AUSTRIA: New judgement on goodwill indemnity to distributor.

A German distributor for bakery machines, represented by our office, claimed against his Austrian supplier for indemnity. The supplier had terminated the contract after 31 years. As all customer data were transmitted by the distributor when ordering the machines at the supplier, the customers could be available for the supplier immediately after the termination of the contract. Some of them have been permanent customers buying machines for several years, keeping in touch with the distributor, who was performing the repair work and the usual sales activities.

According to the jurisprudence of the Supreme Court, the distributor is entitled to a goodwill indemnity in analogy to sec 24 of the Austrian Act on commercial agency, provided he was integrated in the supplier´s sales organization similar to an agent. The main criteria are a (non-)competition clause, the duty to buy a certain amount of goods, reporting, directives by the supplier, after-sales-service, the obligation to keep an adequate stock, the supplier´s right to control the business premises and the books of the distributor, price recommendations, the distributor´s duty to sell also new products of the supplier and the transfer of the customer data.

In the present case the distributor was integrated by many contractual obligations fulfilling most of the mentioned criteria. Nevertheless, the court of first instance refused any indemnity and rejected the claim from the beginning because

1. the distributor acted under a double-name (the name of the supplier and his own name),
2. there were no obligation to buy a certain amounts of goods (some courts strongly used this criterion in the past to refuse an indemnity),
3. the distributor, besides the sales of the machines of the defendant, built special machines or sold products of other companies in case they were not available from the supplier,
4. there were, in fact, no directives given by the supplier (except one directive in 2006 concerning the presentation at a trade fair).

The Court of Appeal confirmed this decision as the integration in the supplier´s sales organization was ‘not complete’ and not similar to an agent.

The Supreme Courtcanceled both decisions of the lower courts and stated very clearly:

1. The main criteria for the indemnity of distributors were given (competition clause, stock obligation, after-sale-service, transfer of customer data, obligation to sell also the new products of the supplier, right to control the business premises).
2. The fact that the distributor also used its own name in fairs etc, is not speaking against an indemnity. This is even more the case as he even used the name of the supplier in the first place.
3. The obligation to buy a certain amount of goods is not in any case necessary. On the one hand, it is not relevant that specific criteria are missing. On the other hand, the distributor had the duty to promote the sales of the products anyhow.
4. The fact that the distributor – in specific cases – sold its own products or other products does not cancel the competition clause. The distributor always asked for approval in advance. In this respect the Supreme Court added that it is not relevant if the competition clause would not be valid according to the Regulation on vertical restraints (sec 5). The competition clause shows the aim of the parties to integrate the distributor into the sales organization.
5. There were additional aspects in favor of the distributor: he was the sole representative in Germany (and entitled to commission for direct sales), he had the duty to report about the market development and to participate to the trade fairs, to submit a sales plan, to ask for approval in advance for sub contracts.
6. It is not relevant if and to what extent the supplier used his right to give directives. The main fact is that, according to the contract, he was entitled to do so.

In the result, the Court of first instance has to go into the merits of the case and has to decide the amount of the indemnity the distributor is entitled to.

Gustav Breiter, agency & distribution country expert for Austria.