Key rulings of 2023: An essential overview of agency law
The year 2023 brought a series of significant rulings in Italian and European case law concerning the agency contract, outlining fundamental guidelines and clarifications on the subject, sometimes in line with precedent, sometimes in contrast. Through the examination of these decisions, the article provides an overview of how the subject of commercial agency has developed over the last few months, touching on important issues such as the form of the contract, access to accounting records, severance pay and bankruptcy. This article aims to provide a general analysis of the most influential rulings, highlighting the practical implications for agents and principals and tracing the path of case law in the field of agency law.
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1. Form of contract
Proof of the report.
Court of Appeal Milan, Labour Section, Judgment, 18/05/2023, no. 532
L'Article 1742(2) of the Civil Code provides that "the contract must be evidenced in writing". Of which the rule only requires the written form ad probationem and not ad substantiam. The form, therefore, is not a constitutive element of the contract, but a burden required for the purpose of proof of its conclusion. The consequence of non-compliance with the prescribed form is the prohibition of testimonial evidence (Article 2725paragraph 1 of the Civil Code), as well as the presumptive one (Article 2729(2) of the Civil Code). In any event, the lack of a written contract does not preclude an enquiry into the existence and nature of the relationship as an agency, but implies that such an enquiry must be carried out on the basis of the documents produced by the parties in the case.
In affirming this principle, the Court of Appeal recalls the well-established orientation of the Court of Law, according to which proof of the existence of an agency contract need not necessarily derive from a formal document evidencing the initial agreement of the parties. It may also be inferred from documentation reflecting the voluntary execution of the contract, its confirmation or the voluntary acknowledgement of its terms by the parties involved and, thus, documents showing how the parties actually acted in accordance with an agency agreement (e.g. payment and commission summaries, bank statements).[1]
The proof must therefore relate to the distinctive features of the agency relationship, i.e. the requirements of stability and continuity of the relationship. In the present case, the periodicity of the invoices, which in this case were monthly and remained issued by the people, as well as their amounts, were sufficient.
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1.2. Agency contract and Art. 1341 of the Civil Code.
Court of Appeal Milan, Sez. lavoro, 23/03/2023, no. 327
The judgment of the Court of Appeal of Milan, No. 327 of 23 March 2023, addresses an important issue concerning the nature and formation of the agency contract in relation to theArticle 1341 of the Italian Civil Code, which regulates general terms and conditions.
The Court observes that the agency contract is based on 'intuitus personae', i.e. on the special consideration of the personal qualities of the agent. Unlike standardised contracts that use forms or forms drawn up by one of the parties and are addressed to an undifferentiated number of persons, the agency contract is specifically addressed to specific agents and is characterised by a personalised negotiating regulation.
In this context, the Court makes it clear that the formal criteria of the 'agency contract' are not applicable to the agency contract.Article 1341 c.c., concerning the regulation of contracts concluded by signing forms and forms: "it is not sufficient that one of the parties has prepared the entire content of the regulation (without the concurrence of the other party) but it is necessary that the conditions laid down therein cannot but be accepted (or refused) in their entirety and, in any event, are intended to regulate an indefinite series of relationships".[2]
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2. Rite work
Cass. civ., Sec. lavoro, Ordinanza, 05/04/2023, n. 9431
By judgment of 23 November 2021, the Court of Piacenza declared its lack of jurisdiction, due to the arbitration clause contained in Article 13(2) of the agency agreement between the parties, and held that the agency activity carried out by the appellant, given the autonomy of its business structure of not modest dimensions, did not fall within its jurisdiction. Subsequently, by notice served on 22 December 2021, the agent brought an action for a declaration of competence, pursuant to Arts. 42, 47, 819 ter c.p.c.
In this context, the decision of the Court of Cassation comes in to clarify the criteria of jurisdiction in relation to agency relationships. The Court reiterates that disputes relating to agency relationships fall within the subject-matter jurisdiction of the Labour Court, according to Art. 409(3) of the Code of Civil Procedure, only if the relationship involves the performance of continuous and coordinated work, predominantly personal. This requirement is deemed to be lacking, excluding the application of the labour rite, where the agent operates through a partnership or a corporation, or has organised its activity with entrepreneurial criteria, running an independent business.
The predominant personality of the work is a distinctive requirement of all parasubordination relationships, including agency relationships, as provided for in Art. 409.3 of the Code of Civil Procedure. This requirement is waived if the agent's personal and direct contribution to the activity is less significant than the organisation and coordination of an autonomous structure. This situation arises if the agent's personal and direct contribution to the performance of the characteristic activity is less than that to the organisation and coordination of an autonomous structure.
For example, the jurisdiction of the ordinary courts has been recognised for an agency of considerable size, with twelve employees, four sub-agents and thirteen social security advisors, as well as a large client portfolio, such that it required the administrative, technical and financial management by a limited partnership.[3]
In the case at hand, the Court of Cassation upheld the judgment of the Court of Piacenza, observing that the territorial extension of the mandate (Italy and Switzerland), the commercial network composed of six collaborators for the promotion and conclusion of business, their remuneration by the agent, the assignment of distinct areas of competence, and the collaboration of two architects, clearly indicated an organisation of the activity in entrepreneurial form. This organisation was set up and managed by the agent, with personal work taking precedence over that typically associated with it.
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3. Unilateral amendments to the contract.
Cass. civ., Sec. lavoro, Order, 05/04/2023, no. 9365
This judgment confirmed a now more than constant orientation, according to which in an agency contract, the following are considered null and void under Art. 1346 e 1418 c.c., clauses granting the principal unlimited power to unilaterally change the basis of calculation and thus the amount of the commission. The present case concerned the recognition that the principal could reserve the right to grant extra discounts in an unspecified amount and to an unspecified number of customers, thus rendering an essential element of the contract, such as the consideration due to the agent, undetermined and undeterminable.
Although the Civil Code recognises the possibility of unilateral variations (such as those related to counter-performances, contemplated in Arts. 2103 e 1560 c.c.), it is essential that such modifications be predetermined, by means of intrinsic features or external limits, so as to make it possible to form the consent to the conclusion of the contract on several determined objects envisaged as alternatives.
Consequently, a clause reserving to the principal the choice, at the time of the conclusion of the contract or during the course of the relationship, between several commission systems determined in their overall economic effects, thus allowing the agent to represent the alternative possibilities accepted with the conclusion of the contract, was considered legitimate.[4]
Conversely, the clause whereby the principal reserves the right, at any time and upon prior notice, to deal directly with certain non-defined customers, without paying the agent the commissions on the sales thus made and thus emptying the content of the contract, was declared null and void as a merely potestative condition.[5]
Similarly, it was declared null and void for vagueness of purpose (ex art. 1346 e 1418 c.c.) the clause of an agency agreement that allows the principal to unilaterally modify the commission rates with the sole burden of notice, excluding that the determination of an essential element of the contract, such as the remuneration of the agent's activity, is left to the mere arbitrariness of the principal.[6]
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4. Commissions
Court of Appeal Rome, Labour Section, Judgment, 20/02/2023, no. 428
The article 1748 of the Civil Code regulates the agent's right to commission, establishing the criteria and conditions for its accrual, collectability and restitution. The legislation can be understood through the following key points:
1. Accrual of Entitlement to Commission (para. 1) The agent is entitled to commission for all business concluded during the contract if the transaction has been concluded as a result of the agent's action. This establishes the principle that commission is due in relation to the effectiveness of the agent's action in bringing the transaction to a conclusion.
2. Enforceability of commission (para. (4)) The commission becomes due from the time and to the extent that the principal has performed, or should have performed, the service under the contract concluded with the third party. Moreover, commission is due to the agent, at the latest, at the time the third party has performed or should have performed the service, provided that the principal has fulfilled its obligations. This establishes a direct link between the performance of the transaction and the agent's right to receive commission.
3. Return of commissions (para. 6) The agent is obliged to return the commissions collected only if it is certain that the contract between the third party and the principal will not be performed for reasons not attributable to the principal. Any agreement that is more unfavourable to the agent is void. This implies that the agent may be required to return the commission if the deal does not materialise for reasons not attributable to the principal.
Accordingly, even if an agency agreement includes a clause considering the commission statement to be approved if it is not contested within a certain period (e.g., 30 days), the approval of the statement of account does not prevent the validity and effectiveness of the individual obligatory relationships from being contested.[7]
In any event, the inclusion in the commission account reverses the burden of proof of the existence of the fundamental relationship.[8] However, this does not prevent the principal from evading payment of the commission by proving (by specific allegations and evidence on his part) that the contract was not performed for reasons not attributable to him.
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5. Access to books
Bari Court of Appeal, Labour Section, Judgment, 28/06/2023, no. 1038
The article 1749 of the Italian Civil Code establishes a fundamental principle in the context of agency relationships: the principal is required to act with loyalty and good faith towards the agent. This principle implies the imposition of specific duties on the principal to ensure transparent and proper management of the agency relationship. These duties include the obligation to provide the agent with all documentation and information necessary for the effective and complete performance of its mandate. In addition, the principal must regularly, at least on a quarterly basis, provide the agent with a detailed statement of the commissions due, thus providing a clear and detailed overview of the transactions carried out.
At the same time, the legislation grants the agent an express right to request and receive all information necessary to verify the amount of the commission paid. This includes, in particular, the right of access to extracts from the principal's books. The aim is to enable the agent to autonomously and accurately check the commissions due to him, in line with the principles of good faith and fairness governing the agency relationship.
It must be pointed out, however, that the right of access to the accounting documents is not an end in itself, but is functionally and instrumentally connected to the satisfaction of the right to commissions and indemnities connected to the agency relationship. In this sense, it has been affirmed that the acquisition of the documentation in the sole possession of the principal must be indispensable to support, at the evidentiary level, the request formulated in relation to specific or determinable rights, the lack of indication of such quantitative data being admitted when it derives from the non-fulfilment of the obligation to provide information imposed by law on the principal and, first and foremost, of the contractual obligation concerning the sending of commission statements.[9]
It is therefore incumbent on the party acting in order to obtain the production of the documents to plead and prove the existence of the interest in bringing the action, with detailed reference to the relevant events of the relationship (including, first and foremost, the sending or not of the commission statements and their contents) and the indication of the rights, whether or not determined, for the ascertainment of which the request is aimed.[10]
It should also be noted that within the scope of the investigative authority of the labour court, the issuance of an order to produce evidence pursuant to Article 210 of the Code of Civil Procedure remains a discretionary power of the trial judge. This judge is not required to give reasons for the decision to resort to this residual investigative tool, which is operative exclusively when there are no other means available to acquire the evidence of the facts, and must not serve merely exploratory purposes on the part of the party requesting the order.[11]
In this context, the Court ruled that the production of documents may not be ordered when the party would have had the opportunity to obtain those documents independently and present them in court. Only where specific documents are not otherwise obtainable and the party proves that it was prevented from producing them, may the order to produce them be considered justified.
In the case at hand, the appellant invoked the right to inspect the VAT registers relating to the sales invoices issued by the opposing party with a request that was deemed generically exploratory and lacking the necessary instrumental purpose. The appellant, in fact, did not provide any concrete indications that those registers might have revealed discrepancies from the statements of account already submitted to the analysis of the expert witness, thus resulting in a request lacking the necessary foundation that would justify its admissibility according to the criteria outlined by the aforementioned case law.
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6. Termination of contract
Court of Appeal Milan, Labour Section, Judgment, 10/02/2023, no. 1033
The agency termination indemnity, provided for in Article 1751 of the Italian civil code, imposes an obligation on the agent to prove the actual termination of the relationship. Without this substantiation, the indemnity is not granted.
In the situation at hand, the principal had informed the agent of the termination of the existing agency agreement with the company producing the products promoted by the agent. The Court held that the mere notice of termination of the dealership contract by the principal was not sufficient to demonstrate an intention to also terminate the related agency relationship. It should be noted that in the notice sent to the agent, the principal announced that it was considering negotiating new contractual terms with the franchising company as an individual dealer, concluding the notice with an undertaking to update the agent on developments in the negotiations.
Court Rome, Sec. XVII, Judgment, 11/04/2023, no. 5790
With regard to agency contracts, theArticle 1751 c.c. provides that the agent, within the short term of one year, must formulate a written request for payment of the termination indemnities, under penalty of forfeiture, while within the five-year limitation period the agent must bring the relevant action.
Court of Appeal Cagliari Sassari, Labour Section, Judgment, 22/02/2023, no. 37
On the subject of an agency contract, the fact constituting entitlement to the indemnity ex Article 1751 c.c. is the termination of the relationship, as referred to in the first paragraph of the aforementioned codified provision, together with the conditions set forth in the subsequent clauses of the same article, whereas the circumstances typified in the second paragraph constitute impeding facts.
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7. Express termination clause
It should be noted that on the subject of express termination clauses there are two divergent jurisprudential orientations, which are set out below.
- Civil Cassation, Section II, Order, 23/06/2023, No. 18030
According to this interpretation, termination without notice from an agency relationship is permitted only in the presence of a cause preventing the continuation of the relationship, even temporarily, as provided for in Art. 1751(2) of the Civil Code. This judgement emphasises that recourse by the principal to an express termination clause nevertheless requires a judicial verification of the existence of a breach constituting just cause for termination, pursuant to Art. 2119 of the civil code. In this review, the judge must consider the economic dimensions of the contract, the impact of the breach on the contractual balance and the seriousness of the conduct, taking into account the agent's position and the intensity of the relationship of trust in the agency relationship. The judgment refers to the most recent guidelines of the Supreme Court.[12]
- Court of Appeal Milan, Labour Section, Judgment, 16/02/2023, no. 120
This second orientation states that it is legitimate to include an express termination clause pursuant to Article 1456 of the Civil Code in the agency relationship. In the presence of such a clause, the court does not have to assess the extent of the non-performance in relation to the counterparty's interest, but only has to ascertain whether the non-performance is attributable to the obligor. The express termination clause, therefore, entitles the contracting party to obtain termination of the contract for a specific non-performance of the other party without having to prove its importance. Here, too, the judgment cites precedents of the Supreme Court, albeit older ones.[13]
In the present case, the judge ascertained the documentary circumstance that the agreed minimum had not been reached and considered irrelevant the fact that the decision to terminate the collaboration took place two years after the failure to reach the budget, also taking into account the fact that in the present case the termination of 24/3/15 was also based on the failure to reach the budget for 2014 and not only for 2013) or that there had been no prior objections by the principal.
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Still on the subject of waiver of the express termination clause, the Court of Appeal Bari, Labour Section, Sent., 28/06/2023, no. 1038, referred to a guideline of the Supreme Court, which excluded the possibility of considering the implied waiver of the termination of the contract under Art. 1456 c.c. by virtue of the mere forbearance of the aggrieved party, clarifying that
"The operation of the express termination clause ceases as a consequence of the waiver by the party concerned to avail itself of it, but, where tacit waiver is inferred - which is still an act of abdicative will, even if not expressly manifested, but by conduct incompatible with the preservation of the right - the court's investigation to ascertain its existence, implying the resolution of a questio voluntatis, must be conducted in such a way that no reasonable doubt as to the waiver claimant's actual intention arises. Tolerance by the assignee - which may take the form of either negative conduct (failure to give notice of the declaration to rely on the term immediately after the non-performance) or positive conduct (acceptance of partial performance) - does not in itself constitute evidence of implied waiver, if it is determined not by a desire to discontinue the use of the termination clause but by other motives, and the court, if it finds that there is no implied waiver but only acquiescent conduct, may not attach any legal significance to it for the purpose of rendering the termination clause inoperative.[14]
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8. Severance pay
Cass. civ., Sec. lavoro, Ordinanza, 02/08/2023, n. 23547
For the purposes of determining the indemnity in the event of termination of the agency relationship due to the principal's withdrawal, ex Article 1751 In accordance with the Italian Civil Code, the basis of assessment must include not only accrued commissions, but also those received as 'commission fixed', given that the provisions of the Civil Code refer, in relation to the profile of the 'quantum', to the broader concept of 'remuneration received' and not only commissions. This is in accordance with European Directive 86/653, which distinguishes between remuneration and commissions in Articles 6(1) and (2) and 17, but for the purposes of calculating the indemnity refers not only to commissions but also to the other sums referred to in the legislation by the term remuneration. The Court, on the basis of this reasoning, held that it was possible to use as a basis for calculating the ceiling not only the commissions accrued by the agent, but also those received as 'fixed commissions' (in this case higher than what was actually accrued).
Considering that fixed commissions may also be included in the maximum calculation under Art. 1751 of the Civil Code, it is important to note that the rule does not specify a precise method of computation. Therefore, reference must be made to the criteria set forth therein for the calculation. These criteria do not relate solely to the development of customers or business by the agent and the retention by the principal of substantial advantages resulting from the promotion activity performed by the agent, but also to the fairness of the allocation, in view of the circumstances of the case and in particular the commissions lost by the latter.[15]
Bearing in mind that the purpose of the provision of the Code is to compensate the agent for the loss of the contract and thus of the advantages that the contract would have procured to it, if the unjustified termination occurs after a short period of time from the beginning of the relationship, the loss may be related to the work actually performed for the penetration of a new market and the efforts made in the same direction, taking as a parameter for the calculation of the indemnity also fixed commissions. These commissions, while not directly indicative of the sales promotion activity, may be a useful parameter in determining the appropriate compensation.
