination and Its Consequences

Termination is one of the most important aspects of an exclusive agency agreement, and a distinction should be made between expiry of the agreed term and early termination.

Material breach, failure to meet performance obligations, bankruptcy or similar circumstances, a change of control, loss of required licences, illegality of performance, sanctions-related restrictions, or serious compliance violations may, depending on the agreement, constitute grounds for termination.

Simply listing such events in the agreement, however, is not sufficient. The termination mechanism should establish whether the breaching party will have an opportunity to remedy the breach and which types of breach may justify immediate termination. Notice periods and cure periods for certain breaches may also reduce disputes concerning the validity of termination.

Consequences of Termination

Termination does not necessarily bring all obligations arising from the contractual relationship to an immediate end. Unpaid commissions, pending negotiations, introduced customers, subsequent transactions with existing customers, trademark use, confidential information, inventory, marketing materials, access to accounts and systems, and other continuing obligations should be addressed.

Post-termination commissions require particular attention. For example, an agent may introduce a new customer during the final month of the agreement, while the sales contract with that customer is concluded only after the agency relationship has ended. In such circumstances, the agent’s entitlement to commission should be determined according to criteria established in advance in the agreement.

The same issue may arise in relation to customers developed by the agent during the contractual relationship. The agreement should determine how direct transactions between the principal and those customers after termination will be treated, so that termination does not effectively eliminate financial rights that arose during the agency relationship.

At the same time, certain legal systems may provide commercial agents with specific statutory rights or protections following termination. The consequences of termination therefore cannot always be determined solely by reference to the wording of the agreement; the applicable governing law must also be examined.

13. Key Dos and Don’ts Before Signing the Agreement

An international exclusive agency agreement can provide a sound basis for cooperation only when the nature of the relationship and the parties’ respective obligations are clearly defined.

First, the agent’s role should be clear. The agreement should distinguish between introducing customers, conducting marketing activities, negotiating transactions, and having authority to enter into contracts on behalf of the principal. Similarly, exclusivity should be defined in operational terms, including the position of other agents, direct sales by the principal, online sales, distributors, and specific categories of customers.

The geographical territory should not be defined merely by naming a country or region. In modern commercial relationships, online orders and cross-border transactions may affect traditional concepts of territory, and their treatment should be expressly addressed.

The commission mechanism should also be sufficiently clear to allow it to be calculated and verified in practice. The basis of calculation, the time when the entitlement arises, the payment date, currency, discounts, refunds, and repeat transactions involving customers introduced by the agent are among the matters that should be addressed from the outset.

Performance targets should correspond to actual market conditions and to the principal’s own obligations. Where continuation of exclusivity depends on achieving a minimum level of sales, the consequences of failing to meet that threshold should also be expressly stated.

In relation to intellectual property, the agreement should regulate the use of trademarks, trade names, advertising content, and other intellectual property. The use of sub-agents or intermediaries should likewise be subject to clear contractual conditions.

Before the relationship begins, the parties should also assess the legal and regulatory restrictions relevant to the transaction. Depending on the nature of the business, sanctions, export controls, required licences, sector-specific regulations, and tax requirements may have different implications.

Finally, the governing law and dispute-resolution mechanism should be selected with actual enforceability in mind.

Conversely, certain drafting mistakes can create significant grounds for dispute. These include relying on the word “exclusive” without defining its consequences, assuming that every transaction within the territory automatically generates a commission entitlement, failing to define the agent’s authority, conflating agency with distribution without considering their legal differences, overlooking obligations that survive termination, selecting foreign law without assessing mandatory rules, and assuming that the inclusion of an arbitration clause by itself resolves questions of enforceability.

Conclusion

The matters discussed in this article provide only a general overview of some of the principal issues that should be considered when structuring and implementing exclusive agency agreements, particularly in commercial relationships connected with Iran. The nature of the agency relationship, the scope of the agent’s authority, exclusivity, commission, the parties’ obligations, intellectual property, confidentiality, regulatory requirements, governing law, dispute resolution, and the consequences of termination are only some of the issues that may have different implications depending on the structure of the transaction and the circumstances of the parties.

For this reason, relying on a standard contract template or on general expressions such as “exclusive agency” does not necessarily provide adequate protection for either party. The details of each commercial relationship should be assessed in light of the nature of the business, the legal status and jurisdiction of the parties, the territory, the relevant goods or services, payment arrangements, applicable regulations, and the intended dispute-resolution mechanism.

Drafting or reviewing an exclusive agency agreement, particularly in an international transaction, is not simply a matter of putting together a set of commercial terms. It requires a proper assessment of the legal nature of the relationship, the applicable laws and regulations, and the risks that may arise during the performance of the agreement or following its termination. For this reason, the drafting or review of such agreements should preferably be undertaken with the assistance of a lawyer experienced in commercial contracts and international transactions, so that the parties’ rights and obligations can be tailored to the actual structure of the transaction and the relevant legal risks can be properly assessed and managed.

This article is intended only to provide a general overview of the principal legal considerations surrounding exclusive agency agreements and should not be regarded as a substitute for legal advice concerning a particular agreement or transaction. Each agency relationship should be independently reviewed in light of its specific contractual, commercial, and legal circumstances.