Compensation upon the termination of the relation

“Extra charge as compensation when the collaboration in concluded”

Marcello Mantelli
Lawyer in Milan and Turin


The choice of working on the foreign markets through distributors is very widespread among the Italian companies and it is often revealed as decisive for the acquisition of new customers, with the clear expectancy of continuing to enjoy the package of customers even after the termination of the relation with the distribution. However, it is not commonly known that the distributor or licensee (the word here is used in an equivalent way) could be entitled, according to the national law or the jurisprudence of some European Countries, to a compensation of termination of the relation once the contractual relation is over.


The compensation can be defined as an additional sum (a premium termination indemnity/goodwill) to remit to the distributor in exchange of the profit composed by the contribution of customers and turnover which will remain in favour of the supplier. The amount of the compensation could result extremely serious for the supplier. So, it is fundamental to make an informed decision, intended to “demine” the playground previously arranging adequate contractual protections.

Three situations

The principal matter to solve is to establish whether the law provided in the contract, or the one applicable in the lack of choice, provides or not the right to such compensation. In case of distribution, it has not achieved a unitary regulation in the European field yet as instead happened for the agency with the directive Cee 86/653, with the consequence of:

– in some European countries a compensation upon the end of relation in favour of the distributor is not provided, unless it has been agreed upon in the contract;

– in some countries the compensation is provided by law;

– in other countries it has been introduced and regulated by judges applying in an analogical way the legislation on agency to the relation of sales concession.

Among the countries that do not recognize the right to compensation there are Italy and France. Our judges, actually, have expressly excluded the application (see Court of Cassation 20775/2007 and 20106/2009) in reason of its structure and economic function of the framework contract, in the contest in which the parties stipulate single purchase contracts (see the judgement of the Court of Cassation of the 26th July 2010, n.17528 and 19th February 2010, n.3990), structure and function that differentiate it from the contract of agency.

Belgium expressly recognizes (Heckert’s law of 1961 and following modifications) the compensation of customers to certain conditions (for example the open-ended duration of the relation or in presence of a repeated fixed-term contract). The burden of trying the constitutive elements of the right to compensation (as the increase in the business) is up to the distributor. The fixation of the amount of the compensation varies case by case since the law does not establish a minimum nor a maximum. The Belgian jurisprudence, in concrete, swings anyway between 6 months of net profit and 24 months of gross profit. If the Belgian law is applicable, the compensation of the end of relation is due both to the lack of agreement and in the presence of a contrary agreement.

Germany, Austria, Switzerland, Spain, and Portugal recognize the right to compensation of the distributor for jurisprudential elaboration. 

The German jurisprudence is unanimous in recognizing the compensation of customers in favour to the distributor, applying in an analogical way the dispositions in matter of agency. A prerequisite for the application is the presence of a contract in force of which there is such a rich integration of the distributor within the sales network of the supplier to make sure that the relation is admissible, under the profile of the functions performed (for example exclusive territory) and of the restrictions on the freedom of action (for example the obligation to respect the distributor’s marketing guidelines), to a commercial agent.

With regards to this, it has been identified various characterising elements among which: the promotion of sales on/according to precise indications of publicity, commercial and strategic nature of the supplier, the prohibition of selling competitor products, the exclusivity, the transfer/transmission of the customers list, the minimum of bargains and investments to perform the activity.

Among these, of relevant importance there is the transmission of the data base with the registrations of customers, transmission which can occur to contractual provision, on the initiative of the distributor or actually/de facto, as in the case of direct consignment of goods to the customers of the license holder from the supplier.

As for the amount, a minimum compensation is not expected, but a maximum plafond is provided: this cannot be greater than the amount of the annual margin calculated on the annual average of the profits of the last five years or on the average of the period. Progressively the amount, calculated the margin, it is parametrized in the same way as the criteria of equity or reasonableness, bearing in mind of all the circumstances of the concrete case (for example it is plausible to reduce the amount in light of/considering the impact of the prestige of the trademark and value/worth of the products in the contribution of the customers).

Based on the German teaching the Austrian jurisprudence has pronounced itself (see: 9 Ob 2065/96h; Ogh 6 Ob 251/98p; 2 Ob 155/06), the Swiss one (Federal supreme court 2008). On the Spanish side the prevailing Spanish jurisprudence (Supreme court 15th January 2008 and Supreme court 1st January 2008, later confirmed) and Portuguese (Supreme court of justice 13th September 2007) is inclined to recognize the right to the compensation of customers cut/shaped on the same criteria established by the German one.

Prevention and management

Therefore, to verify the presence or absence of the right to compensation it is necessary:

– to analyse the concrete development of the relationship in order to establish if it is part of the distribution or in another contractual type (as the supply);

– to consequently verify the competent judge to decide the dispute, the applicable law, and the jurisprudential orientations of the country where the distributor has his seat about the topic of compensation.

In order to avoid future concealed reasons of conflict with the distributor, bearers of enormous expenses for the company and consequent cases which emerge on the topic with the license holders, it is always appropriate to assess on an internal business-like level the situations which are actually taking place with the foreign distributor in countries at risk and importing contractual strategies aimed at overcoming the risks of economic conflict. If the claim of sums under this title has already been submitted, there should be extensive use to commercial and legal creativity to explore negotiable solutions to settle the future dispute.

Condividi su:

Leave a Reply

Your email address will not be published. Required fields are marked *

*

Marcello

Dear Aurelia, the information you have provided are not sufficient for an answer which is subject to a professional engagement. In any case, we should study the provisions of the contract and identify governing law of the contract.If it does not provide anything on governing law then conflict law shall apply (in the most part of the countries likely the governing law will be the law of the country where the agent is domiciled). best regards Marcello Mantelli

VAI AL COMMENTO
Aurelia

I signed a contract with a fashion agency but there were no termination clauses in the contract and decided to withdraw it before one week after signature so sent them an email but after 14 days they sent me an email and asserted that because i didnt withdraw in legal deadlines i have to perform the contract and pay whole money.Noboday told me about any deadlines and nothing was in the contract!! Why did they claim such a thing?

VAI AL COMMENTO

Follow Us