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ITALY: Abuse of economic dependence in relation to franchise agreements.

Article 9 of Law 192 of 1998 on subcontracting regulates the abuse of economic dependence in the following terms:

Abuse of economic dependence

1.  The abuse by one or more undertakings of the position of economic dependence in which a customer or supplier undertaking is, in or against them, shall be prohibited. An economic dependency is a situation in which an undertaking is able to cause, in its commercial relations with another undertaking, an excessive imbalance of rights and obligations. Economic dependence shall also be assessed taking into account the real possibility for the party subject to abuse, to find satisfactory alternatives on the market.

2.  Abuse may also consist in a refusal to sell or a refusal to buy, the imposition of unjustifiably onerous or discriminatory contractual conditions, or the arbitrary interruption of existing commercial relations.

3.  The pact through which the abuse of economic dependence is carried out shall be null and void.

Silvia BORTOLOTTI - 18.03.19
Country expert

In order to assess whether such a situation exists, the courts must therefore first establish the existence of an 'economic dependence' between two undertakings - that is to say, that one of them is in a situation such as to give rise to an excessive imbalance of rights and obligations in its commercial relations with the other and that typically (as is also expressly provided for by the rule) the other undertaking does not have a real possibility of finding satisfactory alternatives on the market.

Once the existence of a situation of economic dependence has been established, the courts will then have to verify whether the "strong" company has committed an "abuse", also by assessing the circumstances mentioned in the rule (refusal to sell, refusal to buy, imposition of unjustifiably burdensome or discriminatory contractual conditions, arbitrary interruption of existing commercial relations).

The consequence of the abuse consists, again according to Art. 9, Law 192/1998, in the nullity of the contractual clause through which the abuse took place (with possible consequent compensation for damages, if proven).

The Italian case law, while recognizing in theory - with some exceptions - the application of Art. 9 L. 192/1998 also to contracts other than subcontracting (and in particular to franchising contracts), to the best of our knowledge, has always rejected the relevant claims proposed by franchisees, on the one hand denying the existence of a position of economic dependence (typically, in fact, the franchisee has real opportunities to find satisfactory alternatives on the market, compared to the franchisor) and on the other hand, not recognizing the elements of the abuse, within the terms indicated in the law.

This position was recently confirmed by Rome Court of Appeal, Section III, 1/3/2018; Court of Monza, 4/7/2017; Court of Turin, 9/5/2017; Court of Rome, Section VIII, 1/4/2017; Court of Bologna, 5/10/2016; Milan Court of Appeal, 15/7/2015.

It should be noted that the claims proposed by the franchisees’ lawyers in this respect in most cases are not only unfounded, but also often proposed in a confused manner: in particular, the abuse of economic dependence is often confused with "abuse of a dominant position" (which is relevant from the antitrust point of view and is based on totally different assumptions), and there is also often the additional question - also almost always unfounded and not supported by any evidence - of "abuse of rights".

With this article, we intend to comment specifically on a Court decision (Court of Milan, section companies, 06/12/2017), because - although it does not deviate in our opinion from the position mentioned above - was wrongly interpreted by some commentators in Italian legal journals, as a case of application of the abuse of economic dependence to a franchise contract.

In the present case, the dispute concerned a franchising contract between Vodafone Italia S.p.A. and Next Mind S.r.l.

As far as it can be understood from the text of the decision regarding the facts of the case, the company Next Mind S.r.l. (franchisee) had terminated its contract with Vodafone (franchisor) on 31 March 2014, giving three months' notice, as provided for in the contract.

Subsequently, the franchisee brought an action before the Court of Milan, complaining of several breaches of Vodafone occurred during the relationship, but especially during the notice period, particularly concerning:

- the lack of payment of important sums due to it;

- the blockage of the IT system from April 2014, preventing the franchisee from providing services during the last period of the relationship (the end of the notice period being at the end of June);

- the delayed return of the guarantee policy (which occurred in January 2015), originally paid by the franchisee, amounting to € 1,120.00.

On the basis of these circumstances, the franchisee acted in front of the section specialized in undertakings matters of the Court of Milan (competent only because one of the claims was for "abuse of a dominant position", i.e. on an antitrust issue), claiming compensation for its alleged damages, quantified in € 52,000.00, attributing to the franchisor:

- abuse of a dominant position;

- breach of pre-contractual information obligations; and

- fraud.

Vodafone acted in the proceedings, pleading that Next Mind had failed to fulfil its obligations, which, in its opinion, would have justified the blocking of the computer system and the delayed payment of the sums due to the franchisee.

The Court, on the basis of a detailed assessment of the circumstances and evidence, concluded that Vodafone had seriously breached the contract, in particular by blocking the franchisee's computer system during the notice period, and that all the exceptions proposed by the franchisor to justify his breach were not acceptable.

The Court therefore condemned the franchisor to pay damages to the franchisee, equitably quantified at € 15,000.00.

It would therefore appear to be a judgment (among many others) for compensation for damages resulting from a breach of contract, regardless of the fact that the plaintiff erroneously configured the title underlying the claim for damages as "abuse of a dominant position".

However, the Court of Milan, as mentioned above, addresses the issue of abuse of economic dependence (albeit only in general terms, as obiter dictum), leading some commentators to declare (erroneously) that it is a case of abuse by the franchisor.

It is therefore necessary to retrace the reasoning followed by the Court on this point, in order to dispel any doubt as to interpretation.

First of all, the Court (correctly) finds that the application proposed as an 'abuse of a dominant position' is erroneous and unfounded, in the absence of any element introduced by the franchisee in support of it (in terms of the relevant market and any other relevant antitrust profiles).

Subsequently, the Court reinterprets the franchisee's claim as 'abuse of economic dependence' (despite the franchisee not even mentioning that notion, nor Article 9 of Law 192/1998) and declares - in general terms - the abuse of economic dependence also applicable to contracts other than subcontracting and, in particular, to franchising contracts.

However, on the merits, the Court rejects the claim for abuse of economic dependence (and the consequent damage’s claim) on the ground of lack of proof and condemns Vodafone - instead -  for breach of contract.

The approach followed up to now by Italian case-law therefore appears to be confirmed, which, although in abstract terms it considers the abuse of economic dependence to be applicable to franchising contracts, ends up excluding its application on the merits, noting the absence of the conditions laid down by the law.

 

Silvia Bortolotti, Secretary General IDI, IDI Country Expert for Italy

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