SPAIN: Agency agreement – Goodwill indemnity (reasonable forecast) and Damages indemnities (investments made and collective dismissal of the Agent).

Ignacio ALONSO | SPAIN | 2014-01-16

Ignacio ALONSO

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The facts can be summarised as follows. The parties [DANOINERFA (Agent) and INDUSTRIAS LACTEAS DE CANARIAS SLA (ILTESA, the Principal)] have agreed a contractual relationship since 1984 and terminated in 2008. The Principal terminated the agreement giving a six months previous notice and the Agent decided to claim for several amounts: (a) a goodwill indemnity (983.000 euro), (b) damages indemnity due to the purchasing of a warehouse for the activity (242.000 euro) and (c) damages indemnity for the termination of the agreement and the collective dismissal (75.000 euro).

The agreement was initially signed by a physical person, then by a partnership including the same person and his sons and finally by a commercial company. The agreement was terminated by a six months previous notice but the Agent had to dismiss some employees. During the terminating period of six months, the vehicles were controlled and traced by the Principal in order to learn the routes and its way to work, and some of the dismissed employees were hired by new agents.

The first question was the legal consideration of the agreement. Although the agreement was called “agency agreement” the Principal considered that it was in fact a mere logistic agreement and the Agent’s activities were, amongst others, the stock and replacement of goods and the assistance in the communication of consumptions. According to his version, clients belonged to the Principal and were incorporated to a special list given to the Agent.

First Instance Court considered that it was not proved that the Agent obtained clients to the Principal and that the Agent was, in fact, a Distributor and for that reason, the clients belonged to the Principal: the relationship did not produce increasing of clients or sales with the previous ones. Damages for the warehouse purchase and the collective dismissal were neither accepted because the building could be used for other purposes and because the Principal had given a six months previous notice.

Court of Appeal (AP Tenerife of May 6, 2011) revoked the First Instance decision accepting almost all the indemnities asked by the Agent (except by reducing the damages indemnities for the purchasing of the warehouse to a half of the initial amount). This Court decided that, independently of the kind of agreement (agency, distribution or any other) the discussion was on the consequences of the termination accepted by both parties. The Court of Appeal considered proved that the sales were significantly increased, new clientele was obtained, parties had agreed an exclusivity clause, there was a prejudice for the Agent and a benefit for the Principal and a transfer of the clients from the Agent to the Principal. Therefore, goodwill indemnity was granted. Damages indemnity due to the purchase f the warehouse was reduced due to the difficulties for its sale. And damages suffered for the collective dismissal were also accepted in accordance with article 29 of the Agency Agreement Act.

The Supreme Court has partially accepted the conclusions of the Court of Appeal. In its decision this Court has considered:

(a)   The Agent had a relationship with the Principal since 1984. This initial agreement included the obligation for the Agent to have the necessary means to develop its activities.

(b)   The routes followed by the Agent were previously agreed with the Principal visiting customers and the Principal has traced them during the previous notice term.

(c)   The Agent has accepted during several years the risks of the transactions involved, being compensated with guaranty commissions.

According to the Agency Act, and in order to obtain goodwill indemnity it is necessary to justify the increasing of clientele or the operations with the previous existing one. The Supreme Court has considered that this also exists when there is an “increasing of sales” and that it is enough a mere potential appreciation of its evolution. In this case, considering the products concerned, the possibility of substitution by others of the same Principal, and the evolution of the operations during the life of the agreement (from 123.000 € in 1986 to 8.530.000 € in 2008) the Court considered to reasonably forecast the future benefits to the Principal.

Damages indemnity for the acquisition of the warehouse. The Supreme Court has considered that only “confidence expenses” or investments not still amortized are acceptable and for that reason, this indemnity is not acceptable when real estate investments can be assigned to other activities, its sale, or its rent.

Damages indemnity for the collective dismissal of the Agent’s employees has been accepted although based in a different legal disposition. The Court has considered that article 29 of the Agency Act was not applicable but the general one of 1101 of the Civil code (indemnities for any other damages suffered). The Principal’s conduct tracing the routes of the Agent during the six months termination period has to be considered almost as unfair competition, contrary to the good faith and against the legal standards in the proximity of the termination of a lengthy contractual relationship.

Ignacio Alonso , IDI agency & distribution Country Expert for Spain.

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