When does a purchaser/reseller become a distributor? Considerations after the Corman – Collins judgment of the European Court.
The first presentation (cf. presentation by Didier Ferrier) has distinguished three types of situations corresponding to the matter:
- An occasional relationship corresponding to an occasional sale or sales,
- A regular relationship corresponding to successive sales in a steady commercial relationship,
- An organized relationship corresponding to successive sales under a contract with reciprocal obligations for the supply and marketing of products.
In the first case (a) the only rules are those applying to the sale contract. It is worth noticing that in some countries these rules may be supplemented by a special protection of the economically weaker party against significant imbalance.
In the second case (b), the rules for the sale are applied, sometimes with some other rules because of:
– the continuity of the ‘business relationship’ (as in France, the system of ‘abrupt termination’),
– the existence of obligations placing the parties in a relationship similar to that of a distribution agreement.
In the third case (c), the rules for the distribution agreements apply to the relationship, especially for the distributor’s protection (cf. the analyse in the report by Leslie K. L. Thiele for the franchising in the United States)
Therefore in order to set up which rules to apply to a distribution agreement, it is necessary to establish when the relationship has become a distribution agreement (1) but also what is the qualification of the contract because the applicable law will depend on this qualification(2).
1. When a relationship becomes a distribution agreement
A broad definition of the distribution agreement is generally used (in EU cf. the presentation by Raimond Emde and the report by Olga Sztejnert-Roszak, for the US cf. the report by Leslie K. L. Thiele):
A distributor is a merchant whose business is integrated in the system of distribution of the manufacturer (supplier, grantor), and who is committed to regularly promote and sell products in the contractually agreed territory and display advertisements and brand signs of the manufacturer, and who bears the commercial risks following from this.
However, there is an ambiguity created by judges, in particular with EU Corman – Collins case (19.12.2013, C-9/12, hereinafter “Corman – Collins case”), by defining the distribution agreement through the notions of ‘typical obligations’ or “specific terms concerning the distribution” without explaining what are exactly these obligations or terms (cf. the presentation by Gustav Breiter, Bieke Noels and Christophe Héry).
According to the definition of the court, a distribution contract is:
• a “framework agreement” vs. an informal commercial relation (§28 of Corman – Collins case),
• which purpose is to “ensure the distribution of the grantor’s products” (§27 of Corman – Collins case),
• where “the grantor undertakes to sell to the distributor the goods to be ordered (…) while the distributor undertakes to purchase from the grantor the goods he needs” (§27 of Corman – Collins case),
• with two characteristics:
– “lays down the general rules applicable to the future relations between the grantor and the distributor as to their obligations of supply and/or purchase and prepare the subsequent sales agreement” and
– “specific terms concerning the distribution by the distributor of the goods” (§2 of Corman – Collins case), refer to the opinion of the Advocate General.
Some criteria defining distribution are obvious: obligation to promote the interests of the manufacturer, obligation to organise the business according to the instructions of the manufacturer, respect of specifications regarding the sale and service rooms, furniture, layout and size, display of brands, obligation of stock keeping, training of distributor‘s employees by the principal, instructions regarding accounting, obligations to report, obligation to comply with instructions on advertisements, including an agreed budget, provision of advertising material
Other criteria remain unclear as for example ‘services’ rendered by the distributor and “typical obligations’ mentioned in §27-28 of Corman – Collins case.
Consequently a distribution agreement may be assimilated to a service agreement.
Indeed a service agreement is:
– According to the Falco case (23.04.09, C-533/07): there is a service agreement if a particular activity is carried out (the distributor carries out the distribution of the supplier’s products, and distributor is able “to offer clients services and benefits that a mere reseller cannot “ thanks to the supply guarantee and maybe its involvement in the supplier’s commercial planning). And in Corman – Collins case it is specified that no longer a specific activity rendered to the co-contractor is required but services and benefits offered to… third parties,
– According to the Falco case (23.04.09, C-533/07), there is a service agreement if a remuneration is paid for in return (all those advantages, which existence is for the court adjudicating on the substantive action to ascertain, represent an economic value for the distributor that maybe regarding as constituting remuneration and advantages: selection of the distributor (on an exclusive basis?), assistance of the distributor with advertising, transfer of know-how through training, payment facilities). And according to the Corman – Collins case : no longer money payment is required but various advantages granted by one party to the other.