Court of Appeal Milan, Labour Section, Judgment, 17/02/2023, no. 1111
On the subject of agency contracts, theArticle 1750 c.c. expresses a substantive precept that prohibits agreements that alter the equality of the parties with regard to withdrawal, with the consequence that they are null and void for fraudulent evasion of the law (pursuant to theArticle 1344 (c) an agreement that, in addition to the obligation to pay the indemnity for lack of notice, includes a penalty clause which, being excessively onerous on account of its very high amount, significantly affects the normal right of either party to withdraw, severely limiting it and thereby circumventing the mandatory principle of the equality of the parties in the matter of withdrawal.
The case examined by the Brescia Court of Appeal referred to in the judgment is different,[16] which, on the other hand, held that a penalty clause provided for in the event of withdrawal was lawful, given that it would not be applied in the case of withdrawal by the principal without just cause and, above all, in the case of withdrawal by the promoter for just cause.
Court of Justice of the European Union, Sec. III, 23/03/2023, no. 574/21
Article 17(3) of the Directive 86/653 aims at repairing the harm suffered from the termination of its relationship with the principal. This is the case if the commercial agent is deprived of the commissions that would have accrued to it from the performance of the contract, while at the same time providing the principal with substantial benefits in connection with the commercial agent's activity, or under conditions that did not allow the commercial agent to amortise the charges and expenses incurred in the performance of the contract on the principal's recommendation.
Article 17(2) of the Directive 86/653 also includes future commissions that the agent would have earned if the agency contract had not been terminated. Therefore, in determining the termination indemnity, according to the terms of the law, commissions for transactions that would have been concluded after termination of the contract, either with new customers acquired by the principal before termination, or with customers with whom the agent has significantly developed business, must be taken into account.
Similarly, Article 17(2)(a) of the Directive 86/653 must be interpreted as meaning that the payment of one-off commissions does not exclude from the calculation of the indemnity provided for in Article 17(2) the commissions which the commercial agent loses and which result from transactions carried out by the principal, after the termination of the commercial agency contract with the new customers which the commercial agent procured for him before that termination, or with the customers with whom he substantially developed business before that termination, where those commissions correspond to flat-rate remuneration for each new contract concluded with those new customers, or with the principal's existing customers, through the intermediary of the commercial agent.
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9. Non-competition agreement
Court of Appeal Milan, Sez. lavoro, 23/03/2023, no. 327
Although Art. 1751-bissecond paragraph, expressly provides that acceptance of the covenant not to compete entails, on termination of the relationship, the payment to the commercial agent of an indemnity of a non-providential nature, according to the Court's guidance, that provision of the legislation may be derogated from by agreement between the parties, since it is not covered by an express sanction of nullity and is not intended to protect a public interest. Moreover, the provision in force does not apply to agency contracts signed prior to the entry into force of theArticle 23(1), Law No. 422 of 29 December 2000 (Community Law 2000), in view of the non-retroactivity of the law and its consequent operability only for the future.
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10. Damage compensation
Cosenza Court, Labour Section, Judgment, 11/01/2023, no. 1969
In the context of the agency relationship, on the subject of compensation for damage to image, it is not sufficient for the principal to assert generically that it has suffered a loss of prestige and professional credibility due to the agent's actions. This alleged harm cannot be assumed in re ipsa merely because the insured, upon learning of the change of agent, might develop a negative opinion of the former agent.
It is necessary, however, that the harm to the image be specifically proved and proven by the applicant. The court, in its assessment, must not rely on abstract hypotheses but rather on concrete evidence of the harm actually suffered by the injured party. Therefore, its liquidation must be carried out by the judge, with an ascertainment of fact not open to review by the court of law, on the basis not of abstract evaluations but of the concrete prejudice presumably suffered by the victim, as deduced and demonstrated by the latter, also by means of serious, precise and concordant presumptions.[17]
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11. Bankruptcy
Cass. civ., Judgment of 26/09/2023 no. 27384
The compulsory liquidation of the principal's company does not automatically entail the termination of the employment relationship with the agent, thus allowing the agent to claim indemnities for loss of notice or termination of employment, for the period in question, if it can prove that the conditions are met.
Civil cassation, Judgment No. 10046 of 14/04/2023
This ruling states that in the event of the principal's bankruptcy, the ongoing agency contract is not automatically terminated, but the general rule of suspension and the curator's choice of whether to continue or terminate the contract applies. According to Art. 72 of the Bankruptcy Act, the contract is suspended and does not follow the provisions of Article 78agency contract cannot be assimilated to a mandate contract, given the continuous and stable nature of the agent's activity.
The liquidator has the discretion to decide whether or not to take over the pending agency agreement, without the need for the authorisation of the creditors' committee. The choice may also be manifested by conclusive facts, such as the exclusion of the agent's claims from the statement of liabilities.
In the event of the termination of the agency relationship following the principal's bankruptcy, the agent's claims relating to the indemnity in lieu of notice and the agents' termination indemnity may be admitted in the bankruptcy proceedings, since these indemnities are not in the nature of remuneration or damages, but of an indemnity nature.
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12. Business Procurement
Court of Appeal Rome, Sec. III, 17/03/2023, no. 1119
The distinguishing features of the agency contract are the continuity and stability of the agent's activity of promoting the conclusion of contracts in a given area on behalf of the principal (Art. 1742 of the Civil Code.), thus realising with the latter a non-episodic autonomous professional collaboration, with the result at its own risk and with the natural obligation to observe, in addition to the rules of fairness and loyalty, the instructions received from the principal; on the other hand, the business intermediary's relationship takes the form of the more limited activity of a person who, without any stability bond and on a wholly episodic basis, collects customers' orders, transmitting them to the entrepreneur from whom he has received the assignment to procure such commissions; whereas the agent's service is stable, since he is obliged to carry out the activity of promoting contracts, the intermediary's service is occasional in the sense that it depends exclusively on his initiative.[18] It follows that the agency relationship and the business procuring relationship are not distinguished only by the stable nature of the former and the optional nature of the latter, but also because the business procuring relationship is episodic, i.e. limited to specific individual business, is occasional, i.e. of limited duration and has as its object the mere referral of customers or sporadic collection of orders and not the stable promotional activity of concluding contracts.[19]
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[1] Cass. Civ. no. 1657 of 2017.
[2] Cass. no. 20461/20, conf. Cass. no.. 17073/13.
[3] Cassation No. 18040 of 2007.
[4] Supreme Court No. 11003 of 1997
[5] Supreme Court No. 11003 of 1997.
[6] Supreme Court No. 4504 of 1997.
[7] Supreme Court No. 14767 of 2000.
[8] Cassation No. 13506 of 2014
[9] cf. Cassation No. 18586 of 2007, Cassation No. 14968 of 2011, Cassation No. 21219 of 2015.
[10] Cassation No. 19319 of 2016.
[11] Supreme Court No. 31251 of 2021.
[12] Cassation Sec. lav. No. 30488 and No. 22246 of 2021; Cassation Sec. lav. No. 24368 of 2015; Cassation Sec. lav. No. 10934 of 2011; Cassation No. 6008 of 2012.
[13] Cassation No. 7063 of 1987; Cassation No. 4659 of 1992; Cassation No. 4369 of 1997; Cassation No. 8607 of 2002.
[14] Civil Cassation, Sec. I, 18 June 1997, No. 5455.
[15] Cassation No. 23966 of 2008; Cassation No. 15203 of 2010; Cassation No. 15375 of 2017.
[16] Bresca Court of Appeal No. 246 of 2021.
[17] Cassation No. 4005 of 2020.
[18] Cassation No. 19828 of 2013; Cassation No. 13629 of 2005.
[19] Cassation No. 2828 of 2016; Cassation No. 19828 of 2013.
Competition and online trade: navigating dual distribution and hybrid intermediaries in antitrust law
Dual distribution' and 'hybrid intermediaries' emerge as salient concepts in the context of vertical agreements and antitrust law.
Dual distribution occurs when an entity chooses to market its products both directly and through external distributors, thus creating a situation of even potential competition with the latter. This phenomenon requires a careful analysis of market dynamics, especially with regard to the exchange of information between the parties involved. This is particularly relevant in the context of online sales, where it is imperative to prevent possible antitrust violations.
In parallel, hybrid intermediaries emerge in the context of online commerce when a platform simultaneously acts as a reseller for a supplier's products and as a seller of its own articles. In this scenario, a dynamic of potential competition develops between the two entities, given that, in this context, intermediaries may have an interest in furthering their own sales, as they also have the ability to influence the competitive landscape among the companies using their online intermediary services.
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1. Regulatory context and legal framework.
L'Article 101 of the Treaty on the Functioning of the European Union (TFEU) prohibits agreements between undertakings which may adversely affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market.
However, the third paragraph of Article 101 provides for an exemption to this principle: agreements which, although restricting competition, contribute to improving the production or distribution of goods, or to technical or economic progress, remain valid, provided that a fair share of the resulting benefit is reserved for consumers.
Applying these principles to vertical agreements, i.e. contracts aimed at restricting competition, is far from easy. To assist practitioners in the complex analysis of compliance with Article 101(3) TFEU, the European Commission has issued specific regulations[1] - the last of which is the Regulation (EU) 2022/720). These regulatory documents aim to clearly delineate the boundaries within which vertical agreements, while restricting competition, may be considered lawful, ensuring that they actually contribute to the improvement of production, the distribution of products and technical and economic progress, consistent with Article 101.
Against this background, Article 2(1) of the regulation provides that, subject to specific exceptions detailed in the regulation itself, vertical agreements are automatically exempted. This premise is based on the assumption that, generally, such agreements are likely to generate positive economic impacts by optimising the production or distribution of products and stimulating technical or economic progress, while ensuring that an appropriate share of the benefits achieved is passed on to consumers.
As already explored in a previous article, Article 3 of the Regulation generally preserves the exemption for all those agreements in which both supplier and buyer do not exceed the 30% of shares in the relevant market; thus, all vertical agreements between entities that do not exceed these thresholds benefit from a presumption of legality, provided that the contracts do not incorporate hardcore restrictions (the so-called hard-core restrictionsoutlined in Article 4 of the regulation). These, essentially, in an exclusive distribution system, include the prohibition of resale price maintenance to the distributor, the prohibition of passive sales outside the exclusive territory and customer base, and the categorical ban on Internet use.
It is essential to stress that vertical agreements between competing undertakings, which do not benefit from the automatic exemption, are not subject to a presumption of illegality. Therefore, they should not be considered incompatible with the internal market, and consequently, prohibited, without a prior examination of their effects on competition. From a practical point of view, they will have to be assessed individually in order to verify their compliance with Article 101 of the Treaty.[2]
Read also: Market share above 30% and impacts on distribution contracts.
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2. Vertical agreements between competing undertakings.
2.1. Effective competition and dual distribution.
In this context, Article 2(4) of the Regulation excludes vertical agreements concluded between competing undertakings from the exemption.
However, the Regulation emphasises the need to examine effective competition in the specific context of the individual vertical agreement. In this perspective, Article 2(4)(a) and (b) grant exemption to vertical agreements between entities which, although competing on a horizontal level, do not compete directly at the precise levels of production or distribution involved in the vertical agreement in question.
The intention is to grant the exemption to those links between entities that, while competing at a certain stage of distribution, are not so at the levels for which the vertical agreement is configured, thereby focusing on the specific effect each agreement has on the market, irrespective of competition between the parties at other distribution levels.
With a view to a careful analysis of the actual competitive situation, irrespective of the roles played by the contracting parties in the market, recitals 12 and 13 of the regulation introduce a complementary principle called 'dual distribution'. This phenomenon occurs when the supplier markets goods or services both upstream and downstream, thereby competing with its independent distributors.
For example, dual distribution occurs when a shoe manufacturer, which initially distributed its products exclusively through distributors, decides to sell directly to shops, thus effectively entering into competition with its distributors, acting on the same level of the distribution chain.
In such a scenario, the vertical agreement would not automatically enjoy exemption as it would, in fact, become a relationship between competing parties.
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2.2. The exchange of information in dual distribution.
Within the context of dual distribution, a context in which situations of potential competition are greater than in 'traditional' markets is certainly to be found in online sales. Take the case, which is far from unusual, in which the manufacturer combines sales through distributors with direct online sales, whether through its own site or, for example, through the use of an application specially developed by it.
Although the manufacturer will make every effort to harmonise sales channels, it may not always succeed in this endeavour and may find itself in actual or potential (see section 4 below) competition with its distributors.
Regardless of the manufacturer's efforts to manage the two channels, one element that may be of significant practical relevance is the one introduced by Art. 2(5) of the regulation, which imposes an important limitation regarding any exchange of information between supplier and buyer.
Based on what is outlined in recitals 12 and 13 and Article 2(4), Article 2(5) of the regulation provides that in situations of agreements between competitors (irrespective of the circumstances that led to that circumstance), exchanges of information between supplier and buyer that are not directly related to the implementation of the vertical agreement or that are not indispensable to optimise the production or distribution of the contract goods or services are never exempted and, therefore, may potentially infringe antitrust law.
For the interpretation of Article 2(5) of the Regulation, one may consider the Commission guidelines.[3] Although they have no binding force, they are of crucial importance in decision-making practice and the interpretation of rules.
In particular, paras. 99 and 100 provide examples of information that may or may not meet the requirements of Art. 2(5), thus outlining which information is arguably legitimate and which may not be legitimate from an antitrust perspective.
The point 99 lists information that, by its nature, is directly related to the implementation of the vertical agreement and necessary to improve production or distribution. These include:
- Technical Informationrelated to the goods or services covered by the contract, necessary for compliance with regulatory measures and to adapt the goods or services to the customer's needs.
- Logistical informationrelated to the production and distribution of goods or services in upstream or downstream markets.
- Customer informationconcerning customers' purchases, preferences and reactions, provided they do not limit the territory or the customers to whom the buyer may sell.
- Information on sales prices: charged by the supplier/manufacturer to the buyer for the contract goods or services.
- Information on resale prices: concerning recommended or maximum resale prices and the prices at which the buyer resells the goods or services, provided that they do not restrict the buyer's ability to determine its own selling price.
- Marketing informationrelating to the marketing of the goods or services covered by the contract.
- Information on resultsrelating to the marketing and sales activities of other purchasers of the contract goods or services.
The point 100 lists information that is generally unlikely to fulfil these conditions. Namely:
- Information on future pricesconcerning the future prices at which the supplier or buyer intends to sell the goods or services on the downstream market.
- Information on identified end-usersunless they are necessary to meet the requirements of a particular end user or to implement or monitor compliance with a selective or exclusive distribution agreement.
- Information on own-brand goods sold by a buyerexchanged between the buyer and a manufacturer of competing branded goods, unless the manufacturer is also the producer of those own-brand goods.
The above-mentioned points should be used by practitioners as a tool to understand the limits within which exchanges of information can take place without incurring antitrust violations in the context of vertical agreements between even potentially competing parties.
Although the illustrations provided by the Commission may offer a partially useful guide for the supplier wishing to comply with the requirements laid down in Article 2(5), the distinction between information that may be shared and information that may not be shared needs to be assessed on a case-by-case basis. In principle, the latter can be said to be those data that, once shared, give a party, potentially in competition with its contractor, the ability to penetrate the market by exploiting a competitive advantage not in line with European competition principles.
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3. Online intermediaries performing a hybrid function.
A further aspect, explored in the context of competition between players operating at different market levels and which is specifically related to online sales, concerns vertical relationships with online intermediary service providers.
Concretely, this refers to the dynamics between a supplier and an online service intermediary, i.e. a platform that facilitates the sale of products or services.
In these relationships, which are categorised as vertical agreements since the platform acts as a mediator of the manufacturer's products, Article 2(6) of the regulation states:
"the exemptions in paragraph 4(a) and (b) do not apply to vertical agreements relating to the provision of online brokering services where the provider of such services is an undertaking competing on the relevant market for the sale of the goods or services being brokered. "
In essence, the legislation identifies a situation in which an online platform exercises a so-called 'hybrid function',[4] by acting both as an intermediary for the supplier's sales and by promoting the sale of its own products or services, which compete with the intermediated products. In this context, the exemptions provided for in subparagraphs (a) and (b) of Article 2(4) of the regulation are not applicable, considering that one finds oneself in a situation in which intermediaries may have an interest in promoting their own sales, as well as the ability to influence the outcome of competition between undertakings using their online intermediary services.[5]
Although the quoted legal text is not easy to read, we can try to simplify it, far from trivialising it, by emphasising that, once again, it is essential to examine the actual competitive relationship established between the contracting parties. In particular, if the online intermediary plays not only the role of intermediary, but also that of potential competitor on the same platform that it provides as a space for the sale of the contracting parties' products, we would clearly find ourselves in a situation of effective competition between subjects operating on the same distribution level and therefore of a relationship that is not exempt from the regulation under consideration.
