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SPAIN: Distribution Agreements - Net Margins instead of Gross Margins in goodwill indemnity.

The Supreme Court has issued a judgement in March 1, 2017 regarding an exclusive distribution agreement with indeterminate duration.

Ignacio ALONSO - 19.04.17
Country expert - IDARB Arbitrator

 

The case involved the Manufacturer, Royal Canin Iberica, and the Distributor Esjucri SL. The distributor asked for a compensation of 794.431,33 euros for the clientele created. The relevant agreement was signed in 2003 and in 2010 the Manufacturer sent the termination notice to the Distributor.

The Courts accepted the following facts: the agreement was exclusive for the area of Valencia and Castellón, it was signed for an indeterminate period, the Manufacturer benefited from the clientele created and the Distributor participated in conventions where instructions were given to all of them. At the end of the relationship, the Manufacturer had not received information about all the clients of the Distributor who continued selling competitive products.

The Supreme Court has considered that the Distributor, although he continued reselling competitive products after the termination, was a real Distributor, with an auxiliary position similar to an agent, and that he participated in the national network as exclusive distributor. Therefore, a goodwill compensation was accepted by analogy with the Agency Agreement.

This said, the Supreme Court, against the decision of the Provincial Court (Audiencia Provincial), has considered that the criteria to calculate the amount of the goodwill compensation could not follow automatically the “gross margin” theory, but in this case it was applicable the “net margin” instead, particularly considering that the Distributor continued as an independent dealer and reselling competitive products. As a precedent, the Court has followed a previous judgement (Supreme Court Judgement 356/2016 of May 30th) where the indemnity (according to the 2017 Judgment) was calculated not on the commissions (as occurs in agency agreements) but on the benefits obtained by the Distributor.

 

Comments. With this Judgement, the Supreme Court seems to modify its previous criteria (particularly Judgement of January 15, 2008), where the “gross margin” was considered as equivalent to the “remuneration” of the agent in order to calculate, by analogy with agency agreements, the goodwill compensation for distribution contracts.

In this Judgement of 2017, the Court is referring, as a precedent (after considering some others judgements of 2016 and 2010), to a Judgement in 2007, where (in the Supreme Court opinion) “net margins” where used to calculate the goodwill compensation. However, in that Judgement of 2007 used as precedent the Court did not use net margins to calculate the goodwill (clientele) compensation, but used the “net benefits” and in order to calculate damages compensation.

Therefore, although the new Judgement in 2017 could introduce some confusion when asking for goodwill compensation in distribution agreements, we do not consider it as a modification of the “gross margin” approach. This said, any claim should be analysed and argued carefully to avoid misunderstandings.

 

Ignacio Alonso, IDI agency and distribution expert for Spain

 

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