SPAIN: Distribution agreements. Termination for non attainment of minimum targets.

Ignacio ALONSO | SPAIN | 2009-01-16

Ignacio ALONSO

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The parties, MEDINA METAL, S.A. (Principal) and CUBIERTAS Y ACCESORIOS VITORIA, S.L. (Distributor) had signed an exclusive distribution agreement in January 25th 1996 and January 21st 1998. In this agreement the Distributor was obliged to attain minimum sales of 1.683.000 euro. The contract also included a penalty of 2.5% on the difference between the real sales and the minimum agreed. The real volume of sales was of 1.206.000 euro and for this reason, the Principal decided to terminate the agreement claiming the payment of the penalty. The Distributor argued that the amount was not obtained because: (a) the Principal did not respect the exclusivity clause by selling directly to the final clients in the exclusivity area, and (b) because the Principal delayed the delivery of the contractual goods.

First Instance Court and the Provincial Court of Alava (this one in a sentence of November 3rd 2000) accepted the arguments of the Distributor. Provincial Court considered that according to the evidences shown in the procedure (mainly the expert exam of the sales made in the area by the Principal and some witnesses), MEDINA METAL had not respected what was agreed in the exclusivity clause. The Court declared that the direct sales had been proved and that was against of the exclusivity granted to the Distributor. If the Principal had not respected this exclusivity by his direct sales, he could not ask the Distributor to attain the minimum sales. The conclusion was, therefore, that one of the reasons why the Distributor had not been able to achieve the minimum sales was the direct sales by the Principal.

On the other hand, the Provincial Court also considered that the delay in the delivering of goods was proved by the experts. This had provoked the loosing of clients, the increasing of the costs of some of the deliveries and the cancellation of orders and therefore this was a second reason why the Distributor had not been able to attain the minimum sales.

The Supreme Court in the sentence of July 2nd 2008 confirmed the decision of the Provincial Court. The Court in fact considered that according to its own case-law it is not possible to conclude that the exclusivity granted to a distributor implies the possibility for the Principal to directly sell to the clients in the same area. Distribution contracts, according to the Supreme Court, usually include the exclusivity clause, positive and negative: the obligation not to sell to different distributors and not directly sell in the same region. It is nevertheless necessary to verify in the contract and in the relationship between the parties whether these direct sales are or are not permitted. The Court concluded that this verification had been done by the previous courts declaring that the Principal was not authorised to directly sell in the region granted to the exclusive Distributor: the consequence was the difficulty for the distributor to achieve the minimum sales agreed. The Supreme Court settled that the conclusion of the Provincial Court on the facts was not against the good faith and the logical sense and therefore it had to respect its decision.

This said, the Distributor also argued that the impossibility to attain the minimum sales was also due to the delays in the delivery of goods. The Supreme Court has stated that these facts have not been denied by the Principal in this appeal and, therefore, the conclusions of the Provincial Court have also to be confirmed.



Ignacio Alonso, IDI Country Expert for Spain.



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