As will be examined in more detail in the following section, in the context of hybrid brokering (analogous to dual distribution), competition from the platform does not necessarily have to manifest itself effectively; even potentially perceptible competition is sufficient. In this sense, it is sufficient that the provider of the online intermediation services, within a relatively short period of time (usually not exceeding one year), undertakes the necessary additional investments or incurs other indispensable costs in order to gain access to the relevant market for the sale of the goods or services being intermediated.[6]
It is essential to emphasise that the application of Article 2(6) of Regulation (EU) 2022/720 presupposes that the vertical agreement entered into by the online intermediary service provider performing a hybrid function cannot be classified as a commercial agency agreement, which does not fall within the scope of Article 101.[7]
Read also: But are online platforms commercial agents?
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4. Risks associated with potential competition.
It is important to emphasise that competition does not necessarily have to be actual, but it is sufficient that it is also only potential. Article 1(c) of the regulation defines a 'competing undertaking' as an entity that competes both actually and potentially. An actual competitor is an undertaking which is active on the same relevant market, whereas a potential competitor is an undertaking which, in the absence of the vertical agreement, would realistically have the possibility of entering the relevant market within a short period of time and incurring the necessary investments and costs.
The Guidelines further decline this definition.[8] They emphasise that the assessment of potential competition must be based on realistic considerations, taking into account the market structure and the economic and legal environment. A mere theoretical possibility of entering a market is not sufficient; there must be a real and concrete possibility, without insurmountable barriers to entry. In any event, it is not necessary to demonstrate with certainty that the undertaking will actually enter the relevant market and maintain its position.
In order to assess whether an undertaking, absent from a market, is in potential competition with undertakings present on that market, it is necessary to examine whether there are real and concrete possibilities for that undertaking to integrate the market and compete with the others. This criterion excludes the possibility of establishing potential competition based on mere assumptions or intentions not supported by concrete, preparatory actions.[9]
The assessment of the existence of potential competition must be made in the light of the market structure and the economic and legal framework governing its operation. Assessing potential competition involves a careful examination of the structure and context of the market, considering several key factors and operational dynamics. Below is a list of some key areas and points to explore during such an assessment:
- Market structure and context: The first phase of the assessment involves a careful analysis of the market and its functioning, observing not only the current distribution of companies and their market share, but also the prevailing dynamics, trends and business models.
- Regulatory constraints and intellectual property: The presence of regulatory barriers and intellectual property rights, such as patents and trademarks, need careful scrutiny, as they may create barriers to entry or otherwise affect the ability of new entrants to compete effectively in the marketplace. Indeed, intellectual property may restrict access to crucial technologies or knowledge and thus alter competitive dynamics.
- Determination and ability to enter the market: the assessment must extend to an enterprise's willingness and ability to penetrate the market. This involves analysing the resources, skills and strategies that the company can mobilise to enter the market, as well as its resolve to overcome any barriers. The firm's strategic decisions, investments and assets are therefore crucial in assessing the potential competitive impact.
- Preparatory measures and entry strategies: it is also crucial to observe what concrete steps the company has taken to prepare for entering the market. This could include developing or purchasing products, applying for relevant certifications or authorisations, and developing marketing and distribution plans. A detailed analysis of planned or already ongoing initiatives and operations can provide insight into the real intentions and capabilities of the company.
- Additional elements corroborating competition Potential: Other factors may offer additional indications of a firm's determination to be a competitive force. For example, the formation of agreements with other firms, especially if they were not previously active in the market of interest, may indicate the feasibility of their intentions and potential to compete effectively.
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5. Fines, sanctions and procedural initiatives
Non-compliance with antitrust law may be established not only by the Commission and the national antitrust authority, either on their own initiative or on the recommendation of third parties, but may also be brought to the attention of the ordinary courts by the other contracting party or by third parties who consider that they have suffered harm as a result of anti-competitive conduct.
With regard to fines, the Commission has set a significant threshold of up to 10% of annual turnover total realised in the last business year by the undertaking fined. This is due to the fact that the fine must have a 'sufficiently deterrent effect, in order not only to sanction the undertakings concerned (specific deterrent effect), but also to deter other undertakings from engaging in or continuing conduct contrary to Articles 101 and 102'.[10]
Similarly, national legislation[11] confers on the Authority the power to impose pecuniary sanctions in the presence of particularly serious unlawful conduct, which do not have "the nature of a civil asset measure (...) but of an administrative sanction with punitive connotations (akin to those of a criminal sanction)."[12]
As to the procedural steps that may be taken by the other contracting party or third parties, these include the ascertainment of a breach, the declaration of the nullity of the contractual relationship, actions for damages and the adoption of precautionary measures. In these cases, there are no predetermined upper limits for compensation; rather, the quantification of damages will be determined on a case-by-case basis, according to the general principles of compensation established by the law applicable to the individual situation.
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[1] Regulation (EU) 2022/720; Regulation (EC) No 330/2010: Regulation (EC) No 2790/1999.
[2] Point (48) and (91) of the Guidelines on Vertical Restraints.
[3] Guidelines on Vertical Restraints (2022/C 248/01).
[4] Point (104) of the Guidelines.
[5] Point (105) of the Guidelines.
[6] Point (106) of the Guidelines.
[7] Point (72) Commission guidelines.
[8] Point (90) of the Guidelines.
[9] Judgments of 30 January 2020, Generics (UK) and others/Competition and Markets AuthorityCase C-307/18, EU:C:2020:52, paragraphs 36-45;
[10] See Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation (EC) No 1/2003.
[11] (Art. 15 Law 287/1990).
[12] Council of State, Judgment No. 1671 of 2001.
Concession of sale and severance pay. The new legislation in the car industry (and how does it work in Germany?)
The termination indemnity for distributors or sales dealers in Italy has been the subject of recent legislative developments, which have led to significant changes.
The recently introduced law in the motor vehicle distribution sector establishes an 'innovative' right to fair compensation for authorised distributors and a minimum contractual term of five years for fixed-term contracts, as well as twenty-four months' notice for open-ended contracts.
Although the interpretation of the rule and the determination of the amount of the severance payment still present significant complexities, pending further developments in law and jurisprudence, the German model, which has recognised it for years in all business sectors, could provide interesting pointers.
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1. Introduction. Damages and compensation.
Until a few months ago, in the Italian legal landscape, the termination indemnity in sales concession contracts was devoid of any legal regulation and case law remained firm and unanimous in holding that any indemnity should be paid to the concessionaire for the customers contributed by them, thus excluding an analogical application of the agency provisions.
In the Italian legal system, upon termination of the contractual relationship, the interests of the dealer were mainly protected in the context of an assessment of the legitimacy and/or appropriateness of the termination or dissolution of the contract, by means of an estimate of the profits that the dealer could have received if the contract had been fulfilled until its natural expiry. The instrument used is that of damages, calculated in the loss of the expected profit and in the absorption of the costs inherent in the organisation and promotion of sales, as well as the investments undertaken in reliance on the continuation of the contract.[1]
On the other hand, compensation is not intended to reward the dealer for his work in building up a customer base, as is in fact provided for in agency relationships in Article 1751 of the Civil Code.
The termination of the sales and/or distribution dealership contract. Brief analysis.
So that, for the fixed-term contractsunilateral termination of the relationship is excluded (unless expressly agreed by the parties) and termination of the contract may only occur in the event of serious breach.[2]
Otherwise, for the open-ended contractsunilateral termination is permitted, even in the absence of non-performance, provided that adequate notice is given.[3] Where the parties have not agreed on a period of notice, it must be assessed by reference to the interests of the party 'suffering' the termination, the termination party having to grant a period of notice that may enable it to prevent, at least partially, the negative effects resulting from the termination of the relationship;[4] the concessionaire must have the possibility of recovering part of the investments made (e.g. the disposal of inventories), while the grantor must have sufficient time to be able to buy back the goods still in stock from the concessionaire, so that they can be reintroduced into the distribution circuit.[5]
If the parties had contractually agreed and quantified the period of notice, it is debatable whether the judge can assess its adequacy; the majority jurisprudence holds that this period, even if short, must be observed, and that the judge does not have to assess its adequacy.[6]
However, mention must be made of a case in which the Court of Cassation, in a ruling of 18 September 2009 in the automotive sector,[7] dealt with a dispute between an association of former car dealers and Renault; in particular, the manufacturer had terminated the contracts with the dealers, acknowledging the contractual notice period of twelve months. The dealers considered the termination to be abusive, and the court upheld the plaintiffs' claims, ruling that the court can assess whether the right of termination was exercised in good faith or whether it was abused, relying on the criterion of objective good faith, which is considered the fundamental benchmark for the parties' conduct.
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2. The novella on motor vehicle distribution.
In this context, the new regulations introduced for the automotive distribution sector with the Law No. 108 of 5 August 2022later updated by Law No. 6 of 13 January 2023.
In particular, Art. 2 specifically regulates the duration of the contract, providing that:
- if the ratio is at fixed-termthe minimum duration of the agreement is five years, with each party being obliged to give written notice, at least six months before the expiry date, of its intention not to renew the agreement, on pain of ineffectiveness of the notice;
- as regards relations to indefinitethe written notice period between the parties for termination is twenty-four months.
It is then introduced in Article 3 of the Act, an obligation on the manufacturer or importer to provide the dealer withprior to the conclusion of the agreement, as well as in the event of subsequent amendments thereto, all information in its possession, which are necessary to make an informed assessment of the extent of the commitments to be undertaken and the sustainability of the same in economic, financial and asset terms, including an estimate of the marginal revenue expected from the marketing of the vehicles.
Article 4 then introduces a 'revolutionary' (at least for Italian law) obligation on the manufacturer or importer, who terminates the agreement before the contractual deadline, to pay the authorised distributor a fair compensationwhich is to be measured on the basis:
- of the investments it has made in good faith for the purpose of performing the agreement and which have not been depreciated at the date of termination of the agreement;
- goodwill for the activities carried out in the performance of the agreements, commensurate with the turnover of the authorised distributor over the last five years of the agreement.
Compensation under para. 4 is not due in the event of termination for non-performance or when termination is requested by the authorised distributor.
Finally, Article 5-bis of the regulation expressly states that the provisions of paragraphs 1 to 5 are "mandatory".
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3. Some insights into the new legislation.
To date, there are no case law precedents that allow for an interpretation of the legal provision, which remains very general and difficult to apply in practice.
In anticipation of a jurisprudential development, we briefly raise what are the major criticisms that can be detected even from a simple reading of the text of the law, with particular regard to two aspects, namely:
- the duration of the contract and
- the quantification of fair compensation.
3.1. Duration of the contract and automatic renewal
If the contract has been concluded for a fixed term, it would appear that the contract will be automatically renewed for the same period for which it was concluded if either party fails to terminate it within six months from the closing date.
One can come to this 'hasty' conclusion from a simple reading of the text, which speaks precisely of 'renewal' and not so much of transformation of the contract from a fixed-term to an open-ended term, as is the case, for example, in agency relationships (cf. Article 1750 of the Civil Code.). It is clear that this is a matter of great practical impact, given that the renewal of the contract, if indeed automatic, entails the extension of the relationship for a period of not less than five years, this being the minimum term fixed by the legislation.
This element also has a very important bearing on the possible entitlement of the concessionaire to fair compensation, which, it should be noted, is not only due in the event of the concessionaire's non-performance, i.e. its termination. If, as is more than likely to be expected, the theory of automatic renewal of the agreement passes, the indemnity will be awarded to the dealer even in the event that he declares that he does not wish to renew the agreement before its expiry, since this is not technically a case of actual termination. Similarly, compensation is likely to be due even if the parties agree to terminate the contractual relationship.
Since it is then a mandatory rule that of indemnity, the question arises, as in the case of agency, whether any waiver prior to the termination of the relationship can be considered valid, or whether it is effective only if agreed by the parties once the contract is terminated.
Read also: Which waivers and settlements may be challenged by the commercial agent.
3.2 Fair compensation.
As to the quantification of fair compensation, as we have seen, the rule refers to two very general parameters, namely:
- the investments made in good faith by the dealer and not amortised at the date of termination of the agreement;
- l'start-up of commercial activity, commensurate with the turnover developed by the distributor over the last five years of the agreement.
Firstly, it should be noted that it does not appear to be an analogical application of the principles laid down on the subject of agencysince neither requirement makes any reference whatsoever to the clientele brought in by them and the business developed with them, as stipulated by the'Article 1751 of the Civil Code.
Article 4(a) refers precisely to investments made in good faith, completely detached from what was the customer contribution and business development that the dealer managed to develop in the course of the relationship.
The choice made by the legislator seems to want to give more weight to the performance of the relationship according to good faith, which requires, on the one hand, the grantor to act in such a way as to preserve the interests of the concessionaire and thus not to require, or in any case unreasonably induce, the concessionaire to make investments disproportionate to the type and duration of the contract and, on the other hand, the concessionaire to be compensated only for non-depreciated investments made on the basis of a principle of good faith.
With reference, on the other hand, to Article 4(b), the legislature makes a general reference to the goodwill of the concessionaire, without any relevance being given, once again, to the advantages which the concessionaire has brought to the grantor and which the latter enjoys following the termination of the relationship.
Moreover, a general reference is made to the dealer's "turnover" during the last five years of the relationship; it is clear that this is a very general figure, in itself detached from the dealer's own margin or profit, and in itself not necessarily related to the customers procured by the dealer during the term of the contract.
The temporal reference of five years, would seem to recall the period of analysis applied to commercial agents, in Art. 1751 of the Civil Code, with the only (but huge) distinction, that in that case reference is made to the average commission developed by the agent in that interval.
3.3. Mandatory standards and/or standards of necessary application?
As we have seen, Article 5-bis of the new law expressly assigns the new provisions on automotive distribution a mandatory character.
In this context, a relevant question arises concerning the application of the Rome I Regulation (Regulation (EC) No 593/2008) to the new legislation. In particular, the question arises as to whether these provisions can be regarded as 'rules of necessary application' within the meaning of Article 9 of the aforementioned Regulation, also known as 'internationally mandatory' rules.
According to this provision, mandatory rules are legal rules that a country considers crucial to safeguard its public interests, such as its political, social or economic organisation. In certain cases, national legislators may decide to give some of their mandatory rules an even stronger character by providing that they cannot be derogated from even by subjecting the contract to a foreign law. This means that, notwithstanding the contractual choice to apply a different law, a court may be obliged to apply such provisions if it considers them to be of 'necessary application' because they are crucial to safeguarding Italy's public interests.
One must therefore ask oneself (pending an appropriate jurisprudential and legislative development), whether the new provisions on automotive distribution should be considered not only mandatory (under Art. 5-bis) at national level, but also international, under Art. 9 of the Rome I Regulation.
Precisely in the area of sales concessions, an example of a rule of necessary application is the Belgian law of 27 July 1961, Article 4 of which imposes the internationally mandatory application of this rule in the case of disputes concerning the termination of concession contracts performed in Belgium, irrespective of the law contractually chosen by the parties. [7a]
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4. The dealer's indemnity in the German system.
While waiting for a jurisprudential development that refines and directs practitioners to interpret the new legislation, it is interesting to analyse how a system close to ours, which has recognised this allowance for several decades, works; all this without claiming to be German jurists, but with the simple intention of providing the reader with a general overview of this model.
4.1. The prerequisites of the concessionaire's right to indemnity.
In Germany, case law for years apply analogically the principles of agency indemnity, regulated by the § 89b HGB (Handelsgesetzbuch), also to the dealer. The provision in question is the German counterpart of Article 1751 of the Civil Code, both of which were reformed to implement the 1986 European Commercial Agency Directive.[8]
For the allowance to be recognised, German case law requires the following conditions to be met:
- the contract shall not be terminated by the principal due to serious default by the agent, or by the agent without justified reason, or there has been an assignment of the rights and obligations of the contract to a third party;
- the concessionaire must be integrated within the distribution network of the grantor;
- a transfer of the customer list must have taken place.
4.1.1. Dissolution of the relationship.
German case law applies by analogy the principles in agency law, whereby the purpose of the indemnity is to compensate the agent for the benefits that are transferred to the principal following the termination of the contract, since the agent can no longer benefit from the relationships it has established or developed with its customers.
The purpose of the indemnity, therefore, is on the one hand to compensate the agent for the loss of commission suffered by the agent due to the termination of the relationship, and on the other hand to provide the agent with compensation for the benefits derived from the customers acquired and/or developed by the agent. A prerequisite for the claim for indemnity, as set forth in subsection (3) of § 89b HGB, is the fact that the contract has not been terminated by the principal due to the agent's serious breach of contract, by the agent without justified reason, or by the assignment of the rights and obligations of the contract to a third party.
German case law, although the law does not expressly regulate it, has held that the indemnity is due in the event of termination of the relationship due to mutual disagreement, regardless of who first proposed the consensual termination of the relationship.[9]
These criteria are also faithfully applied to dealer contracts, including consensual termination of the relationship.[10] Therefore, even in the event of consensual termination of the contract, the authorised dealer will be entitled to an indemnity, provided that the other requirements, i.e. integration into the manufacturer's distribution network and the obligation to transfer customers, are met.
