One of the essential characteristics of the distribution contract, an atypical commercial contract, is the conventional system of causes for termination, as well as its revocability solely on the part of one of the contracting parties in case of contracts of an undefined duration.
Since distribution contracts do not have a specific regulation, they are regulated, because of similarity, by the provisions of the Agency Act of 1992, and especially by a substantial body of case law. Perhaps the most conflictive question regarding this type of contract are the consequences derived from contract termination and especially the legal basis and quantification of compensation for clientele.
The High Court, once again addresses this matter in a recent Judgement of 30th May 2016 (Brugal Rum case), clarifying some of the concepts for the calculation of the maximum compensable amount.
First of all, the judgement states that the provisions of article 28 of the Agency Act are applicable to this case, subject to a number of nuances. Said article does not specify the exact amount to be received by the agent/distributor, it only establishes a maximum. The question lies in determining whether or not, when mentioning “remuneration”, it should be understood that it refers to the total amount received by the entrepreneur as monetary compensation, and therefore gross and not net remunerations (High Court Judgement of 3rd June 2015).
The criterion of retribution as gross profit which applies to the case of agents, may be born in mind in the case of distribution contracts, but as outlined in High Court Judgement of 22nd February 2010, the particularities of the distribution contract must be taken into account. That is to say, the above may operate as a primary indicative criterion, however it must be subordinated to the particularities of the distribution contract itself. A judgement of 22nd June 2007 acknowledged that compensation for clientele “constitutes a considerable loophole in the regulation of extinguishing the obligations of commercial license” proposing that the problem may be resolved upon the consideration of the wishes of the parties. In this way, said judgement concluded that in the case of distribution contracts, the remuneration of the distributor consists of the difference between the purchase price and the resale price. This doctrine was reiterated by another High Court judgement of 9th July 2015.
Nevertheless, the recent High Court Judgement of 30th May 2016 deems that the judgement of 22nd February 2010 “is not conclusive regarding whether the calculation to find the difference between the purchase price and the resale price should be made on gross or net differences”. On the other hand, the High Court acknowledges and refers to case law which establishes that in cases of distribution contracts, and still using the indicative criterion of article 28th of the Agency Act, net profit obtained by the distributor must be considered (High Court judgement of 21st March 2007), as “the percentage of profit left for the distributor once expenses and taxes have been deducted”, and not “the commercial margin, which is the difference between the price of acquisition of the goods from the supplier and the price of sale to the public (High Court judgement of 20th May 2009). This amount shall be the maximum.”
Accordingly, the High court upholds and guarantees the calculation criterion contained in the appealed judgement (Judgement of the Appeal Court of Madrid of 10th September 2013)
“… in the distribution contract, in which the distributor always acts on his own behalf and does not receive remuneration from the entrepreneur, but conversely the consideration is based upon the profit that may be obtained from the resale of the product object of the contract, assuming the risks entailed by the operation, necessarily we should adapt the term “remunerations” (set forth in article 28 of the Agency Act) to the peculiarity and nature of the distribution contract, thus the profit earned by the distributor must be understood as such, once deducted: a) the amount of the extraordinary sales carried out in the period of advance notice (…) having exceeded the usual sales (…) and abnormally altered the average calculation of retribution (…); and b) those expenses which the distributor is obliged to disburse pursuant to an explicit contractual agreement, as with those expenses corresponding to advertising and marketing (…). However, the deduction of expenses associated with and implicit to the distribution business itself and the tax on profit is not appropriate …” (Judgement of 12th March 2012).
Therefore, the High Court confirms that when applicable, compensation for clientele in distribution contracts, may not be automatically established as an equivalence between the gross profit earned by the distributor and the maximum amount of compensation. The concept of “retribution” of the distributor is not the same as that of the commercial agent, and for this reason, it must be adjusted to the agreements made between the parties and the circumstances of the case at issue. In this way, the amount of gross profit must be subject to deductions consistent with the application of factors resulting from the peculiarities and characteristics of the analysed distribution contract, in order to show a “net profit” which turns out to be the maximum compensation amount. This criterion of case law distances itself from automatism and calls for the specific analysis of the case in order to properly come up with the maximum compensation amount that the distributor shall have the right to receive by way of compensation for clientele, providing that the requirements for receiving such compensation set forth in article 28 of the Agency Act are met.
Eduardo Vilá
Vilá Abogados
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17th June 2016
