SPAIN: Commercial agency. Non-attainment of minimum sales and lack of agreement for next year’s targets, but with goodwill compensation.

Ignacio ALONSO | SPAIN | 2016-10-13

Ignacio ALONSO

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The Court has nevertheless granted the goodwill compensation to the Agent.

The Court of Appeal has declared that it had been proved:

  1. The parties had signed an agency contract.
  2. It was also proved that the Agent did not reach the targets in 2013 (sales were a 33% of the previous year). There was a clause in the contract such as:

The Manufacturer may terminate the contract by giving written notice to the Agent if it does not reach the minimum sales targets agreed annually in Annex IV. The lack of termination of the contract by the Manufacturer for this reason in a given year does not imply any waiver to do it in further moments.

  1. The Agent did not accept to sign the new objectives for 2014 because of the economic crisis of the sector and though the contract contained a clause such as:

Parties will agree annual sales targets for the following year, always taking into account the volume of transactions carried out in the immediately previous year […] Sales targets should be agreed by mutual consent fifteen days before the end of the year. If no agreement is reached on the sales target for a given year, either party may choose terminate this contract by notifying the other with a minimum notice of two months.

  1. Therefore, the Court decided that the termination was clearly appropriate not only because of the lack of agreement on setting the targets for 2014 but also for the minimum sales not reached in 2013.
  2. The Agreement also contained a clause stating that

when the contract is extinguished for reasons not attributable to the Agent, the Agent shall be entitled to compensation if and to the extent that it has created new customers or significantly increased operations with the existing clientele and its previous activity can continue producing the company substantial benefits and attend the other circumstances contemplated for this purpose in the art. 28.1 of Law 12/1992.

All this said the Court also considered that the Agent had increased the number of clients, the volume of sales and that his activity could still produce benefits on the Principal because it was appointed a new agent who continued working with previous clients.

The Court considered all these circumstances and decided that the main reason to terminate the contract by the Principal was the lack of agreement for the targets in 2014 (because it was given a previous notice of two months instead of an immediate termination) although the Principal also mentioned the non-attainment of 2013 objectives but in bad faith. And according to the Court this was done in order to benefit the clientele already created and in order to avoid goodwill compensation.

And for these reasons, and although it could have seemed that by virtue of the Agency Act and the clauses themselves no goodwill compensation was due because of the breaching of the Agency Contract by the Agent, the Court granted a goodwill compensation to him.

Ignacio Alonso, IDI agency & distribution country expert for Spain

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