4.1.2. Integration within the network.
With regard to the requirement of integration within the distribution network, it is important to emphasise that the business relationship is not limited to a simple relationship between a seller and a regular customer, a deeper form of collaboration constituting a true integrated distribution agreement being necessary.
This implies that the authorised dealer is actively involved in the manufacturer's distribution system, so that the claim is intended to compensate the dealer not only for the loss of the benefits of customer relations, but also for the active contribution to the manufacturer's distribution network.
Read also: Dealer, distributor or regular customer?
German jurisprudence[11] over time has developed a number of examples of situations that could lead to, or at least lead to the assumption that there is a real integration in the distribution system of the grantor; here are some of them:
- be recognised as an authorised dealer;
- grant the producer/concessionaire authorisation to enter the business and storage premises at any time;
- be subject to minimum purchase obligations for the contractual products;
- have an obligation to store goods in the warehouse;
- set up and supervise authorised workshops in the contract territory;
- provide customer support and repair services;
- receive training from the producer/concessionaire;
- enhance, preserve and maintain the producer's brand;
- follow the manufacturer's sales guidelines and recommendations;
- have the possibility of selling the producer's products outside the contract territory;
- be assigned to a specific contractual territory, even in the absence of territorial exclusivity.
4.1.3. The transfer of customers.
Another basic requirement for the dealer or reseller to be entitled to severance pay is that there has been a transfer of customer data.
According to German case law,[12] it is not indispensable that the transfer of the customer list be explicitly provided for in the contract, but may arise implicitly as an obligation or be a practice adopted by the parties (e.g. if the dealer sends the names of customers to the manufacturer for warranty management or other after-sales service purposes).
This transfer of the customer list is a crucial element because it allows the manufacturer to maintain and develop the relationship with customers acquired by the dealer even after the relationship with the dealer or reseller has been terminated.
4.2. The calculation of the allowance.
The quantification of the allowance must be carried out considering the following parameters:
- advantages for the producerIt is necessary to assess whether the dealer has acquired new customers or consolidated existing ones, as required by § 89b HGB (and Art. 1751 of the Civil Code), by means of an analytical prognosis of the benefits derived from the acquired customers. It is up to the dealer to provide proof of developments for each individual customeras the production of a mere list of customers that the dealer has acquired or developed in the course of the relationship is not sufficient.[13] The estimate must then be based on the results of the last five years, in analogous application of § 89b HGB;
- the quantification of benefits must be done in a "fair" manner, assessing the losses incurred by the dealer as a result of the termination of the relationship. Applying the commercial agency discipline by analogy, the losses to be taken into account must be by commission-based' nature. Although, as is well known, the dealer is not remunerated through commissions, but rather marginalises on the discounts granted to him by the licensor, in order to be able to apply the principles of agency by analogy, it is necessary to calculate what the manufacturer would have paid to a commercial agent on the basis of the sales made by the dealer, if the distribution had taken place through an agency and the sales had been made in this way.
In this context, in order to calculate the allowances and to attempt to "commission" the dealer's revenues, all those remuneration components typical of the dealer and extraneous to the agent must be deducted from the discount. By way of example: expenses for personnel and equipment for the business, advertising, product presentation, assumption of sales, price fluctuation, credit or equivalent value risks, etc.[14]
The limit of the allowance corresponds to the average of the last five years.[15] It is important to emphasise that this is the commission that the dealer would have earned, not the turnover generated by the dealer. This is particularly important as it shifts the focus of analysis away from the dealer's total volume of business, to concentrate instead on actual net revenue.
This approach takes into account the dealer's actual economic benefit, rather than relying on a generic figure that may not accurately reflect the dealer's commercial position. This distinction ensures that the allowance is calculated more accurately and truthfully, reflecting the dealer's actual earnings rather than the total amount of sales realised.
The allowance is then calculated on the basis of these benefits, following an approach similar to that used in the agency.
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[1] On this point, see Venezia, Il contratto di agenzia, 2016, p. 140, Giuffrè.
[2] I contratti di somministrazione di distribuzione, Bocchini and Gambino, 2011, p. 669, UTET.
[3] Concessione di Vendita, Franchising e altri contratti di distribuzione, Vol. II, Bortolotti, 2007, p. 42, CEDAM; In doctrine Il contratto di agenzia, Venezia - Baldi, 2015, p. 140, CEDAM.
[4] In doctrine Il contratto di agenzia, Venice - Baldi, 2015, p. 140, CEDAM; In jurisprudence Court of Appeal Rome, 14 March 2013.
[5] I contratti di somministrazione di distribuzione, Bocchini and Gambino, 2011, p. 669, UTET.
[6] See Trib. of Turin 15.9.1989 (which considered a term of 15 days to be congruous); Trib. of Trento 18.6.2012 (which considered a term of 6 months for a 10-year relationship to be congruous); Distribution contracts, Bortolotti, 2022, p. 659, Wolter Kluwer.
[7] Cass. Civ. 5.3.2009 'On the subject of contracts, the principle of objective good faith, i.e. of mutual loyalty of conduct, must govern the performance of the contract, as well as its formation and interpretation and, ultimately, accompany it at every stage. [...] The obligation of objective good faith or correctness constitutes, in fact, an autonomous legal duty, the expression of a general principle of social solidarity, the constitutionalisation of which is by now unquestionable (see in this sense, among others, Court of Cassation Civ. 2007 no. 3462.)"
[7a] On this point, Bortolotti, Il contratto internazionale, p. 47, 2012, CEDAM.
[8] Council Directive 86/653/EEC of 18 December 1986 on the coordination of the laws of the Member States relating to self-employed commercial agents.
[9] On this point, compare Van Der Moolen, Handbuch des Vertriebsrechts, p. 599, 4th edition, 2016, C.H. Beck.
[10] BGH 23.7.1997 - VII ZR 130/96.
[11] BGH 8.5.2007 - KZR 14/04; BGH 22.10.2003 - VIII ZR 6/03; BGH 12.1.2000 - VII ZR 19/99; on this point see also Van Der Moolen, Handbuch des Vertriebsrechts, p. 600, 4th edition, 2016, C.H. Beck.
[12] BGH 12.1.2000 - VIII ZR 19/99.
[13] BGH 26.2.1997 - VII ZR 272/95.
[14] On this point, compare also Van Der Moolen, Handbuch des Vertriebsrechts, p. 621, 4th edition, 2016, C.H. Beck.
[15] BGH 11.12.1996 - VII ZR 22/96.
Market share above 30% and impacts on distribution contracts.
1. Framing.
As is well known, within the European market, the free market principle applies.
Article 101 of the Treaty on the Functioning of the EU deems incompatible with the internal market and prohibits all agreements between undertakings which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market.
The third paragraph of Art. 101 does, however, provide for an exemption to this principle: agreements which, although restricting competition, contribute to improving the production/distribution of goods, or technical or economic progress, remain valid, provided that a fair share of the resulting benefit is reserved for consumers.
In order to decline these principles and provide operators with more clarity, so as to prevent the free market from de facto blocking the structuring of trade through the conclusion of agreements between private parties, the Commission has over the years issued the so-called regulations on vertical agreements, most recently the vertical sales regulation entered into force in June 2022, which aims to exempt, within certain limits, agreements between companies operating at different levels of the distribution chain (which fully includes the distribution contract) from a general non-compete clause.
In order to clarify the scope and content of the exemption regulation, the Commission published, concurrently with the entry into force of Reg. 720/2022, the "Guidelines on Vertical Restraints" so-called "Guidelines on Vertical Restraints".Orientations". Although this is an extremely authoritative text, which plays a key role in the interpretation of European legislation, it is not binding on the decision-making bodies. [1]
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2. The threshold of 30% and the safety zone of the regulation.
The new regulation maintains in Article 3 the exemption for all agreements in which both supplier and buyer do not exceed 30% of the shares in the relevant market; of which they enjoy a presumption of lawfulness all those vertical agreements between parties that do not exceed the above-mentioned thresholds, provided that the contracts do not contain hardcore restrictions prohibited by the regulation (the so-called hard-core restrictions of Article 4 of the regulation, which are essentially, in an exclusive distribution system, a prohibition on imposing the resale price on the distributor, a prohibition on passive sales outside the exclusive territory and customers, an absolute ban on the use of the Internet).
It is very important to emphasise that exceeding the 30% threshold does not create a presumption of illegality.
The purpose of the threshold imposed by Article 3 of the regulation is to establish a "security zone"and distinguish those agreements that enjoy a presumption of legality from those that require individual assessment. The fact that a vertical agreement does not fall within the 'safe harbour', therefore, does not mean that it is incompatible with the internal market and therefore prohibited.[2]
With the introduction of the 'safe harbour', the Commission wanted to prevent potentially more dangerous agreements (due to the greater market power of the undertakings concerned) from automatically benefiting from the exemption and escaping scrutiny as to their actual effects on the market. It is therefore crucial to ascertain whether individual agreements exceed that market share, an assessment that is far from easy, given the difficulty of identifying the relevant market (product and geographic) on which to calculate that market share and the actual impact of the agreement on that market.
In order to understand how the relevant marketI refer to what has already been written in the previous article. Briefly, in order to make this analysis operational and more organic, the relevant market is one in which:
- "all products and/or services are regarded as interchangeable or substitutable by the consumer, by reason of the products' characteristics, their prices and their intended use";
- "the undertakings concerned supply or purchase goods or services, [where] the conditions of competition are sufficiently homogeneous and [where] it can be distinguished from neighbouring geographic areas because the conditions of competition are appreciably different in those areas. "
Thus, the reference market on which the market share is to be calculated does not necessarily coincide with a single territory, but may be higher or lower; for this purpose, it must be ascertained whether companies located in areas other than the one in which the distributor makes its sales actually constitute an alternative source of supply.
As for the method of calculation of market shares (of the supplier and the buyer), Article 8 of the Regulation provides that they are to be assessed on the basis of the previous year's data on the value of sales and purchases, or, if not available, on the basis of reliable estimates.
If a market share does not initially exceed the 30% threshold, but subsequently exceeds it, the exemption continues to apply for a period of two consecutive financial years beginning with the year in which the 30% threshold was first exceeded.[3]
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3. Restrictions by object and effect.
As mentioned at the beginning of the article, Article 101 of the Treaty qualifies as incompatible with the internal market all agreements between undertakings which have 'as their object' or 'as their effect' the prevention, restriction or distortion of competition within the internal market.
There is thus a clear distinction between the notions of 'restriction by object' and 'restriction by effect', each subject to a different evidentiary regime.[4]
Indeed, there are agreements between undertakings that can be considered, by their very nature, harmful to the proper functioning of competition,[5] so much so that where they present 'restrictions by object", negative effects on competition need neither be sought nor proved in order to qualify them as unlawful, since they lead to reductions in production and price increases, to the detriment, in particular, of consumers.[6]
So-called 'restrictions of competition by object' are of an exceptional nature, of which they must be interpreted restrictively and thus applied to a very limited number, reserved precisely for those agreements that are so damaging to competition that it is unnecessary to examine their effects on the internal market.[7]
For cases relating to "restrictions as a result of', individual cases must be assessed on a case-by-case basis, taking into account the nature and quantity, whether limited or not, of the products covered by the agreement, the position and importance of the parties on the market for the products in question, the stand-alone character of the agreement or, on the contrary, its position in a complex of agreements.[8]
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4. Evaluation of individual clauses.
For the assessment of a possible withdrawal of the benefit of the exemption, it is necessary to determine the foreclosure and anti-competitive effects that individual agreements may have on consumers, leading to higher prices, limited choice of goods, lower quality of goods and reduced innovation or services at the level of the supplier.[9] The negative market effects that may result from vertical restraints and that EU competition law aims to prevent are:[10]
- anticompetitive foreclosure of the market against other suppliers or other buyers, as a result of the creation of barriers to entry or expansion;
- the weakening of competition between the supplier and its competitors (so-called competition inter-brand);
- weakening of competition between the buyer and its competitors (d. intra-brand competition).
From a very brief analysis, it can be deduced that agreements may contain contractual clauses that lead to a reduction in either intra-brand competition (i.e. competition between distributors of goods or services from the same supplier), or inter-brand competition (i.e. competition between distributors of goods or services from different suppliers).
In principle, the Commission considers it to be more "dangerous"agreements affecting inter-brand competition, as opposed to those affecting intra-brand competition: it is considered to be unlikely that a reduction in intra-brand competition (i.e. intra-brand) may in itself lead to negative effects for consumers if inter-brand competition (i.e. inter-brand) is strong.[11]
This must certainly be taken into account when assessing the individual clauses normally contained within a distribution contract that have an impact on competition. The most important of these can be listed below:
- monarchism;
- exclusive supply;
- exclusive allocation of customers;
- ban on online sales.
Monarchism.
Monarchism (this is a translation of the phrase "single branding"), is a category in which numerous clauses affecting free competition fall, including:
- exclusive sourcing (whereby the buyer is obliged to purchase only contractual products from the supplier);
- non-compete obligation during the course of the relationship (where the purchaser undertakes not to resell products that compete with the contractual products);
- imposition of minimum purchase volumes.
In practice, this is a category that groups together agreements whose main characteristic is to induce the buyer to concentrate orders for a particular type of product with a single supplier.[12]
Of the above clauses, only the one relating to the de facto non-compete obligation impacts on competition inter-brand which, when combined with exclusive sourcing, will have an even greater impact, both on the market inter-brandthat on that intra-brand. In such a case, the distributor will be a single-brand distributor, which is obliged to purchase products only from the supplier, thereby impacting competition both within the contract market and on the competing market.
4.2. Exclusive supply.
Exclusive supply refers to restrictions that oblige or induce the supplier to sell the contract product only or primarily to a single buyer.
It is therefore the mirror image of the exclusive supply clause, since in the former, the supplier/dealer undertakes to supply (in a given market) only one buyer, and in the latter, it is the distributor who undertakes to obtain supplies only from the supplier, without the latter necessarily being granted exclusivity within the market where it operates.
Very often (but not always), the two clauses go hand in hand, so that an exclusive distribution relationship is coupled with an exclusive supply relationship.
In particular, in markets where the distribution of a brand is granted on an exclusive basis to one or more distributors, there will be a reduction in intra-brand competition, which does not necessarily reflect negatively on competition between distributors in general.[13]
Where a supplier allocates a very large territory (e.g. that of an entire state) to a buyer/distributor without restricting the sale of the downstream market, anti-competitive effects are unlikely. Where appropriate, the same may be offset by advantages (ex Art. 101(3)) in terms of logistics and promotion, the buyer being particularly inclined to invest in the licensed trade mark.[14]
4.3. Exclusive allocation of customers.
This clause recognises exclusive sales of the contract products to a single buyer/distributor for the purpose of resale to a certain category or group of customers. Similarly, the distributor is often prohibited from active sales to other exclusively recognised purchasers.
This clause is also among those that have an intra-brand impact, provided that it is not included in combination with other clauses that actually impact competition between competing brands.
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5. Relevant Factors for the Evaluation of Agreements that Exceed the Threshold.
Now, in the case of a distribution relationship, the parties to which exceed the so-called 'safe harbour threshold' of 30%, understanding whether such clauses can benefit from the exemption must be thoroughly assessed on a case-by-case basis taking into account different elements, as well as the impact of such agreements on competition, with the understanding that the combination of the individual clauses with each other has a greater impact on competition.
The following factors are particularly relevant in determining whether a vertical agreement involves an appreciable restriction of competition:[15]
- the nature of the agreement;
- the market position of the parties;
- the market position of competitors (upstream and downstream);
- the market position of the buyers of the contract goods or services;
- barriers to entry;
- the level of the production or distribution chain concerned;
- the nature of the product;
- market dynamics.
Clearly, the greater the market share of contractors (supplier and buyer) on the relevant (upstream and downstream) markets, the greater the likelihood that their market power is high. This is particularly true when the market share reflects cost or other competitive advantages over competitors.[16]
Also relevant is the market position of competitors. Again, the stronger the competitive position of competitors and the greater their number, the lower the risk of foreclosing the market to competitors or weakening competition.[17]
If, for instance, the agreement includes single branding and/or exclusive supply clauses, but the competitors are sufficiently numerous and strong, the Commission considers that significant anti-competitive effects are unlikely: competitors are unlikely to be foreclosed if they have similar market positions and can offer similar products of equivalent quality. Foreclosure of potential entrants could possibly occur if several major suppliers also enter into single-branding agreements with a significant number of buyers in the relevant market.[18]
As for the barriers to entryat the level of the suppliers, these are commensurate with the ability of companies already established in the market to raise their price above the competitive price without causing new competitors to enter the market.
What is certain is that, insofar as it is relatively easy for competing suppliers to set up their own integrated distribution network or find alternative distributors for their product, it is again unlikely that there will be a real problem of foreclosure by having single branding clauses,[19] i.e. clauses that also impact on competition inter-brand. Similarly, even in the case of exclusive supply agreements, the presence of entry barriers at supplier level should not create problems insofar as competing purchasers are contractually recognised as being able to source from alternative sources and this is also easily realisable.[20]
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6. Concluding remarks.
