ITALY: Italian case-law on distribution and franchise contracts.

Silvia BORTOLOTTI | ITALY | 2013-07-15


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1)Tribunal of Bologna, May 4, 2012 – V. Arredamenti S.a.s. di V.F. & C.  v.  C. Group – Ali S.p.a.

In the case submitted to the attention of the Tribunal of Bologna, the parties concluded a distributorship contract, for the distribution and marketing by V. Arredamenti S.a.s. of the machineries produced by C. Group – Ali S.p.a.. Such contract contained, in particular, a clause according to which each party could terminate the contract, by giving a notice period of eight months to the other party; the contract also provided a clause of mutual exclusive right.
On the basis of the above mentioned clause, the supplier communicated to the distributor his intention to terminate the contract; consequently, the termination of the relationship took effect after eight months. During this period, the distributor informed the supplier that he suffered an interference within his exclusive area by a third party (i.e. another distributor of the network).

Following these events, the distributor started the Court proceeding against the supplier claiming a goodwill indemnity and also a compensation for alleged damages caused by the above mentioned interference operated by the other distributor.

The claim concerning the goodwill indemnity was based on the analogical application to the distributorship contract of the Italian rules, which grant to commercial agents a goodwill indemnity at the end of the contractual relationship.

The above mentioned claim was rejected.
In the opinion of the Tribunal, there is a difference between an agent and a distributor: the first one promotes the conclusion of contracts within a specific geographical area and he is very similar to an employee; the second one is a real entrepreneur, who concludes contracts for the sale of the supplier’s products. The said scheme, in the opinion of the Court, does not permit to apply the rules related to the agency contract also to distributorship agreements. While the similarity between the agent and the employee justifies the right of the agent to be granted a goodwill indemnity at the end of the contract, the similarity between the distributor and the entrepreneur, and particularly the fact that the latter assumes the risk of his activity, makes it difficult to reconcile the provision of goodwill indemnity with the scheme of the distributorship contract.

For the above described reasons, the Court rejected the distributor’s claim, denying the right of the latter to goodwill indemnity.
With regard to the distributor’s claim related to the compensation of the damages suffered as a consequence of the alleged interference operated by the other distributor of the network within his exclusive area, the Tribunal also rejected such claim for several reasons.

First of all, the Court stated that, according to the distributorship contract at issue, there was no obligation for the supplier to compensate the distributor for possible interferences within the exclusive territory made by another distributor of the network; the contract only provided the right of the distributor to be compensated under certain conditions by the distributor, who had interfered with his exclusivity,. Therefore, according to the Tribunal the supplier was not liable for breach of contract.</p>
<p>Moreover, the Court stated that the distributor did not provide sufficient evidence of the damages actually suffered as a consequence of the alleged sales made by the other distributor in his exclusive area.

Finally, in the opinion of the Court, the supplier’s behaviour (which allegedly allowed other distributors to interfere within the exclusive territory of the claimant) was not even relevant under the provisions of Articles 1175 and 1375 of the Italian Civil Code (which provide for a general obligation of good faith during contractual relationships); in this respect, the Court also considered the circumstance that, during the contractual relationship between the parties, the distributor had often interfered within the exclusive areas of other distributors without being sanctioned by the supplier.
Consequently, the Court rejected also the distributor’s claim of compensation for damages.

2)Tribunal of Bologna, July 16, 2012 – T. S.r.l.  v.  V.B. E P.P. – Agenzia di Lucca.

The second decision, which concerns a franchise agreement, was issued by the Specialized Section of IP rights of the Tribunal of Bologna. The decision clarifies the sphere of the competence of such Specialized Section, according to Legislative Decree No. 168 of 2003, concerning disputes on unfair competition. The Tribunal also specified the means by which a company arguing to have suffered a tort related to unfair competition (in this case, misappropriation of customers by the franchisee), has to prove such behaviour and the consequent damages suffered.

In the case at issue, the parties concluded a franchise agreement concerning activities related to road accidents. The franchisor challenged some contractual violations made by the franchisee who, through the creation of a new company, allegedly operated a misappropriation of the franchisor’s customers, also taking advantage of a misuse of the franchisor’s trademark.
The franchisor started a Court proceeding against the franchisee in order to obtain a Court declaration of his right to compensation for damages, for contractual and extra-contractual liability related to the franchisee’s conduct of unfair competition.

The defendant adduced the lack of competence of the Specialized Section of IP rights of the Tribunal of Bologna.
The Tribunal of Bologna clarified which are the effective limits of competence of the Specialized Section of IP rights, under Article 3 of Legislative Decree No. 168/2003.

In the opinion of the Tribunal, the misuse of the franchisor’s trademark was an adequate element for the declaration of its own competence. The Tribunal confirmed a principle stated by the Court of Cassation (decisions No. 12153/2010 and No. 9167/2008), which clarified that the competence belongs to the Specialized Section of IP rights in cases where a claim of unfair competition is accessory to a claim which concerns IP rights (in the case at issue, the misuse of the franchisor’s trademark).

Taking into account the above mentioned principle stated by the Supreme Court, the Tribunal of Bologna rejected the defendant’s claim related to its alleged lack of competence.

However, the Court rejected the franchisor’s claim on the merits.
Particularly, the Court stated that the franchisor did not sufficiently prove its claim, i.e. he neither indicated the names of the customers he sustained to have been misappropriated, nor he described the alleged illicit behaviour of the franchisee. The Tribunal stated that the behaviour of unfair competition cannot be deduced from an episodic behaviour of the franchisee, but such behaviour should have been a systematic appropriation of the franchisor’s customers, which in fact was not sufficiently proved by the latter.

3)Tribunal of Trento, May 14, 2012 – T.L.  v.  Universal S.r.l.

