SPAIN: Agency vs. distribution agreements. Goodwill and lack of previous notice indemnities.

Ignacio ALONSO | SPAIN | 2015-09-15

Ignacio ALONSO

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The parties entered into a relationship at least 15 years ago with no written agreement. Therefore, the first question to solve was to decide about the nature of the agreement: agency or distribution.

The Court considered that there was in fact an agency agreement because it resulted from the evidences shown in the procedure that:

  1. the Principal conditioned the payment of commissions to the payments by final clients;
  2. the Principal offered a 3% discount for advanced payment;
  3. the Agent issued orders for some clients, and
  4. there were several claims for non-paid commissions and no evidences of invoices for the selling of products to the Agent

This said, the Principal sent a termination notice because of the “decreasing of sales” in the Territory although during the trial, the Principal argued as well that the termination was also due to the sales of competing goods by the Agent. According to this view, the Principal considered that the notice did not need to respect the minimum notice period.

The Court has decided, nevertheless, that no evidences were shown to prove (i) that the minimum turnover was agreed as an essential element in the relationship (no claims, in fact, existed in that sense), nor (ii) that sales of competing goods by the Agent had taken place. Therefore, in the absence of such evidences there was not a fair reason to terminate the agreement but a notice period was required.

For these reasons goodwill compensation as well as an indemnity for the lack of the notice period were due.

The Court has accepted the maximum of the possible goodwill indemnity (annual average of the last five years’ commissions) due to the following facts:

  1. the employee of the Principal (he was, in fact, the son of the owners), admitted that the Agent acted as such during that period and still was;
  2. after the termination the Principal had signed a new agreement with a new agent who will benefit (or was in the position to benefit) from the activity of the previous one, and
  3. the agreement has been in force for 15 years and there were no evidences that the clientele could have been obtained from other different sources.

On the other hand, the Court has also admitted the indemnity for the lack of the previous notice. Both of them (goodwill and lack of previous notice) are compatible and intend to compensate different situations. In order to calculate the lack of previous notice indemnity, the Court has accepted the annual average commissions calculated on the last five years instead of a less favourable for the Principal calculated on the average of the last semester.

 

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Ignacio Alonso, IDI agency & distribution country expert for Spain

 

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