In practice, there is no mathematical formula that makes it possible to identify a priori whether a distribution agreement, which exceeds the 30% quota, is actually exempt from the block exemption, since this depends on numerous factors, including the type and content of the competition-restricting contractual clauses within it and the impact these have on the reference market, which may be more or less competitive.
Thus, in order to understand whether a distribution agreement that exceeds the market threshold of 30% may nevertheless benefit from the exemption, it is necessary to analyse the individual case, also using the tools provided by the Commission and briefly referred to and summarised above. Simplifying (but far from trivialising), the most important elements that should prompt contractors to raise the threshold are:
- market shares held by them;[21]
- the assessment of the individual clauses contained within the agreement, their combination and their effects on the market, taking into account those that impact on competition inter-brand are riskier than those affecting the competition intra-brand;
- the actual competitive state of the market and the position of the major player.
In conclusion, it may reasonably be argued that distribution contracts that do not contain the hardcore restrictions set out in Article 4 of the Regulation, let alone those set out in Article 5, may be exempted, despite being concluded between parties with a market share quite relevant, if the market appears to be sufficiently competitive.
Indeed, if one analyses clauses which have an impact on inter-brand competition (i.e. exclusive purchasing obligation and non-compete agreement), even if these clauses prevent competitors from entering the market (i.e. the dealer is forbidden from supplying and reselling products other than those covered by the contract), in principle they may have a negative impact on competition if it can be shown that there are not enough players within the relevant market of reference who can perform similar services (and thus other dealers who can resell competing products).
On the other hand, as regards sales exclusivity, it essentially affects competition intra-brandwhere there is sufficient competition in the relevant market inter-brandthe clause should not create any particular antitrust problems, for the reasons stated above.
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7. Fines and ordinary actions.
Any non-compliance with antitrust law may not only be ascertained by the Commission and the relevant national authority - either at its own instance or at the instance of third parties - but may also be brought before the ordinary courts at the instance of the other contracting party or third parties who complain that anti-competitive conduct leads to an impairment of their interests.
With regard to fines, the threshold set by the Commission is particularly high, and is equal to up to 10% of the total annual turnover achieved in the previous business year by the undertaking fined. This is because the fine must have a 'sufficiently deterrent effect, in order not only to penalise the undertakings concerned (specific deterrent effect), but also to dissuade other undertakings from engaging in or continuing conduct contrary to Articles 101 and 102".[22]
Likewise, the domestic legislation,[23] recognises the Authority's power to impose fines where the unlawful conduct is characterised by seriousness, which have not '.nature of a civil asset measure (...) but of an administrative sanction with punitive connotations (akin to a criminal sanction)."[24]
As to ordinary actions, these are the typical ones, i.e. those seeking to ascertain a breach, those seeking to ascertain the nullity of the contractual relationship, those seeking to obtain damages, as well as those seeking to obtain a precautionary measure. In this case, no maximum thresholds are envisaged, but the quantification of damages will have to be calculated and assessed from time to time on the basis of the general principles of compensation provided for by the legislation applicable to the individual case.
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[1] Bortolotti, Distribution Contracts, Wolters Kluwer, 2022, p. 775.
[2] Point 48, Guidelines.
[3] Art. 8(d) of Regulation 2022/720.
[4] Judgment of 30 January 2020, Generics (UK) and Others, C-307/18, EU:C:2020:52, paragraph 63
[5] Judgment of 2 April 2020, Budapest Bank and Others, C-228/18, EU:C:2020:265, paragraph 35 and case law cited therein.
[6] In this sense, judgment of 30 January 2020, Generics (UK) and Others, C-307/18, EU:C:2020:52, paragraph 64.
[7] In this sense, Budapest Bank and Others, C-228/18, 2 April 2020, EU:C:2020:265, paragraph 54 and case law cited therein.
[8] In this sense, judgment 18.11.20221, Visma Enterprise, C-306/20, no. 75.
[9] Point 19, Guidelines.
[10] Point 18, Guidelines.
[11] Point 21, Guidelines.
[12] Point 298, Guidelines.
[13] Point 21, Guidelines.
[14] Point 135, Guidelines.
[15] Point 278, Guidelines.
[16] Point 282, Guidelines.
[17] Point 283, Guidelines.
[18] Point 303 and 328, Guidelines.
[19] Point 305, Guidelines.
[20] Point 326, Guidelines.
[21] I would point out that, if very high and in the presence of a market that is not particularly competitive, this could even constitute a dominant position hypothesis under Article 102, which I reserve the right to investigate further if requested.
[22] Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation (EC) No 1/2003.
[23] Art. 15 Law 287/1990.
[24] Council of State, Judgment No. 1671 of 2001.
The new European Regulation on Vertical Agreements and Concerted Practices maintains the exemption for all agreements in which both supplier and buyer do not exceed the 30% of market shares on the relevant market; all vertical agreements between parties that do not exceed these thresholds enjoy a presumption of lawfulness, provided that the contracts do not contain hardcore restrictions prohibited by the Regulation.
This has to be coordinated with the fact that over the past decades the Commission has issued a number of Notices, which aim to clarify a very relevant principle in antitrust matters, namely the inapplicability of the prohibition of Article 101(1) of the Treaty to agreements whose impact on trade between Member States or on competition is negligible.
Not to mention the theory de minimis developed by the Court of Justice, according to which the agreement does not fall under the prohibition of Article 101 if, in view of the weak position of the participants on the product market, it affects the market to an insignificant extent.
Applying these principles to exclusive distribution relationships is a far from easy task, and this article will attempt to provide the reader with an overview of the subject, thus offering food for thought and insight.
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1. Typical competition-restricting clauses in exclusive dealership contracts.
The new European Regulation 2022/720 on Vertical Agreements and Concerted Practices maintains the approach already adopted by Regulation 330/2010, under which all restrictive clauses of competition included within vertical relationships (as defined in Article 1) are automatically exempted, with the sole exception of a limited group of impermissible agreements.
The expressly prohibited covenants fall mainly into two groups, namely:
- severe or fundamental restrictions (so-called hardcore restrictions), listed in the 4, the presence of which excludes the entire agreement from the benefit of the block exemption (and which, in an exclusive distribution system, are essentially the prohibition of resale price maintenance to the distributor, the prohibition of passive sales, and the prohibition of the use of the internet);
- the restrictions set out in 5which, although not exempted by the Regulation, their presence does not prevent the rest of the agreement from benefiting from the exemption (and which, in an exclusive distribution system, are essentially the over five-year non-compete obligation[1] and the post-contractual non-compete obligation).
In the context of a dealership relationship, such an approach whereby everything that is not expressly prohibited (even if in itself restrictive of competition under Article 101) is implicitly authorised, is perfectly in line with the approach taken by the Commission in the (now distant) decision Grundig,[2] where the absolute protection of dealers and the creation of 'closed exclusive' distributions was deemed contrary to the principles of the European single market,[3] so-called 'open exclusivities' were considered admissible and in line with the European competition principle,[4] which in fact guarantees the possibility of parallel markets to the exclusive one.[5]
Read also: Parallel Sales in the EU. When and to what extent can a manufacturer control them?
In addition, therefore, to the classic (open) exclusivity clause, a further clause typically included in sales dealership contracts that may be deemed automatically exempted by the European Regulation (since it is not expressly prohibited) concerns the imposition of an obligation on the part of the supplier/dealer not to make sales (not even passive sales) to customers in the territory reserved exclusively for the dealer.
Similarly, it could be said, as indeed part of the doctrine affirms,[6] that a clause prohibiting the supplier/dealer from selling products to parties outside the territory, of which he is aware that they supply within the dealer's area, is also admissible.
Otherwise, a clause by which the distributor undertakes to obtain its supplies exclusively from the supplier would seem to fall within the scope of the definition of the non-compete obligation provided by Article 1(f)[7] and therefore subject to the time limit set out in Article 5 of the Regulation.
Having made a very brief 'roundup' of the typical clauses of exclusive dealership contracts that may have restrictive impacts on competition, we will examine below the impact that the market share of the supplier and dealer may have under antitrust law. On this point, in fact, it is noted that:
- Article 3 of the Regulation provides that the exemption applies to all agreements in which both supplier and buyer do not exceed 30% of quotas in the "relevant market";
- the European Commission, in line with the Court of Justice, in its Communication of 30.8.2014, set the market shares below which the prohibition of Article 101 is to be considered inapplicable, with the exception of restrictive clauses by 'object' and fundamental clauses;
- the European Court of Justice developed the theory de minimisaccording to which in the presence of insignificant market shares, the individual agreement may not fall in full under the prohibition of Art. 101.
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2. Market shares above 30%.
The new regulation in Art. 3 has maintained, for all vertical agreements, the so-called safety zone provided for in the previous regulation,[8] delimited by the market share threshold of 30%, which must be exceeded by both the supplier and the buyer within the relevant market where they respectively sell and purchase the contract goods or services. They benefit from the automatic exemption granted by the Regulation, i.e. a presumption of lawfulness, provided also that they do not contain hardcore restrictions prohibited by Article 4 of the Regulation.
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2.1. Identification of the relevant market.
Applying this principle to exclusive dealerships, in order to understand whether the individual agreement enjoys this presumption, it is necessary to identify the relevant market of both the manufacturer and the seller and to assess whether both parties have a share of more than 30%.
In particular, it must be understood whether the reference market is the contractual one (and thus corresponds to the territory granted on an exclusive basis), or whether it must be broadened to include areas in which the dealer does not actively operate.
The answer, far from immediate, is partly offered by the Point 88 of the old Commission Guidelines (2010/C 130/01)as well as by the point 170 of the new guidelines. The latter, in particular, refers for the definition of the relevant market to the criteria used by the Commission in its Communication 97 /C 372/03.
First, it is necessary to understand and define what is meant by the relevant (product) market, which includes (point 7 of the 97 Communication):
"all products and/or services that are regarded as interchangeable or substitutable by the consumer, by reason of the products' characteristics, their prices and their intended use. "
Thus, in order to calculate 30%'s quota, it is first necessary to understand whether the contract products can be substituted by other similar products, based on the purposes for which they were conceived, designed and sold, from the point of view of the end consumer.
Having done so, one has to move on to the relevant geographic market (here is the definition, taken from paragraph 88 of the 2010 Commission Guidelines):
"The relevant geographic market comprises the area in which the undertakings concerned are involved in the supply or purchase of products or services, in which the conditions of competition are sufficiently homogeneous and can be distinguished from neighbouring geographical areas because the conditions of competition are significantly different in those areas. "
With specific reference to the relevant geographic market, paragraph 13 of the Notice clarifies:
"An undertaking or group of undertakings cannot exert a significant influence on current sales conditions, and in particular on prices, whether customers are able to switch easily to substitute products available on the market or to suppliers located elsewhere. Basically, the market definition exercise consists of identifying the actual alternative sources of supply for the customers of the companies concerned, both in terms of products/services the geographical location of suppliers. "
Paragraph 29 of the Notice would seem not to exclude that the relevant market may also be regional, but in order to be defined as 'relevant', it must actually be ascertained whether undertakings located in areas other than the area in which the distributor makes its sales really constitute an alternative source of supply for consumers; this is done by means of an analysis of the characteristics of demand (importance of national or local preferences, current purchasing habits of consumers, product differentiation and brands, etc.), aimed at determining whether undertakings located in different areas really constitute an alternative source of supply for consumers.
On this point, the Commission states:
"The theoretical test is also based here on the substitution effects that arise in the event of a change in relative prices, and the question to be answered is always the same: whether the parties' customers would decide to turn to companies located elsewhere for their purchases, in the short term and with negligible costs. "
Point 50 of the Communication finally points out that obstacles and costs related to switching to suppliers located in another geographical area must also be evaluated.
It is stated precisely that:
"Perhaps the most obvious obstacle to switching to a supplier located in another area is the incidence of transport costs and possible transport difficulties resulting from regulatory requirements or the nature of the relevant products. The incidence of transport costs normally limits the geographical market radius for bulkier and lower-value products, although it should not be forgotten that disadvantages arising from transport costs may be offset by comparative advantages in terms of other costs (labour or raw material costs). "
In view of the foregoing, it may reasonably be argued that the relevant market for the purposes of the Regulation is not to be understood as the air to which the distributor has been granted exclusivity, but it is possible (if indeed this is the case) to extend that air to a larger, or smaller, geographical area.
Certainly, if within the same relevant market the licensor designates a large number of exclusive distributors, there will be an increased ease for final purchasers to travel to other areas to purchase the products sold, by virtue of the particular fragmentation of the market into several exclusive zones.[9]
If, on the other hand, the market in a given country is granted on an exclusive basis only to one dealer, and in that market both parties have a share of more than 30% of the relevant market, it will certainly be less easy (though far from impossible) to prove that the relevant reference market should be extended to a supranational area, not covered by the contractual exclusivity.
Importantly, however, the Commission considers that the mere exceeding of market shares under Article 3 does not automatically presume that the agreement (which does not contain hardcore restrictions of competition under Article 4) does not benefit from the block exemption.[10]
This will require an individual assessment of the likely effects of the agreement, with an invitation to the companies to make their own assessment, no notification being necessary.[11] The Commission suggests in §§ 97 ff. methods for evaluating these effects.
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3. Market share below 15%.
Over the past decades, the Commission has issued a number of Communications, most recently the current one of 30.8.2014which aim to clarify a very relevant principle in antitrust matters (a principle most recently reaffirmed by the Court of Justice in the judgment Expedia,[12]) i.e. the inapplicability of the prohibition in Article 101(1) of the Treaty to agreements whose effect on trade between Member States or on competition is negligible.
Article 5 of the Notice makes it clear that the Notice, although non-binding, is to be embraced as an essential tool for judges and responsible authorities in the interpretation of European competition law.
Article 8(b) states that the vertical agreement (in this case, the exclusive distribution agreement) is irrelevant if the shares held by each of the parties do not exceed 15% on any of the relevant markets affected by the agreement.[13]
In line with the case law of the Court of Justice, it is made clear that the inapplicability of the prohibition to minor restraints does not apply to restrictions for "object",[14] as well as the hardcore restrictions in Article 4 of the Regulation (i.e. prohibition of resale price maintenance, passive sales and the use of the Internet).
The Notice, on the other hand, expressly determines the applicability of the prohibition of restrictive practices to minor restraints under Article 5 of the Vertical Agreements Regulation. On this point, the second part of Article 14 provides that:
"The safe harbour is [...] relevant for agreements covered by a Commission block exemption regulation to the extent that such agreements contain a so-called excluded restriction.".
As we have seen, the clauses included in Article 5 of the Regulation (so-called excluded restrictions) that are most often used in exclusive distribution systems are the five-year non-compete covenant and the post-contractual non-compete covenant; these clauses, which by definition are excluded from the restrictions "by object", would therefore appear not to be automatically subject to the prohibition of Article 101, whenever the individual relationship does not exceed the relevant market share of 15% identified by the Commission.
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4. Market share below 2%.
In (far) 1969, the Court of Justice in its judgment Völk-Vervaeckehad developed a theory according to which the agreement does not fall under the prohibition of Article 101 if, in view of the weak position of the participants on the product market, it affects the market to an insignificant extent.
In the present case, the shares held were 0.008% in EEC production and 0.2% in Germany, and the Belgian dealer had a share of 0.6% in the Belgian and Luxembourg markets.
In that circumstance, the Court had recognised the possibility of establishing a relationship of even absolute exclusivity (and thus closed exclusivity), "because of the weak position of the participants on the market for the products concerned in the protected area."
In such cases (where the quota is "irrelevant"and not "negligible"as in the case outlined by the Commission), even agreements containing clauses would be valid hardcoreon the assumption that if the agreement does not have any appreciable effect on competition, the degree of dangerousness of the clauses contained therein cannot be relevant.[15]
It should be noted that it was deemed "an undertaking of sufficient size for its behaviour to affect trade'. a company holding 5% of the market,[16] thus a company holding 3%, if these percentages are higher than those of most competitors and taking into account their turnover.[17]
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[1] The new Regulation maintains the previous approach, leaving the five-year period unchanged, the new guidelines introduce (at §248) an important novelty with regard to the hypothesis (iii) of tacit renewal, non-compete clauses that are tacitly renewed beyond five years may be exempted, provided that the distributor is allowed to effectively renegotiate or terminate the vertical agreement containing the non-compete obligation with reasonable notice and without incurring unreasonable costs, and that the distributor is then able to switch to another supplier after the expiry of the five-year period.
[2] Decision Grundig-Costen, 23.9.1964.
[3] Closed' exclusivity is characterised by the fact that the dealer is granted perfect territorial protection by imposing on all distributors in the network not to resell to persons outside their area, and with the further obligation to impose this prohibition on their buyers, etc.
[4] Open exclusivity is characterised by the fact that the dealer obtains the right to be the only party to be supplied by the manufacturer in a given territory. In any case, the position guaranteed to the latter is not a 'monopoly', since parallel importers, albeit within the limits imposed by atitrust law (on this point cf. Parallel Sales in the EU. When and to what extent can a manufacturer control them?) will be able to purchase the goods from third parties (wholesalers or dealers in other areas), and then possibly resell them in the dealer's exclusive territory.