On May 14, 2012 the Tribunal of Trento issued a judgment concerning claims for nullity, annulment and termination of a franchise contract.
T.L. (an individual) and Universal S.r.l. entered into a franchise agreement, concerning the marketing of ecological heating systems.

The judicial action was started by T.L., who argued that the franchisor had violated both the Italian rules on franchising (i.e. Law No. 129 of 2004) and its contractual obligations. Particularly, the franchisee sustained that the franchisor did not respect the term (i.e. 30 days) that, pursuant to Law No. 129/2004 shall elapse between the provision of the pre-contractual information by the franchisor to the franchisee and the signature of the contract. Moreover, the franchisee argued that the franchisor did not provide him with any know-how nor technical or administrative assistance; that no advertising was made by the franchisor; and that the earnings were much lower than promised, while the costs were higher.

On the basis of the above, T.L. firstly claimed the nullity of the contract either because Universal S.r.l. did not provide him with any know-how (and, consequently, an essential element of the contract was missing); and because the franchisor’s behaviour should have been regarded as an abuse of economical dependence. The Court stated that T.L. did not provide a sufficient evidence of the alleged missing know-how. Moreover, the Tribunal maintained that, in any case, possible lack of know-how or abuse of economical dependence would not lead to the nullity of the contract, but only to a possible breach of contract.
Furthermore, T.L. claimed the annulment of the contract, under Article 8 of Law 129/2004. This Article allows the parties to claim the annulment of the contract (by referring to Article 1439 of the Italian Civil Code), and to claim compensation for damages, in case the other party has provided false pre-contractual information. To support its claim, T.L. argued that the franchisor promised high earnings and lower costs, compared with those effectively attainable.

The Court rejected the franchisee’s claim, stating that it did not provide sufficient evidences in support of it.
Finally, the franchisee claimed the termination of the contract for serious breach by the franchisor and the Court admitted such claim.
Particularly, the Court stated that during the judicial proceedings it resulted that the franchisor did not supply the necessary know-how, nor the technical assistance to the franchisee and, in addition, it charged the franchisee the costs of a national advertising that in fact was not carried out by the franchisor. The franchisor, in the opinion of the Court, did not give a sufficient evidence to the contrary.

By consequence of the above, the Court declared the termination of the contract and condemned Universal S.r.l. to damages. However, as far as the amount of damages was concerned, the Court limited it to the double of the initial fee paid by T.L. to the franchisor (i.e. € 40.000,00).

The three abovementioned decisions confirm that, in many cases, distributors and franchisees do not succeed in their claims, even where they appear to be well founded, because they are not able to provide sufficient evidence of the contractual and/or legal violations allegedly operated by their suppliers/franchisors as well as of the damages suffered as a consequence of those breaches.
<p>In fact, notwithstanding the protection provided to franchisees by Italian law, (and even when applying those protecting rules), Italian Courts are quite severe in evaluating the burden of proof of the franchisee and in most cases this approach de facto leads to a rejection of their claims.

4)Tribunal of Roma, March 17, 2012 – Punto telefonia s.n.c. v.  Wind telecomunicazioni S.p.A.

The Tribunal of Roma issued an decision related to an arbitration clause provided for in a franchise agreement.
Punto Telefonia S.n.c. and Wind Telecomunicazioni S.p.a. entered into a franchise agreement. Subsequently, the franchisee (Punto Telefonia S.n.c.) did not pay some invoices related to the supply from Wind Telecomunicazioni S.p.a. (the franchisor) of some goods. Consequently, the latter requested and obtained a payment injunction, that condemned Punto Telefonia S.n.c. to pay the relevant amount of money.
Following the issuing of the injunction, Punto Telefonia S.n.c. proposed an opposition to the latter before the Tribunal of Rome, arguing that Wind Telecomunicazioni S.p.a. could not request a payment injunction, because the franchise agreement entered into between the parties contained an arbitration clause.

The arbitration clause provided for in the contract stated: 

‘Every dispute which may arise between the parties and related to the interpretation or the performance of the contract will be solved through a friendly settlement between the parties.
If, after thirty days from the request of one of the parties through registered letter with return receipt, it has not been possible to achieve a satisfactory agreement for both parties, each party may request that the dispute be decided by arbitration, by giving notice to the other party’.

The Tribunal decided that the arbitration clause was to be regarded as a non binding clause, which left the parties free to alternatively have recourse to the ordinary courts.

The decision of the Tribunal, which was not supported by any specific argumentation, is certainly criticisable, since the purpose of the arbitral clause is precisely to exclude the jurisdiction of national Courts. However, it can be noted, that the arbitral clause at issue – which provided for an ad hoc arbitration, and did not referred to any particular arbitral institution – did not include any information concerning the arbitration proceeding (e.g. appointment of the arbitrators; etc.): such aspect could more likely have been considered as an argument for challenging the validity of the clause.

Finally, even if the abovementioned decision did not specifically deal with this aspect, in our opinion it is important to consider – from the point of view of a foreign franchisor entering in a contract with an Italian franchisee, pursuant to which the franchisee is also purchasing products by the franchisor – the possibility to expressly exclude by the scope of the arbitral clause (which is normally provided in international franchise agreements), the sales contracts to be concluded between the franchisor and the franchisee, within the framework of the franchise agreement. By following this strategy (particularly in the absence of an enforceable payment guarantee issued by the franchisee), in case of lack of payment by the latter, the franchisor would have the right to obtain a payment injunction from the competent Italian Court of the seat/domicile of the franchisee, which is normally granted within a short period of time (about one/two months, depending on the competent Court).

Silvia Bortolotti, Council Member and Secretary General IDI.

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