ITALY: A recent judgment on distributorship contracts.

Irene Grassi | ITALY | 2011-09-15

Irene Grassi

View CV

The case concerned an exclusive distribution contract concluded for a defined period of time and contained termination clause in case of failure of the distributor to achieve the agreed sales target. The manufacturer terminated the contract (before it expired) with immediate effect, due to the fact that the agreed target had not been achieved in one calendar year.

One of the issues raised by the distributor regarded the interpretation of the termination clause, which resulted poorly drafted and unclear: it contained an obligation of the distributor to sell a minimum quantity of products in one calendar year; an obligation for the parties to agree on a minimum quantity of purchases for each year; the right of the manufacturer to terminate the contract if the distributor was not able to accomplish at least 80% of the yearly minimum sales target.

According to the distributor, the clause had to be interpreted literally, meaning that the target had to be calculated in terms of sales from the distributor to its customers; the distributor therefore claimed that according to this interpretation the target has been reached.

The Court stated that the termination clause must be read in accordance with the principles for contract interpretation contained in the Italian Civil Code, which oblige the judge to evaluate the contract or the clause as a whole, according to the nature of the business relation of the parties and without being bound by the terms used by the parties. The main principles applied by the Court are as follows: i) the contrat or the clause should be interpreted sistematically and consistently; ii) any ambigous clause should be interpreted according to the use in commercial practice; iii) any ambigous clause should be interpreted according to the nature of the contract.

According to the above listed principles, the Court rejected the claim of the distributor.

The judge considered that, reading the clause as a whole, and in relation with other clauses contained in the contract, it is clear that the reference is made to the relation between the manufacturer and the distributor and not between the distributor and the customers.

Moreover, in reference to commercial practices and to the nature of the distribution contract, the Court made clear that such contract normally protects the interest of the manufacturer to stimulate sales growth in a certain market, without supporting costs of sale and after-sale services, in exchange for the exclusivity and a margin of profit granted to the distributor. The judge concluded that such economical interest is consistent with a clause which obliges the distributor to purchase a certain quantity of goods from the manufacturer.

Such being the sense of the termination clause, the Court – in accordance with the conclusions reached by an expert reagarding the turnover in the concerned period – decided that the target was not attained and that termination was justified.

Irene Grassi, IDI Member.

Print this article