[5] On this point see Bortolotti, I contratti di distribuzione, p. 690, 2016, Wolters Kluwer.
[6] Bortolotti, p. 695.
[7]"Non-compete obligation' means any direct or indirect obligation [...] which obliges the buyer to purchase from the supplier or from another undertaking designated by the supplier more than 80 % of its total annual purchases of the contract goods or services.. "
[8] See Art. 3 Reg. 330/2010. Reg. 2790/99 postulated, as a condition for the exercise of the presumption, a market share (normally held by the supplier) not exceeding the threshold of 30%. The double threshold had also been advocated by the Commission with regard to the 1999 version; however, the proposal had been dropped due to widespread opposition by practitioners and then accepted in the 2010 regulation, given the awareness of the growing size of the 'buying power' of large-scale distribution, Restrictions by object, Ginevra Buzzone, Trento 2015.
[9] On this point see also §130 of the New Guidelines.
[10]§ 275 of the new Guidelines, in accordance with § 96 of the previous Guidelines.
[11] § 275 of the new Guidelines, in accordance with § 96 of the previous Guidelines.
[12] See Case C-226/11 Expedia, in particular paragraphs 16 and 17.
[13] Point 19 also states that "Where in the relevant market competition is restricted by the cumulative effect of agreements for the sale of goods or services entered into by several suppliers or distributors (cumulative foreclosure effect of parallel networks of agreements having similar effects on the market), the market share thresholds under paragraphs (8) and (9) are reduced to 5 %, both for agreements between competitors and for agreements between non-competitors. Individual suppliers or distributors whose market share does not exceed 5 % are in general not considered to contribute significantly to a cumulative foreclosure effect (3 ). Such an effect is also unlikely to arise where less than 30 % of the relevant market is covered by (networks of) parallel agreements having similar effects. "
[14] Since 1966, the Court has in fact indicated, in Consten & Grundig that 'for the application of Article 101(1), it is unnecessary to consider the actual effects of an agreement where it appears that it has as its object the restriction, prevention or distortion of competition' and specified in Société Technique Minière that, in order to consider an agreement restrictive by object, one must consider "the very object of the agreement, taking into account the economic circumstances in which it is to be applied. (...) If the examination of these clauses does not reveal a sufficient degree of harm to competition, the effects of the agreement will have to be examined and the agreement will be caught by the prohibition if it appears that competition has been prevented, restricted or distorted to an appreciable extent in practice.". Cf. Restrictions by object, Ginevra Buzzone, Trento 2015; Commission Staff Working Document Guidance on restrictions of competition 'by object'.
[15] Bortolotti, p. 653.
Which waivers and transactions can be challenged by the commercial agent pursuant to art. 2113 cc?
Concurrently with the closure of an agency relationship, it is customary for the parties to formalize with a document all the existing disputes between them (indemnity, commissions still due, etc.).
Evaluating the validity and effectiveness of this document is far from easy, given that it depends on various circumstances, which are not limited only to an analysis and interpretation of the content of the text, but also from the moment in which this agreement was drawn up (i.e. before or after the termination of the relationship), as well as the legal form covered by the agent (natural person or company).
The art. 6 of the law 11 August 1973, n. 533 has fully amended art. 2113 cc, relating to the invalidity of waivers and transactions, extending (as will be developed below) the application to all the relationships provided for by art. 409 cpc, including agency relationships. The civil law provides in the first paragraph that:
"waivers and transactions, which have as their object the rights of the employee deriving from mandatory provisions of the law and collective contracts or agreements concerning the relations referred to in Article 409 of the Code of Civil Procedure, are not valid. "
Para. (2) imposed a time limit of six months for contestation starting from the date of termination of the relationship, or of the waiver or settlement if this occurred at a later date; the contestation may be executed, according to para. (3) of Art. 2113 of the Civil Code, in a manner that is not particularly orthodox, i.e. "with any written deed, including out-of-court, of the worker capable of disclosing the will. "
The fourth and last paragraph of art. 2113 of the Italian Civil Code, on the other hand, provides that waivers and transactions are always valid if formalized in a protected location within the terms provided for by art. 410 of the Code of Civil Procedure, that is, before the labor court, or the territorial management of labor.
The rule therefore sets itself as a limit to the faculty of disposing of the rights of the worker and has the purpose of offering the same an instrument, consisting in the faculty of challenging the dispositive acts that may have been determined by a situation of imbalance in the contractual relationship, provided that:
- the subject of the agreement are real waivers and transactions and not mere receipts;
- in terms of structure, characteristics and operating methods, the relationship falls within those mentioned in art. 409 cpc;
- the subject of the transaction are mandatory provisions of the law of collective bargaining.
Below is a brief review of the points listed above.
1. Receipts, Waivers and Settlements.
In the first instance, art. 2113 of the Italian Civil Code applies only to waivers and transactions carried out by the worker, which differ from generic final receipts which do not have any settlement substance and are therefore not real declarations of a willingness to negotiate. The receipts are considered mere attestations underlying to affirm the satisfaction of certain rights and, therefore, do not prevent a subsequent request for judicial protection of further rights not yet satisfied.[1]
In order for a waiver or settlement to be conceivable, it is necessary that the employee, in making the declaration, has an exact representation of the rights, whether definite or determinable, of which he voluntarily intends to deprive himself in favour of the employer or on which he wishes to settle;[2] if, on the other hand, the subject matter is not delimited and the party is not aware of it, there is neither waiver nor settlement, regardless of the situation in which the declaration is made and signed. It reads:
"the settlement receipt signed by the employee, which contains a declaration of waiver of higher sums referring, in general terms, to a series of claims that can be hypothesised in the abstract in relation to the performance of the employment service and the conclusion of the relevant relationship, may assume the value of a waiver or settlement, which the employee has the burden of challenging within the time limit set forth in Article 2113 of the Civil Code, on the condition that it is established, on the basis of the interpretation of the document or the concurrence of other specific circumstances inferable aliunde, that it was issued with the knowledge of definite or objectively determinable rights and with the conscious intention of abdicating or settling them. "[3]
2. Employee, commercial agent and 2113 cc
As anticipated, art. 2113 cc refers to the "employee"given the express reference to relations provided for by art. 409 cpc
The art. 409 identifies disputes that must be decided according to the rite of work, also including self-employment relationships of a non-subordinate nature, including those of representation and agency, provided that the work performance is characterized by a continuous and coordinated work performance, mainly personal.
The question arises spontaneously whether only commercial agents acting as natural persons are subject to the rite of work, or also agents who, even if they operate in the form of joint-stock companies, have a structure such that in fact the personal element prevails. of the service (e.g. single-member companies, companies between individual agents, etc.).
According to the most recent jurisprudence of the Supreme Court, only agents who act as natural persons are considered to be subject to the rite of work, excluding all the hypotheses of agent constituted in corporate form, both of persons and capital, regular or irregular whether they are:
"A limited partnership, irrespective of the number of partners, constitutes in any event an autonomous centre of imputation of legal relations with respect to the partners themselves; therefore, when an agency contract is concluded between the principal and a limited partnership, the dispute over the termination of that contract falls outside the jurisdiction of the employment court, regardless of whether one of the partners has materially carried out the personal activity of an agent, since that activity is necessarily mediated by the company, losing the character of personality with respect to the principal"[4]
In the case of a waiver or transaction made by an agent who does not perform its services in a predominantly personal manner, it will not be subject to the guarantor discipline of Art. 2113 of the Civil Code, which will therefore be reserved solely for agents performing the activity as natural persons.
3. Mandatory rules.
The concept of mandatory rule is indirectly linked to the principle of contractual autonomy, sanctioned by art. 1322 of the Italian Civil Code, by virtue of which "the parties can freely determine the content of the contract within the limits imposed by law. " Therefore, those rules whose application is imposed by the legal system regardless of the will of the individual are said to be mandatory.[5]
In the context of labor law, the mandatory rule has the purpose of re-establishing that parity between contractors, typical of private relationships, which the diversity of social and economic situations could prevent in the context of the employment relationship.[6] "The mandatory rule therefore has the function not of a mere formal guarantee of personal freedom, but moves in the sense of making this freedom effective, and starts from the idea that man's existence does not depend only on his self-determination, but also on relationships economic and / or power in which he lives and which lead him to depend on variants on whose production he does not (generally) exercise any influence.[7]
Art. 2113 of the Civil Code operates precisely in this context, with specific regard to the validity of any transactions or waivers made by the employee on rights deriving from mandatory rules. Understanding therefore what is specifically meant by a mandatory rule is essential in order to be able to apply this regulatory provision also in the context of commercial agency.
The doctrine almost unanimously agrees in distinguishing a group of rights absolutely unavailable and guaranteed at the constitutional level (defined primary or strictly personal such as, for example, the right to health, weekly rest, holidays, social security, etc. ), whose dispositive acts would be totally void pursuant to art. 1418 cc and would remain outside the scope of application of the law and other rights, of a patrimonial nature (cd secondary), which, on the other hand, although they are laid down by mandatory rules, are in no way unenforceable: it is in relation to them that the rule at issue would operate with the consequent annulment of the enacting act.[8]
Only for such property rights - which would be fully dischargeable - does the special rule of Article 2113 of the Civil Code apply, which makes cancellable waiver and settlement agreements, provided they are timely challenged within the six-month time limit and concern rights that have already accrued. On the contrary, Art. 2113 of the Civil Code does not apply to rights that have not yet arisen or accrued, since in such a case the dispositive agreement would otherwise regulate the effects of the employment relationship in a manner different from that established by law and could lead to the nullity of the act.[9]
3.1. Commissions.
In this context, the majority jurisprudence is oriented towards the belief that any waivers or transactions relating to commissions accrued by the agent should not be considered binding. It is read:
"are valid - and therefore not subject to the appeal regime provided for in Art. 2113 of the Civil Code. - waivers and settlements concerning the amount of the agent's commissions, the determination of which is left to the free disposal of the parties."[10]
3.2. Indemnity pursuant to art. 1751 cc and AEC indemnity.
A different argument, on the other hand, concerns the agent's right to the severance pay indemnity pursuant to art. 1751 of the Italian Civil Code, given that the resulting text following the changes made in implementation of Directive 86/653 does not seem to leave many doubts in this regard; the penultimate paragraph of this provision reads: "the provisions of this article are mandatory to the disadvantage of the agent ".
Absolute legal certainty and clarity (and its consequent interpretative activity), ceases if we analyze this rule in relation to art. 19 of Dir. CE 653/1986, which establishes the mandatory right to indemnity only in the period preceding the end of the contract:
"The parties may not derogate, before the end of the contract, from Articles 17 and 18 to the detriment of the commercial agent. "
The problem arises that, by crossing art. 1751 cc penultimate paragraph, with art. 19 of the directive, the provision on indemnity could no longer be considered mandatory following the termination of the relationship, with the implicit consequence that the renunciation or settlement subsequent to the termination of the relationship would not have as its object a mandatory right and thus subject to the discipline of referred to in art. 2113 of the Italian Civil Code, which would remain applicable only to waivers and transactions that took place during the execution of the relationship.
To provide further clarity, the Court of Cassation, in a partially outdated judgement, noted however that the Italian legislator, in transposing the EU rule, omitted the phrase - before the expiration of the contract - simply stating that the provisions of the same article are mandatory to the disadvantage of the agent.
According to the Court, this means that although, according to the directive, the settlement agreements reached after the expiry of the contract relating to the extent of severance pay could be considered fully legal, now, in the system outlined by the new provisions of our civil code, the legislator wished to maintain the mandatory nature of art. 1751 cc even after the termination of the contract.[11]
It follows that, depending on whether the provision in question is considered, following the interruption of the contract, as derogable or mandatory, any waiver may be considered as open to challenge or not to be challenged.
However, one should not be distracted from the fact that the object of an appeal under Article 2113 of the Civil Code must remain common what Article 1751 of the Civil Code precludes, i.e., contractual provisions that are unfavourable to the agent: jurisprudence has in fact recognised that if such an agreement is possible to amend a contract that has already been concluded, a fortiori an exception must be considered permissible, "...".not in peius', as opposed to the legal regulation following the conclusion of the contract. [12]
Translating this principle into practice, if only Art. 1751 of the Civil Code applies to the contract, the agent will have to prove that the settlement agreement/waiver was detrimental to him by demonstrating that the conditions provided for in the code (i.e. having procured new customers to the principal or having significantly developed business with existing customers, as well as the benefits received by the principal), as well as the unfairness of the agreed payment, are met.
Less clear is the case where the parties have agreed on the applicability of the commercial AEC and have reached an agreement that in fact recognises exactly the indemnities provided for by such discipline; it must be acknowledged that the prevailing orientation of jurisprudence, even though it attributes to the collective discipline a value of a "guaranteed minimum", nevertheless recognises the agent, who proves that the conditions set forth in Article 1751 of the Civil Code exist, to ask the judge for an addition necessary to bring it to equity [13]. Following this orientation, even a settlement agreement that took place after the termination of the contract, where the parties recognised the agent's indemnities under the CSA, would be contestable to the extent that such indemnities are shown to be lower than those due to the agent under civil law provisions.
3.3. Post-contractual non-competition agreement and art. 2113 of the Italian Civil Code
Although no case law precedents have been found, another element that could be the subject of potential litigation is highlighted, concerning the relationship between Article 2113 of the Civil Code and Article 7 AEC Trade 2009, on the subject of post-contractual covenants not to compete. The provision states:
"In implementation of the provisions of Article 1751-bis of the Civil Code, the payment of a
non-commissionable indemnity, mandatorily in a single solution at the end of the relationship,
against the post-contractual non-competition agreement, when it is included in the individual
agency assignment."
Since this is an expressly mandatory rule deriving from a collective economic agreement, it would seem to fall perfectly within the scope of Article 2113 of the Civil Code, with the consequence that an agreement providing for the payment in instalments of said indemnity could potentially be challenged by the agent.
Given the delicacy of the matter, it is therefore advisable to formalise any waivers or settlements relating to the severance indemnity, within the terms provided for by Article 410 of the Code of Civil Procedure, i.e. before the employment judge, or, alternatively, before the territorial labour directorate, since they become unappealable by law.
[1] Cassino Court, 1.7.2008, n. 997.
[2] Cass. Civ. 2006, n. 11536, Cass. Civ. 2004, n. 11627, Civ. 2003, n. 9636.
[3] Court of Appeal Catanzaro, 18.4.2017, no. 423
[4] Cass. Civ. 2022, 10184; in this sense too Cass. Civ. 2012, n. 2158. Contra Cass. Civ. 1997, no. 4928 ".A relationship of para-subordination, with the consequent jurisdiction of the employment tribunal, can also be established in the case of an activity provided in the context of a company management, by means of de facto companies or partnerships, even irregular ones, where it appears that the said activity is in fact provided in such a manner that there exists that state of socio-economic dependence which constitutes the essential element of para-subordination and of which the predominantly personal activity is the typical indicator.
The company profile may well be limited to a simple pact between the partners concerning the distribution of work and revenue, with symptomatic attenuation, therefore, of the element constituted by the joint exercise of an economic activity, provided for by Article 2247 of the Civil Code, as well as that, referred to in Article 2082 of the same code, of organisation for the purpose of the production or exchange of goods or services."
[5] Torrente - Schlesinger, Manual of private law, Giuffrè Editore.
[6] Cester - www.treccani.it.
[7] By Meo, The mandatory legal norm in Labor Law, Marche Polytechnic University.
[8] One Legal, Commented Civil Code, Wolters Kluwer.
[9] Cass. Civ. 2006, n. 2360, Cass. Civ. 2004, n. 2734.
[7] Torrente - Schlesinger, Manual of private law, Giuffrè Editore.
[8] Cester - www.treccani.it.
[9] By Meo, The mandatory legal norm in Labor Law, Marche Polytechnic University.
[10] Trieste Court, 2.1.2001.
[11] Cass. Civ. 2004, n. 7855; in this sense Venezia, The agency contract, 2020, Giuffé; Saracini-Toffoletto, The agency contract, Giuffré.
[12] Cass. Civ. 2000, n. 11402.
[13] Trieste Court, 2.1.2001, Cass. Civ. 1988, n. 6.
The essential elements of the agency contract.
In order to identify the essential elements of the agency contract, i.e. those elements that are so characterising that they are indispensable to qualify the relationship as such, it is certainly appropriate to start from the definitions of agent that are provided to us by the legal system.
This passage, which at first glance would appear to be almost elementary, becomes much more complex when confronted with reality: the "notion"of agency provided to us by Article 1742 of the Civil Code, is partly at variance with that to which this rule has conformed,[1] that is dictated by the European Directive 86/653on the coordination of the laws of the Member States relating to self-employed commercial agents.
Article 1(2) of Directive 86/653 states that:
"For the purposes of this Directive, 'commercial agent' means a person who, as an independent intermediary, is permanently entrusted with negotiating for another person, hereinafter referred to as 'principal', the sale or purchase of goods, or with negotiating and concluding such transactions in the name of and on behalf of the principal."
