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SPAIN: International agency with decrease of sales. Clientele indemnity includes lost clients. Applicable law and competent courts.

International Agency Agreement. The Court has analyzed the Agent obligations regarding minimum sales when not contractually foreseen, not paid commissions and clientele compensation including commissions paid to clients already lost. The Court also makes some remarks about evidences and time-limit to claim past commissions. In this multi-million judgement Spanish law was of application and Spanish Courts competent, even with a foreign agent acting outside Spain.

Ignacio ALONSO - 16.11.20
Country expert - IDARB Arbitrator

The facts

The Court of Appeal of Girona has issued a judgement in 18 May 2020 on an international agency agreement where an exclusive agent for Italy (“Mr. A”) represented in Italy a Spanish Shoes Manufacturer (“Espadrilles Banyoles, SL,”) under the trademark Castañer. The Agent was entitled to a commission for the shoes (and some handbags) sold in Italy with that trademark, except to some clients and channels. Last contract had an indefinite period and was signed in 2012 although there were other different contracts before. The relationship lasted for more than ten years with no interruption.

The contract was submitted to Spanish Law and to the Courts of the domicile of the Manufacturer (in the city of Girona, Spain). The fact that the Agent was Italian resident and that the place of performance of his activity was in Italy, has not been an obstacle because of the express pact in the Agency agreement.

The Manufacturer terminated the agreement sending some letters in 2016, arguing that the Agent breached the contract, that the sales were reduced to a half in the past years and the Agent’s lack of proactivity (the absence of visits to clients and his poor performance because, in its opinion, an exclusive agent should increase sales).

The Agent answered that there was no such a breach nor any inactivity from his side, and that the decreasing of sales was due to other events provoked by the Manufacturer. For these reasons, he claimed for a clientele compensation as well as for some due but not paid commissions.

 

The analysis by the court

Minimum sales shall be included in the contract to be enforceable. The Court of Appeal analyzed the Agency Contract and noticed that it contained no obligations related to number of sales, visits to clients and increase of clientele/sales, so no breaching by the Agent could be supported on these reasons. According to this, the Court found illogic to think that the Agent could severely and voluntarily affect the decrease of sales because his commissions also depended on them.

The Court then concluded that a decrease of sales does not generate, by itself, a breaching of the Agency Agreement even if such decrease was due to the incorrect business activity of the Agent. It is not enough an incorrect business activity, but it is necessary a bad faith or unfair behavior by the agent in order to consider it as a possible breach. The agent is obliged to act diligently in the promotion of products following the reasonable instructions given by the manufacturer but keeping his independency. And the facts in this case, do not show any contrary evidence. Differences in the way the parties considered the management of the business, reasonably explained by the Agent, and although they had different opinions about the reasons for the reduction of sales were not enough to consider a breach of the Agency Contract. Moreover, the Manufacturer had admitted in its annual financial statements, reasons for that reduction of sales different from the performance of the Agent. Therefore, there was not a breaching of the agreement by the Agent: the previous notice should have been respected and the goodwill compensation was due.

Evidences by the manufacturer. The Judgement also contains interesting statements related to the evidence in the case. The Agent received his commission for the sales of shoes marketed as Castañer (except those sold in corners at Department Stores or own shops). From the Expert Report and from the documents examined after the Agent’s request (invoices and tax statements), it was clear that there were many other sales with identical products but where the commission had not been paid. The Manufacturer argued that these could not be accepted because the products were sold to well-known brands and these brands do not sell the shoes with the Castañer trademark.

The Court has argued, nevertheless, that it corresponds to the Manufacturer to show evidences against the invoices and official documents as analyzed by the Expert Report. The Court concluded that the Manufacturer could have easily shown evidences on the fact that these products were not sold as Castañer, but it did not and it cannot be considered a notorious fact (which would have not needed to be proved) how these brands and products were marketed. Therefore, with those evidences and without any contradiction by the Manufacturer, also the sales to the well-known brands should be considered in the commission to the Agent and in the clientele compensation.

Clientele compensation shall also include lost clients. To calculate the amount of this compensation, the Court included commissions for sales to lost clients: The Law only mentions commissions in the last five years without any distinction between existing or lost clients. Lost clients could be an element to verify whether or not the Agent is entitled to compensation. If there were clients before the contract started that were lost during the contract, this will imply that the Agent would not be probably entitled to the compensation. But this is not the case when the clients were obtained by the Agent and some of them were lost. The fact that he lost some of them is irrelevant because they were his clients.

Past commissions and the possibility to claim them. On the other hand, the claim for not paid commissions was not time-barred: The three years from the moment in which the Agent could have claimed them (according to what is foreseen in the Agency Act) were not elapsed because the Agent had not this possibility due to the fact that the Manufacturer had never recognized it and, therefore, he would never have provided the necessary information to calculate it.

Special interests. Regarding the commissions not paid, the Court also confirmed the right to be paid of the Late Payment Interests recognized by the law which are currently of 8%.

 

Conclusions

The Judgement confirmed that the Agent had the right to 1.8 million for non-paid commissions and more than 603.000 euro for clientele compensation. Together with other minor damages and the mentioned interests, the amount recognized was higher than 3 million euro.

 

TEXT OF THE JUDGEMENT

 

Ignacio Alonso, IDI Country Expert for agency & distribution in Spain

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