EU: Termination of Oral Agreements with Resellers/Distributors.

Fabio Bortolotti | EU | 2016-09-14

Fabio Bortolotti

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1.  The legal nature of long-standing relationships with resellers

In cross-border commerce it is rather common to face situations where a supplier sells on a continuative basis his products to a company which resells them in a certain territory, without having signed a long-term agreement. The parties simply conclude a series of individual contracts of sale, without expressly regulating the long-standing relationship, which has in the meantime been established between them.

However, after a certain period of time, such business relationship will almost inevitably give rise to a legal relationship between the parties, i.e. to an oral agree­ment (”framework agreement”) implying certain rights and duties of the respective parties, which go beyond those arising out of each individual contract of sale.

In particular, the reseller will be able to invoke the existence of an implied agree­ment granting a certain continuity of the relationship, and consequently his right not to be terminated without a reasonable notice. And, where the reseller has undertaken a number of additional obligations regarding the distribution of the supplier’s products, it may be held that the parties actually entered into a non-written distributorship agreement, which implies certain rights to the reseller/distributor (period of notice, goodwill indemnity, etc.,) depending upon the applicable national law.

In most cases the supplier is unaware of this situation. Usually, he will rather believe that he has only been dealing with the reseller through a number of consecutive contracts of sale and that he is free, at any moment, to stop dealing with his counterpart. He will consequently not feel the need to formalize the relationship with the reseller by concluding a written contract, which could regulate certain important aspects, such as the applicable law and the competent jurisdiction.

This is why the parties will not have agreed a choice of court clause (and the clause, if any, contained in the individual contracts of sale will normally not be applicable to the tacit framework agreement). Actually, when the supplier interrupts the relationship, and the reseller decides to bring a claim for unlawful termination, the reseller will try to bring the dispute before his own courts, while the supplier will try to obtain the opposite result.

Now, this is precisely the issue examined by the Court of justice with respect to the rules on jurisdiction of the European Union (Brussels I Regulation, n. 44/2001, now replaced by Regulation 1215/2012, which maintains similar rules on jurisdiction).


2.  The case decided by the Court

The French company Ambrosi has been distributing for approximately 25 years the products of the Italian company, Granarolo. Except for the individual con­tracts of sale entered into between the parties, no written agreement gov­ern­ing their relationship had been concluded. On 10 December 2012, Granarolo informed Ambrosi by registered letter that as of the 1st of January 2013, its products would have been distributed in France by another company.

Taking the view that that letter amounted to an abrupt termination (rupture brutale) of their established business relationship, which under French law (Article 442-6 of the Commercial Code) en­titles the terminated party to damages, Ambrosi brought a claim before the tri­bu­nal de commerce of Marseille, which declared its jurisdiction on the ground that the action arose from tort and that, consequently, the competent court of the place of business of Ambrosi (the place where the harm occurred) had jurisdiction on the basis of article 5(3) of the Brussels I Regulation. This is due to a particularity of French law under which such claim is classified as non-contractual (in tort) even when it arises in the context of the termination of a contract.

Against the decision of the Court of Marseille, Granarolo made an application to the Cour d’Appel de Paris, on the ground that the dispute related to a contractual action and that consequently the jurisdiction should be determined according to Article 5(1) of the Brussels I Regulation, which lays down as a connecting factor the place of delivery of the goods. Since the goods had always been delivered under the trade term “ex works” at the premises of Granarolo, the Court of Bologna should have had jurisdiction.

There are no doubts that under French law an action based on Article L. 442-6 of the Commercial Code is an action in tort, but the question is whether it can be classified in the same way for the purpose of Article 5 of the Brussels I Regulation, which makes a distinction between “matters relating to a contract” (Article 5(1)) and “matters relating to tort or delict” (Article 5(3)). Since the provisions of the Regulation must be inter­preted autonomously from national law, the Court of Appeals decided to stay proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:

  1. Must Article 5(3) of the Brussels I Regulation be interpreted as meaning that an action for damages for the termination of an established business relationship consisting in the supply of goods for several years to a distributor without a framework contract or an exclusivity agreement is a matter relating to tort or delict?
  2. If the answer to the first question is in the negative, is Article 5(1)(b) of that regulation applicable in determining the place of performance of the obligation at issue in the first question?


3.  The first question

The question whether a claim for damages in case of termination of an established relationship may be considered as an action in tort, falling under Article 5(3), thus entitling the claimant to bring the action before the courts of the place where the harmful event occurred or may occur, arises mainly because of a particularity of French law which has construed this type of action as an action in tort, irrespective of the existence of a contractual relationship.