Already from a first reading of the rule, it can be deduced that the elements characterising the commercial agent are essentially three, namely:
- independence in the conduct of their business activities;
- the continuity of the relationship with the principal;
- the business of buying and selling goods.
This certainty is (probably) immediately undermined by reading the notion (not so much of agent as of agency contract) that is provided to us by Art. 1742 of the Civil Code:
"With an agency contract, one party permanently undertakes the task of promoting, on behalf of the other, for remuneration, the conclusion of contracts in a specified area. "
In this case the elements (characterising the contract) are essentially:
- the stability of the assignment;
- the promotion of contracts;
- the area.
From an initial analysis, one realises that the most significant differences between the two definitions consist, firstly, in the concept of promotion (the directive, refers to the sale of goods, whereas the civil code, to the promotion of contracts) and, secondly, in the concept of area, which is only present in the notion proposed to us by Article 1742 of the Civil Code.
In fact, unlike the directive, in the context of which the provision for a territorial scope constitutes a mere contingency (possibly relevant from the point of view of indirect commissions, pursuant to Article 7 of the directive itself), Article 1742 of the Civil Code defines an agent as a person entrusted with the promotion of business in a given area.
Below we will analyse the elements provided by the two definitions, briefly comparing them, starting with the concept of zone, which is certainly the one that creates the most doubts and conflicting interpretations.
1. The area
The Court of Justice has repeatedly confirmed that it is sufficient for a person to fulfil the three conditions laid down in Article 1(2) of the directive in order to qualify as a commercial agent, irrespective of the manner in which that person carries out his activity (and provided that he does not fall within the exclusion hypotheses of Articles 1(3) and 2(1) thereof).[2]
Although a strict application of this orientation would lead to the conclusion that zoning is not one of the necessary requirements of the agency contract, one certainly cannot overlook the fact that Art. 1742 expressly calls for such a concept within the definition.
In line with this, there is an orientation of the most authoritative doctrine,[3] according to which, the inclusion of the concept of 'area' within the national legislation would represent an essential characteristic of the relationship, so much so that there could be no agency contract without the fixing of a specific territory reserved to the agent (or the same could be identified indirectly[4]).
But what is meant by zone and to what extent can this concept be extended (important, never confuse the concept of zone with that of exclusivity)?
- Read also: Area exclusivity in the agency contract.
Normally the zone is identified in the contract by reference to a geographical extension, however case law does not regard the requirement of the zone being determined with excessive rigidity, since it may be implicitly inferred from the reference to the territorial scope in which the parties unquestionably operate.[5]
As an alternative to the zone, case law has held that the concept of group of persons/clients, referred to in Article 7 of the Directive and Article 1748(3) of the Civil Code, in the context of indirect commissions also falls within this concept.[6]
It was even ruled out (albeit in an earlier judgment) that a contract limiting the scope of action of the agent to the promotion of sales to a single customer could be qualified as an agency.[7]
Part of the best doctrine (with which we associate ourselves) considers, however, that the conflict between the definition of Art. 1742(1) of the Civil Code and the directive would probably be surmountable through a "corrective" interpretation[8] of the rule in question, treating the reference to the area as a descriptive element of the normal situation and not instead as an essential and indispensable requirement of an agency contract.[9]
2. Independence (and conduct of business on the principal's premises)
As analysed above, the legislation includes independence among the essential requirements of the agency relationship.
Indeed, when analysing this requirement, it must be borne in mind that the agent's independence does not cease to exist only in the most blatant case in which the relationship presents the characteristics of subordination, but there are other numerous circumstances of interdependence, certainly more grey and, therefore, even more difficult to identify, which may in any event undermine the agent's autonomy, and, therefore, the configurability of this contractual case.
- Read also: The agency contract and the employment relationship: distinguishing criteria and evaluation parameters.
One thinks of the case, which is far from rare, of the agent carrying out his promotion activities at the principal's premises (where, for instance, in the automotive sector, it is even the norm for the agent to carry out his activities at the dealer-preprincipal's premises).
The question arises as to whether the status of agent is compatible with the pursuit of economic activity within the premises of the principal, given that neither the civil law nor any other provision of Directive 86/653 expressly makes the status of 'commercial agent' conditional on the person concerned pursuing economic activity outside the premises of the principal's establishment.
The European Court of Justice has ruled out that the protection granted by the directive can a priori be excluded for persons who exercise their activity at the principal's premises,[10] on the assumption that subjecting the status of agent to conditions additional to those laid down in Article 1(2) of the directive would limit the scope of that protection and thus undermine the attainment of the objective pursued by it.
It will be necessary to verify each case on a case-by-case basis and to analyse whether the exercise of the promotion activity at the principal's place of business actually affects the agent's independence and, therefore, to understand whether, due to his physical presence at the principal's place of business, the agent is in fact in a position that prevents him from exercising his activity in an independent manner, both from the point of view of the organisation of his work and from the point of view of the economic risks associated with it (even trivially due to a reduction in the expenses incurred by the agent himself, being hinged within the principal's commercial reality).
Italian jurisprudence has also come to the same conclusion, starting from the assumption that the agent's main obligation (i.e. the promotion of contracts) can be performed, depending on the type of organisation the agent uses and the business sector in which it operates, in the most varied ways;[11] "The main 'discriminating factor' for the existence of an agency relationship is and remains the actual existence or lack of decision-making autonomy and entrepreneurial risk on the part of the agent.
3. Continuity of activity
One of the elements characterising the agent's activity, and distinguishing it from other intermediaries (e.g. brokers, business brokers), is that the agent undertakes to engage in business promotion on an ongoing basis.
- Read also: What is the difference between an agency contract and a business intermediary?
This obligation, which translates, on the one hand, into an attempt to conclude as much business for the principal as possible and, on the other hand, into stability in the frequentation of customers, a strengthening of loyalty and a numerical expansion of the customer base itself, has not been expressly included among the main requirements within the civil law framework (not even Article 1746(1), entitled the agent's obligations, makes express reference thereto).
Italian jurisprudence has overcome this 'loophole' by making continuity of activity one of the essential requirements of the relationship, to the extent that an agent has been held to be in breach for having only occasionally taken care of customer contact activities, even though he had nevertheless concluded several deals, even of considerable size.[12]
That being said, it very frequently happens that the activity of promotion, although carried out continuously and independently, is carried out alongside another activity, which may take on an ancillary or even a principal character.
What happens in such cases?
3.1. Agency contract and ancillary activity
Article 2(2) of Directive 86/653 grants Member States the option of providing that the directive does not apply to persons performing the "activities of commercial agents considered ancillary under the law of those Member States. "
In our legal system there is no specific provision on the subject, with the consequence that the characteristic content of the agency contract may be accompanied by accessory obligations for the agent, which do not distort the contract and maintain a merely instrumental relevance with respect to the agent's main obligation (think of the classic example of a commercial agent who also performs the activity of area manager).[13]
- Read also: Agent and/or Area Manager? A brief overview.
The case law of the European Court of Justice has also come to the conclusion that Article 1(2) of Directive 86/653 must be interpreted as meaning that a commercial agent may not be excluded from the benefit of that protection where the contract linking him to the principal provides for the performance of tasks other than those related to the activity of commercial agent, provided that that circumstance does not have the effect, having regard to all the circumstances of the case (nature of the tasks performed, proportion of those tasks, method of determining remuneration, existence of the economic risk incurred), of preventing the principal from carrying out his principal agency activity in an independent manner.[14]
The same principle also applies in the case where the agency contract is performed cumulatively (and thus with a separate relationship to the contract itself), through the performance of an activity of a different nature which binds them to the principal. Also in this case, the agency relationship will enjoy the protections of the directive, as long as the cumulative activity does not impair the independence of the principal activity.[15]
3.2. Ancillary agency activities to the main contract
The case where the sales promotion activity (even on a continuous basis) is ancillary to a different main relationship is different.
In that case, the discipline to be referred to, and which will govern the entire contract, will be that of the prevailing activity.[16]
From a practical point of view, the application of this principle is far from easy. One thinks of the classic distribution contract, which confers within it (and not in an ancillary or even unconnected contract) the power on the dealer to carry out, in certain cases and situations, an (ancillary) activity of intermediation and not pure resale.
In such a case, according to a long-standing ruling of legitimacy, if the activity of resale is prevalent over that of agency, the latter cannot in any event be attributed to the agency contract, but may at most be classified as business procuring.[17]
4. Sale of goods
The last essential requirement of an agency contract is that the agent promotes the sale or purchase of goods on behalf of the principal.
A first difference from civil law is the fact that the latter does not only cover the buying and selling of goods, but includes the much broader circumstance of brokering any type of contract (cf. Art. 1742 of the Civil Code).
The promotion and sale of services of all kinds (telecommunications, telephone, subscriptions of all kinds, etc.) undoubtedly fall within the 'Italian' notion of agent.
The conformity of our legislation with the European directive has been sanctioned by the European Court of Justice, which has clarified that when a member state in implementing the directive extends its scope of application to include the brokering of service contracts, these national rules must also be interpreted in accordance with the directive.[18]
There is, however, also at the level of European jurisprudence, a tendency towards a broad interpretation of the concept of both 'sale' and 'goods', this in favour of a broadening of the protection afforded to commercial agents, otherwise precluded by a more strict approach.
With regard to the interpretation of the concept of 'goods', the case law of the Court has held that it must be understood to mean all goods that are pecuniarily valuable and as such capable of constituting the subject matter of commercial transactions.[19]
With reference to the notion of 'sale', according to a commonly recognised definition, it consists of an agreement whereby a person assigns to another person, in return for payment of a price, his property rights in a tangible or intangible asset belonging to him.[20]
On the basis of these assumptions, the Court held that the supply of a computer program to a customer by electronic means in return for payment of a price also falls within the concept of 'sale' within the meaning of Directive 86/653 where that supply is accompanied by the grant of a perpetual licence to use the same computer program.[21]
[1] The first paragraph of Article 1742 of the Civil Code was initially added under Article 1, Legislative Decree No 303 of 10.9.1991 and subsequently replaced under Article 1, Legislative Decree No 65 of 15.2.1999.
[2] Judgment of 21 November 2018, Zako, C-452/17, EU:C:2018:935, paragraph 23.
[3] Baldi - Venice, The Agency Contract, p. 71.
[4] Cass. Civ. No. 20322, 2013, Cass. Civ. No. 2732, 1998.
[5] Cass. civ. no. 9063, 1994, Cass. civ. no. 2720, 1981
[6] Cass. Civ. no. 1916, 1993.
[7] Cass. Civ. no. 1916, 1993.
[8] Since the national court may not disapply a domestic rule that is contrary to a directive, it must interpret it in conformity with the directive itself, with the result that it will be obliged to prefer, among several possible interpretations of that rule, the one that is compatible with the directive itself (cf. Marleasing of 13.1990, Case C-106-/89).
[9] Bortolotti, Distribution Contracts, p. 102.
[10] Judgment of 21 November 2018, Zako, C-452/17, EU:C:2018:935, paragraph 28.
[11] Cass. Civ. No. 2853, 2001.
[12] Cass. Civ. No. 10130, 1995.
[13] Cass. Civ. No. 111, 1996.
[14] Judgment of 21 November 2018, Zako, C-452/17, EU:C:2018:935, paragraph 48-50.
[15] Judgment of 21 November 2018, Zako, C-452/17, EU:C:2018:935, paragraph 47.
[16] Bortolotti, Distribution Contracts, p. 131.
[17] Cass. Civ. 2382, 1987.
[18] Judgment 16.3.2006, Case C-3/04.
[19] In this sense, judgment of 26 October 2006, Commission v Greece, C-65/05, EU:C:2006:673, point 23 and case law cited therein.
[20]Judgment 3.7.2012, UsedSoft, Case C-128/11, EU:C:2012:407, point 42.
[21] Judgment of 16 September 2021, The Software Incubator Ltd, Case C-410/19.
Commercial agent: responsible or owner of the data processing?
Lawyer Riccardo Berti
The figure of the agent is by no means easy to pigeonhole and has caused quite a few headaches for companies and the Garante Authority: in order to understand whether the agent is acting as data controller or data processor, it is necessary, from time to time, to verify how the relationship is (and will be) actually performed by the contractors.
Adaptation privacy of the agent therefore necessarily passes through a 'classification' of his role with respect to the company or companies he works for.
1. Owner, manager or appointee?
The position of the commercial agent from the point of view privacy has always been debated, mainly due to the fact that the agent must act in accordance with the instructions of the principal, but at the same time performs this activity with autonomy and independence, not being subject to the management and coordination power of the principal.
On the one hand, the principals had every interest in disregarding the activities and methods of the agents and therefore pushed for their qualification as autonomous data controllerson the one hand, while on the other hand the Garante has always pushed for an empowerment of principals with regard to the activities of agents.
According to the perspective endorsed by the principals, on the one hand we would have the principal, an autonomous data controller, and on the other hand we would have the agent, also an autonomous data controller, who in one way or another finds contacts for a potential contractualisation with the principal and communicates the data to the latter.
This framing is particularly advantageous for the principal because then he does not have to worry about 'how' agents retrieve data (perhaps by contacting customers who are natural persons by invasive methods and without bothering, for example, to consult the oppositions register or to check their consent to receive marketing communications), as data processing remains 'separate' between the two parties and each is responsible for what happens under his control.
However, for many years now, the Italian Privacy Guarantor has disproved this thesis, confirming that the classification of agents, except in exceptional cases, does not fall under the hypothesis of the autonomous holderbut rather in that of the external controller.
After a series of measures against various companies (especially telephone companies) that used agents for the promotion and marketing of their products and claimed not to be answerable for the actions of their agents precisely because they were 'autonomous data controllers', the Garante adopted a general provision in which it stipulated that:
"all principals [...] shall, within 60 days of the publication of this provision in the Official Journal, designate companies or third parties acting in outsourcing as data controllers".[1]
After the GDPR came into force (applicable as of 25.05.2018), the situation has not changed, as the most recent stances of the Garante on this point show us.
2. The measure of 9.7.2020 against Wind Tre.
An interesting example comes to us from the recent measure of the Garante against Wind Tre, where the Authority clarifies the classification of agents and procurers in the light of the GDPR categories.
In particular, the measure concerns the activity carried out by an agent of Wind, who, although he had been correctly classified by Wind as an external data processor (by signing an appropriate appointment and also offering training to his external employee on the subject privacy[2]), the latter had addressed directives to its proxies aimed at collecting consensus privacy decidedly 'original'. As one procurer reported, in fact:
"following the indications of the area manager Mr. ..., during each activation of sim cards, the reference operator must flag all the consents provided therein. Among other things, this operation is facilitated by a special button in the management software [...]. Only in the event that, on the occasion of the signing of the paper form printed by the system and submitted to the attention of the interested party for acceptance of acknowledgement of receipt of the information and issue of the consents, the latter should express doubts as to the consents present in the reference form, the operator shall amend them according to the indications provided directly by the interested party".
The activity carried out by the agent was clearly unlawful because privacy consent must be "expressed by an unambiguous positive act by which the data subject indicates his or her free, specific, informed and unambiguous intention to accept the processing of personal data concerning him or her"[3] and cannot be coerced or implied.
Having thus clarified the wrongfulness of Wind's agent's conduct, it remained to be understood to whom this wrongfulness was attributable.
In the present case, Wind (the data controller) claimed, defending itself, that it was not responsible for the autonomous and independent conduct of its external manager (the agent) who, despite the correct training given and the correct instructions received, had acted on his own initiative in breach of the GDPR.
However, this thesis was flatly denied by the Garante as it is clear that the agent had no interest of his own in collecting consents on behalf of Wind by forcing the will of customers.
The ruling then confirms the correct classification of the agent as externally liable, even going so far as to state that:
"this qualification in respect of the legal relationship between the parties can also be deemed to exist in the event that the party materially making contact, while remaining unknown to the data controller, in fact enters into a contractual relationship similar to that in place with directly contracted partners".
The principal/principal relationship thus exists, in fact, not only if the principal completely disregards the existence of a mandate relationship, but also if he disregards it.
Another important clarification by the Garante, contained in the measure under analysis, concerns the same procurers who had been contracted by Wind's agent. In particular, the agent, who had not classified them as data processors or in any case authorised them to carry out processing operations, on the (erroneous) assumption that they '.operate autonomously' e "each procurer is free and, therefore, autonomous in the search for parties to whom to direct business proposals".
The Garante disavowed the argument put forward by the agent and 'slapped him down', stating that the latter should have appointed the procurers as external data processors (sub-processors vis-à-vis Wind) and/or authorised processors (a category that groups together employees and similar subjects and therefore presupposes a relationship of broader direction and control on the part of the employer) depending on the case.
3. The Agent's role: owner or manager?
That being clarified, in order to assess whether, in the individual case, the agent should be classified as controller or processor, one must first understand how the relationship is (and will be) actually performed by the contracting parties. To simplify, we can identify three typical situations:
- the agent finds and manages lists of customers on its own account, provides them with information privacy as principal and then chooses to which of its principals it will propose the conclusion of the deal (at which point the 'selected' principal will provide the prospective client with its disclosure privacy together with the contract). In this case the agent will be autonomous data controller.