The speakers (cf. reports Leslie K. L. Thiele and by Ignacio Alonso) and the participants of the workshop have tried to find solutions in order to avoid or limit the application of its own distribution law system and in order to treat related risks as for instance contract termination, modification of the network or modification of the distribution conditions.
2. The crux of applicable law and competent judge
The question on the nature of the contract determines the applicable law and competent jurisdiction.
From the qualification of the distribution agreement and broader, the service agreement rather than sales contracts depends the determination of the competent jurisdiction and the law applicable to international contracts in EU (Brussels I and Rome I apply). It was precisely the issue in Corman – Collins case. This case was presented as a Pandora’s a box because the applicable law or the interpretation of the judge may lead to a different qualification than this initially chosen for the determination of this law or of this judge and therefore a legal uncertainty is created (cf. presentation Pedro da Costa Mendes – stressing not only risks in matter of distribution agreements but also in matter commercial agency).
The Regulation 44/2001 (Brussels 1) and the Regulation 593/2008 (Rome 1) should be combined at the European level. Both of them demand to distinguish between a simple contract of sale and distribution contract.
The difference between a commercial relationship or a simple contract of sale and a distribution agreement is based on considerations of certain obligations of the distributor and the principal. These obligations would be assimilable to services therefore the issue of the qualification of the distribution agreement as a service contract and not as a contract of sale.
In accordance with the Regulation 44/2001 (Brussels I) on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, the art. 5, a person domiciled in a Member State may, in another Member State, be sued:
(a) in matters relating to a contract, in the courts for the place of performance of the obligation in question;
(b) for the purpose of this provision and unless otherwise agreed, the place of performance of the obligation in question shall be:
– in the case of the sale of goods, the place in a Member State where, under the contract, the goods were delivered
– or should have been delivered in the case of the provision of services, the place in a Member State where, under the contract, the services were provided or should have been provided;
In accordance with the Regulation 593/2008 (Rome I), Article 4(1) on the law applicable to contractual obligations if the law applicable to the contract has not been chosen :
a) a contract for the sale of goods shall be governed by the law of the country where the seller has his habitual residence;
b) a contract for the provision of services shall be governed by the law of the country where the service provider has his habitual residence; (…)
f) a distribution contract shall be governed by the law of the country where the distributor has his habitual residence;
If the relationship is treated as a sale then the competent court would be this of the Member state where under the contract the goods were (or should be) delivered and the applicable law would be this of the place of the seller’s residence.
If the contract is treated as the distribution agreement then the competent court would be this of the Member state where under the contract the services were (or should be) provided and the applicable law would be this of the place of the distributor’s residence (cf. report by Ignatio Alonso and presentation by Gustav Breiter, Bieke Noels and Christophe Héry).
When the contract or the commercial relationship is qualified as a distribution agreement, the supplier will largely risk (as per Corman – Collins case):
1) to be sued by distributors before the courts of the distributors, and
2) to have distributors benefiting from any protection eventually provided by the law/caselaw of their countries.
Henceforth, the absence of written contract and of choice of competent court/applicable law, might well mean 1) courts of the distributor and 2) law of the distributor (most of the times).
It appears from general discussion with all participants the necessity to provide a good forecast of the future dispute treatment by determining the applicable law and the competent judge, especially arbitrator, to avoid this legal uncertainty.
Obviously it is preliminary essential for each party to assess what law and what judge it want to chose or to accept.
Dorota Wiellowicz, Yves Rocher