Actually, in almost all cases, the right to damages for rupture brutale, will arise in the context of the termination of a contract. When this is the case, the issue which arises is whether the claim should be considered as having a contractual nature for the purpose of applying the Brussels I Regulation, i.e. whether jurisdiction should be determined under Article 5(1), which applies to “matters relating to a contract”.

The question is crucial, since different answers may lead to substantially different results. In particular, if Article 5(1) applies in the context of a contract of sale (like in this case), the court having jurisdiction under that Article will be the court of the place where the goods were delivered or should have been delivered.

According to the Court of justice, in order to determine whether Article 5(1) is applicable, it must be ascertained whether the action brought before the court is contractual by nature, irrespective of its qualification under national law, and in particular whether the disputed conduct constitutes a breach of contract.

This means that, if the long-standing relationship existing between the parties may be qualified as a tacit contractual relationship, such as to entail contractual liability, the action for damages will be considered as a contractual one, falling under Article 5(1) of the Brussels I Regulation.

On the basis of this reasoning, the Court answered the first question as follows:

Article 5(3) of Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters must be interpreted as meaning that an action for damages founded on an abrupt termination of a long-standing business relationship, such as the termination at issue in the main proceedings, is not a matter relating to tort, delict or quasi-delict within the meaning of that regulation if a tacit contractual relationship existed between the parties, a matter which is for the referring court to ascertain. Demonstration of the existence of a tacit contractual relationship of that kind must be based on a body of consistent evidence, which may include in particular the existence of a long-standing business relationship, the good faith between the parties, the regularity of the transactions and their development over time expressed in terms of quantity and value, any agreements as to prices charged and/or discounts granted, and the correspondence exchanged.

This means that, whenever there is evidence that the “long-standing business relationship” implies a tacit contractual relationship, because it gave rise to tacitly agreed obligations between the parties, a possible action for damages based on an abrupt termination must be considered as contractual. In fact, this situation will almost inevitably arise after a certain period of time in cases where a producer sells on a continuative basis his products to a reseller of another member state. And, even more, this will be the case when the reseller is entrusted with the distribution of the products in a given territory.


4.  The second question

If the long-standing business relationship between the parties must be qualified as contractual and consequently subject to Article 5(1), it will be necessary to decide whether it is to be qualified as a “contract for the sale of goods” or as a “contract for the provision of services”. In the first case the courts of the place of delivery of the goods will have jurisdiction, in the second case, the courts of the place where the service is provided. This means that in the first case the supplier may have a chance to claim before his own courts (if he proves that delivery was agreed at his place of business), while in the second case the courts of the reseller, i.e. of the place where the distribution service is provided, will in any case have jurisdiction.

The Court of justice, also referring to the Corman-Collins case (case C-9/12) which dealt with the issue whether a long-standing relationship between a supplier and a reseller could be considered as a distribution contract and consequently as a contract for the provision of services, answered the second question as follows:

Article 5(1)(b) of the Brussels I Regulation must be interpreted as meaning that a long-standing business relationship, such as that at issue in the main proceedings, is to be classified as a ‘contract for the sale of goods’ if the characteristic obligation of the contract at issue is the supply of goods or as a ‘contract for the provision of services’ if the characteristic obligation is a supply of services, a matter which is for the referring court to determine.


5.  Conclusions

The Granarolo case answers a number of important questions regarding the (rather common) situation where a supplier establishes a long-standing relation with a reseller of another member state of the European Union, without submitting such relationship to a written “framework” contract.

The most interesting and innovative consideration made by the Court is that a long-standing business relationship made out of a number of sale contracts repeatedly entered into for a long period of time, may give rise to a non-written framework contract. This principle is generally accepted in most national legal systems, with reference to distributorship agreements, i.e. when the reseller undertakes certain typical obligations regarding the distribution of the supplier’s products. However, up to now less attention has been given to situations where, within the context of a simple buyer-seller relationship, the parties agree on additional issues regarding the future con­tracts, such as, for instance, general conditions applicable to all future deals, acceptance of future orders, etc.. Would it be possible to argue that in these cases the parties have tacitly agreed to enter into a framework agreement which cannot be terminated without a reasonable notice?

The most likely answer is that such conclusion cannot be drawn from the Granarolo judgment of the Court of justice, because the Court was dealing with the interpretation of rules regarding jurisdiction and also because the question in dispute concerned a very particular rule of French law.

However, the fact remains that the considerations of the Court may pave the way for a further analysis of the possible consequences of establishing long-term relationships with customers, without regulating within a written framework agreement the aspects which go beyond the individual sale contracts. It may therefore be advisable to consider this type of situations with special care in order to decide whether it would be appropriate to formalize them in writing and in particular to establish in advance which court should have jurisdiction in case of dispute and which law should govern the long-term relationship.


Fabio Bortolotti, IDI country expert for Italy


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