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1. Introduction:

The Draft Bill for the Law on Distribution Contracts was published in the Official Gazette of Spanish Parliament on 29th June 2011. Up until now, distribution contracts have been regulated by the Civil Code, the Commercial Code and to a lesser extent, Agency Law and the Law on Retail Trade, although they have been lacking any specific regulation. The Bill answers to the need to regulate the distribution sector, taking into account the radical changes occurring in recent years at the mercy of new elements such as the Internet market, remote sales and market globalisation.

2. Legal Regulation:

Although the text now available will probably not be the same text which is approved following parliamentary discussions, we may highlight the following points of interest:


a) To improve transparency in the sector and boost the competitiveness of the participants.

b) To reduce the growing conflict in the sector, arising from the clash between the new reality of the markets and the traditional structure of the contracts.

c) To establish clear and transparent contracting rules, thus providing a basic legal structure to commercial relations scarcely regulated by written contracts or not regulated at all.

Prominent matters:

1) The principle of freedom of agreement as an inspirational criterion for operators in the distribution sector, warning that the modifications and novations of contracts shall be carried out by the mutual agreement of the parties, although they should always be driven by reason and should not incur discrimination or abuse of dependency.

2) Likewise, the Bill calls for the submission of distribution contracts to the rules of Competition Law.

3) The Bill anticipates the arrival of new sectoral Codes of conduct, which shall be promoted by the Public Administration. The Bill does not detail to which documents it refers, nor whether the expression “promoted” implies a direct promotion or rather a simple push so that they are approved by sectoral operators.

4) Fixing of stocks or minimum supply levels: the supplier may fix the amounts it considers appropriate, based upon market forecasts. In case of divergence, the arbitration systems set forth in the Law shall be reverted to.

5) Territorial exclusivity: territorial exclusivity pacts must precisely specify the area or geographical zone assigned and in case of doubt the widest possible zone shall be interpreted. The Bill calls to mind the legality of passive sales to buyers from other non assigned territories.

6) Direct sales: when the supplier wishes to count on the right to sell directly to third parties in the assigned territory, it must be so expressed in the distribution contract.

7) Internet sales: the supplier may not prohibit the distributor from making Internet sales, unless for public health or consumer safety reasons. However, the supplier may establish prior conditions thereto.

8) Assignment of the contract: the supplier may not refuse the assignment of the contract when the assignee belongs to the same distribution network as the supplier and undertakes to maintain the organisation and distribution resources used by the assignor.

9) Duration: the contracts must have a minimum duration sufficient for the  redemption of the investment necessary for the fulfilment of the agreed objectives.

10)  Cancelation of a permanent contract: written notification with one months’ notice per year of validity of the contract shall be sufficient.  However, when the termination is on the part of the distributor and the sales of the latter or his group of sales amount to more than half of the production of the supplier, the advance notice must be at least 6 months.

11) In cases of non-fulfilment, the parties must grant a rectification period of at least 30 days.

12) Compensation upon cancelation of the contract:

a) If terminated by one of the parties, without just cause, adequate  compensation to make up for the damages suffered and accredited by  said termination.

b) If terminated without respecting the advance notification terms,  compensation shall be granted corresponding to the part of the investment  which it is not possible to redeem.

13) Indemnification to compensate for the clientele generated by the distributor  during the duration of the contract shall not apply.

3. Conclusion:

• Distribution contracts are specifically regulated for the first time with explicit reference to multilevel sales and franchise contracts, thus covering a legal vacuum.

• The amicable resolution of conflicts is brought about through the establishment of an obligatory period for the correction of a breach of contract, as well as the promotion of sectoral Codes of conduct. The lack of definition regarding the legal responsibility and nature of said Codes is reprehensible.

• The method of terminating contracts is clearly regulated.

• Compensation has been regulated although doubts remain regarding the assessment thereof in practice.

• The assignment of the distribution contract is permitted provided that it takes place between the distribution company and another company forming part of its integrated network and certain requirements are fulfilled.

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