- the agent finds, on behalf of the principal, customers and/or works on contact lists submitted to him by the principal. In this case the agent will external controller and the principal will be the owner. The agent will not have to provide his own information, but will merely provide the client with the forms privacy prepared by the principal, except in special situations (e.g. the agent wants to manage the principal's customer data independently, where the agency mandate so permits, in order to send informative communications to customers, etc., in which case he will have to submit a second information notice to the customers, collecting consent for this processing himself). Data processing takes place under the umbrella of the principal's organisation, of which the agent is an external appendage.
- the agent not only acts on behalf of the principal, but also operates exclusively with the principal's tools, in offices made available by the principal, on the principal's computers and following the principal's instructions. In this case, for the purposes of privacythe agent becomes a subject who operates under the authority of the principal (formerly 29 GDPR), as there is no longer any reason to speak of an external controller because the agent is completely internalised in the controller's structure and cannot be distinguished, at least with regard to data processing, from any employee.
- Read also: The agency contract and the employment relationship: distinguishing criteria and evaluation parameters.
It is clear that in the majority of cases the agent will fall under (2) and that the agent will play the role of the external controller.
4. Differences in EU
On this point, it should only be noted that in other European jurisdictions the situation may vary, e.g. in a commentary on the GDPR produced in England agents are 'normally' included in the category of persons authorised to process (assumption (3)):
"The latter category of persons who are not third parties normally comprises the employees, agents and subcontractors of the controller or processor which/who process data for them under their direct authority"[4]
In the opposite direction would seem to move the German systemwith the Munich Court of Appeal, which in a 2019 judgement[5] brings the agency relationship back to the privacy to a relationship between autonomous data controllers.
The Court, in particular, when considering the principal's duty to produce to the agent a statement of account relating to the contracts concluded thanks to the agent's intermediary work, came up against the principal's objection that such data would not be susceptible of transmissionbecause such transmission could only take place with the consent of the data subject (according to the client, in this case, there is neither a legal obligation to transmit the data, nor is this sharing necessary to fulfil the contract between client and customer).
The Munich Court of Justice, in rejecting the reenactment of the principal, but accepts its premises and confirms that of transmission ("übermittlung") of the data is[6]but then states that this transmission may legitimately take place because of the agent's legitimate interest in knowing the data.
The Bavarian court's reconstruction thus starts from the assumption that there is an equal and autonomous relationship between agent and principal, without the former having to be held responsible for the latter, which is why the court resolves the exception by identifying the legitimate interest as the means of legitimising the fact that the agent knows data of third parties (clients of the principal whom he has contracted).
An Italian judge, faced with the same question, would probably have traced the legitimacy of the transfer of data back to the relationship between principal and agent, which legitimises the entrusting of data (albeit 'supervised' in its adequacy) between one subject and the other on the basis of the contract of appointment binding them.
In all likelihood, a reading such as that offered by the German court, although difficult to reconcile with the EDPB guidelines, is grounded in the agent's independence relationship, set out in Art. 1(2) of the European Directive on commercial agents (86/653/EEC) and transposed by §84 of the German Commercial Code, which reads as follows:
"A commercial agent is someone who, as an independent trader, is permanently entrusted with brokering transactions for another entrepreneur (entrepreneur) or concluding them on his behalf. Self-employed is one who is essentially free to shape his activity and determine his working time."[7]
In confirmation of this, also reading the 'interpretation guide' to the GDPR, drawn up by the Bavarian State Office for Data Protection Supervision, shows that the German legal system favours the inclusion of the commercial agent among the entities that (normally) perform the function of data controller and not that of data processor[8]giving, precisely, particular value to the role of independent operator that the latter plays in the contractual relationship.
- Read also: The natural person agent, parasubordinate work and the employment rite.
5. The agent's privacy adjustment
What must the agent do, therefore, to be in compliance from the point of view of privacy?
The fundamental document for the agent, in the physiological hypothesis (2) we have seen, becomes the appointment as external manager, formerly Article 28 GDPR, i.e. an actual contract regulating the nature and purpose of the processing, the type of personal data and the categories of data subjects, the obligations and rights of the data controller, the duration of the processing, etc.
This document will therefore be essential for the agent to understand what data may be entrusted to him, to whom he may communicate it, what he must do if a customer asks to exercise his rights privacywhat to do in the event of a data breach (e.g. the agent loses the laptop on which he kept the principal's customer data), etc.
Three things are particularly important in the nomination:
- what happens to the data processed on behalf of the client at the end of the contract of appointment, i.e. whether they are to be returned, destroyed or retained (clearly, the agent may still retain the data if he needs it to be able to prove his performance and get paid, for instance);
- whether the agent may appoint sub-responsible and the procedures to be adopted in the case. Some appointments provide for the possibility of appointing sub-agents only with the prior consent of the principal, while others leave more freedom to the agent, some, however, require the agent to inform the principal of the sub-agents it employs to process its data. And it must be borne in mind that sub-agents are not only the sub-agents, but all the suppliers that process the principal's customer data (for instance, and trivially, if I store data on Google Drive, it is Google that is my sub-processor, and if the appointment provides for the prior consent of the principal for the appointment of the sub-processor, I will have to ask the principal whether I may use Google to store his data for instance);
- i audit fees of the owner, who, depending on the case, might prescribe simple card audits (questionnaires on the agent's level of compliance) or even more invasive inspections at the agent's offices (who in some cases, perhaps if he is a multi-firm agent, will have to consider whether to reject such a clause because it might conflict with previous commitments privacy taken with other principals).
If the appointment is missingit is appropriate for the agent to confront the principal on the point and, in the event of inertia on the part of the principal, to take the initiative himself, submitting to the principal a so-called 'self-appointment' as external manager so as to effectively regulate the relationship between the parties.
The agent should then keep a register of treatments, formerly Article 30 GDPR (mandatory document only for companies with more than 250 employees or which carry out data processing involving risks or which involve data belonging to special categories, but always highly recommended because it also allows the agent to identify and monitor the data streams of his professional activity).
In addition to this treatment register (highly recommended) will then go (this time compulsorily) kept a register of the processing operations of the responsible person. This particular register of processing operations must be completed for each principal who appoints the agent as external manager. Usually in the individual appointments there are references to this register and any requests by the principal on its keeping.
On the website of the Garante privacy is present, at this pageboth a model register of processing operations and a model register of the controller's processing operations.
6. B2C and B2B
It should also be borne in mind that even if this appointment is certainly more pressing when the agent has to contact natural persons on behalf of the principal, it is not a formality that can be excluded even when the agent only deals with B2B and has to contact predominantly companies on behalf of the principal.
Even in this case, in fact, the agent may process data of individual persons within the client companies (also, trivially, name, telephone number, email, etc.), i.e. data of sole proprietors or professionals that are to all intents and purposes personal data, and it is therefore necessary in any case to formalise for the purposes of privacy the relationship with the principal.
7. The
Having clarified the relationship with the principal, which is generally regulated in the contract of appointment, it is appropriate for the agent to produce its own disclosures.
Normally, the agent will not have to produce disclosures to the customers it contacts on behalf of the principal (at most, it will have to provide the principal's disclosures in accordance with the appointment), but this does not detract from the fact that the agent still needs a disclosure.
For instance, the agent will process the data of the principal, its suppliers, consultants, employees, sub-agents, etc.
All such data processing the agent does not do 'on behalf' of a principal, but does so independently, and it will be necessary to submit to the various parties with whom he comes into contact on his own account a notice on how he will process the data of these parties.
The information, which generally does not entail a request for consent privacy insofar as it is intended only for the management of the contract between the parties, it must nevertheless be provided in order to document that the data subject has been informed of how the agent will deal with his or her personal data. The proof of having submitted the information to the data subject (a signature on the form, the email with which the information was sent, the flag on the agent's website) must be maintained for as long as the data are held.
The disclosure must be drafted sensibly, without uncritically relying on online forms (think for instance of the external Google manager for the corporate cloud, Google except for certain contracts involves a transfer of data to the USA, to choose a basic information notice in which it is written that data will under no circumstances be transferred outside the European Union is already an easily detectable error in the event of an audit).
8. Appointments, authorisations, etc.
In addition to these basic documents and arrangements, the architecture privacy of the agent grows as the structure grows. Sub-agents should be appointed as external managers, as should the labour consultant, the party providing the corporate cloud (in which case it will be more a matter of finding the self-appointment that these large companies almost always prepare but sometimes struggle to find) as well as all those partners who are not in a position of subordination to the agent and who in providing their services process data on behalf of of the agent (except in special cases such as a partner with a particular professional qualification, e.g. a lawyer or an accountant, who remain autonomous data controllers even if they process data on behalf of the agent).
Employees (and their associates) will have to be given more detailed instructions on how to process both paper and computer data, regulating their access to company systems and devices, and will have to be adequately trained.
The website should be adapted with privacy and cookie policy and as the structure grows in importance, it will be appropriate to adopt policies defining how to handle data breaches in a coordinated manner, how to respond to access requests, how to manage software and IT tools, etc.
9. Adaptation as a work in progress
European legislation requires a 360 degree approach to the phenomenon privacychecking for each business activity whether it may involve personal data and how these are positioned in the structure privacy corporate.
Adaptation must then always be considered a work in progress as what is adequate at one time may become obsolete later. Our data increasingly travel on computer systems and networks that evolve at a rapid pace, if until yesterday the security standards of a laptop with Windows 7 were adequate today this is no longer the case, if until last year training to avoid attacks ransomware included a number of examples now the attackers no longer use any of those methods and have invented new, more devious ones.
As bureaucratic and documentary as it may appear, the approach described in these lines is only intended to create procedures to make it easier for the agent to make substantial adjustments, so that he or she can look with an organised set-up at what really matters, i.e. to avoid personal data processing done lightly and therefore very risky, think about the computer protection of the systems on which the agent works (encrypting a portable device today is really trivial and free of charge and can be life-changing in the event of loss of the device), and adapt data protection over time to the changing corporate set-up and to regulatory and technological developments.
[1] Ownership of the processing of personal data by persons using agents for promotional activities - 15 June 2011, Published in the Official Gazette No. 153 of 4 July 2011, Register of Measures, No. 230 of 15 June 2011.
[2] The written form for the appointment of an external controller is not a mere prudential suggestion, but a real regulatory obligation, provided for in Article 29(9) GDPR (note, in the language of the GDPR 'written form' does not only mean paper form, on the contrary, the European legislation encourages the digitisation of privacy documentation).
On the other hand, as regards the training obligation, the legislation prescribes that the person in charge may process data on the documented instruction of the owner, so in a 'simple' agency relationship, mere instructions to the agent may suffice, whereas in the case of Wind, which offers agents the use of its own management software, it is clear that this instruction obligation is in fact transformed into an obligation to train external collaborators, to ensure that they use the tools that the company makes available to them safely and with awareness.
[3] Recital 32 EU Reg. 679/2016 (GDPR)
[4] The EU General Data Protection Regulation (GDPR): A Commentary' C. Kuner, L. A. Bygrave, C. Docksey, L. Drechsler. Oxford University Press (2020).
[5] Case 7 U 4012/17 of 31.07.2019
[6] According to Art. 4 point 2) GDPR, transmission is a form of communication of data, which in turn, according to Art. 14 para. 3 lit. c) GDPR, is an activity involving two or more data controllers (whereas data controllers and authorised persons are not communicated/transmitted data, but rather they carry out data processing on behalf of the data controller, whereas the outsider is, in fact, a single entity).
[7] §. 84 HGB "Handelsvertreter ist, wer als selbständiger Gewerbetreibender ständig damit betraut ist, für einen anderen Unternehmer (Unternehmer) Geschäfte zu vermitteln oder in dessen Namen abzuschließen. Selbständig ist, wer im wesentlichen frei seine Tätigkeit gestalten und seine Arbeitszeit bestimmen kann".
[8] Auslegungshilfe | Bayerisches Landesamt für Datenschutzaufsicht.
General terms and conditions: battle of the forms, Vienna Convention and civil code.
To understand whether, when and to what extent the general terms and conditions apply to the sales relationship is the purpose of this article, in which an attempt will be made to outline the differences between the civil law and the Vienna Convention rules.
In commercial negotiations it is far from uncommon for the buyer, while expressing to the seller his willingness to accept the proposal received, to include in his declaration additional or different conditions to those used by the other party.
It sometimes happens that the purchaser merely accepts the proposal, enclosing its general terms and conditions within the communication. Sometimes, the general terms and conditions are not even attached to the order confirmation, but only referred to (e.g. by means of a link which links to a page on the site where they are uploaded). It still happens that both parties enclose their "general terms and conditions" to all the documentation they exchange in the course of negotiations for a particular sale, or even in the course of their much broader business relationship (in purchase orders, emails, invoices, website, delivery notes, delivery notes, etc.).
To understand whether, when and to what extent the General Terms and Conditions (GTC) apply to the sales relationship is the purpose of this article, in which an attempt will be made (as far as possible) to outline the differences between the civil law and the Vienna Convention (CISG).
With the aim of giving the article a systematic approach and hoping that this will make an issue that is certainly far from easy more understandable, we prefer to proceed by stepFirstly, analysing what happens if only one of the contracting parties has referred to its GTC at the stage of the conclusion of the contract, and then moving on to the more complex situation where both parties have referred to their GTC (so-called ".battle of the forms").
1. Proposal and acceptance: Art. 1229 of the Civil Code and Art. 19 CISG.
Although the Vienna Convention does not contain a rule expressly regulating general terms and conditions, since its Part II (Art. 14-23) comprehensively regulates the "formation of the contract", it will be necessary to refer to the rules contained therein in order to understand what formal requirements the GTC are subject to.[1]
- Read also: Proposal, acceptance and pre-contractual responsibility. Vienna Convention and the Civil Code compared.
In particular, Art. 19(1) of the Convention provides that a reply to a contractual proposal purporting to be an acceptance, but which contains additions, limitations or other modifications, is to be considered as a rejection of the proposal and is therefore to be considered as a counter-proposal.
From a first reading of this provision, it would appear that the CISG also adopts the principle transposed by the civil law system in the fifth paragraph of Art. 1326 of the Civil Code, under which "an acceptance not in conformity with the proposal is equivalent to a new proposal".
In fact, the Civil Code very strictly accepts the so-called '.mirrow image rule", i.e. the need for a fully corresponding relationship between the content of the proposal and the acceptance, even considering it necessary that the meeting and merging of proposal and acceptance should involve not only the main clauses, but also the ancillary ones. The case law reads:
"On the subject of the parties' agreement, the hypothesis provided for in the last paragraph of theArticle 1326 of the Civil Code. also occurs when the changes requested at the time of acceptance are of secondary value; therefore, in progressive training contractsin which the agreement of the parties on all the terms is reached gradually, the moment of finalisation of the transaction is normally that of agreement final on all main elements and accessoriesunless the parties intended to bind themselves in the agreements reached on individual points by reserving the regulation of secondary elements. "[2]
La CISG, on the other hand, knows an exemption to the "mirrow image rule"contained in Art. 19(2). In particular, the response to an offer received, which has a different content, but not to such an extent as to substantially alter its terms (c.d. immaterial modifications), constitutes an acceptance of the offer unless the offeror, without undue delay, contests such discrepancies either orally or by serving a notice to that effect on the other party.
But what are the immaterial modifications introduced by Article 19(2)?
International jurisprudence has considered not substantiale.g. a change in the acceptor favourable to the proposer[3] or for these irrelevant[4]an amendment to the packaging clause[5]an amendment to the clause on the time limit for reporting defects[6]a warning that the price might fluctuate due to changes in market prices[7].
The third paragraph of the aforementioned Art. 19 comes to the interpreter's rescue, indicating the variations that instead are substantial and which therefore, if made in the answer, transform it into a rejection of the proposal, so that it necessarily becomes a counter-proposal. These are the modifications:
"the price, the payment, the quality and quantity of the goods, the place and time of delivery, the limits of one party's liability to the other or the settlement of disputes."
Arguably, the choice of having adopted a "mirrow image rule" is not rigid, it is dictated by the need to prevent one of the parties, who, in the presence of changed factual circumstances, intends to escape from its contractual obligations, from achieving this result by pointing out a non-substantial discrepancy between the proposal and acceptance and, therefore, the non-conclusion of the contract.[8]
Thus, in any hypothesis in which the adherent's general terms and conditions involve non-substantial modifications, the contract, in the absence of an objection on the part of the proposer, must be deemed to have been concluded and will be governed by the clauses contained in the acceptor's form (again, it should be noted that only the hypothesis in which it is only the adherent who has invoked the GTC and not both parties are being analysed at present).
2. When the GTC apply to the contract: Civil Code and CISG compared.
Taking the reasoning further, in the event that the adherent's GTC contain significant changes with respect to the proposal, the application of the civil law rules, as opposed to the Vienna Convention rules, has obvious practical impacts.
In fact, if only the civil law rules apply to the relationship, the problem will (mainly) be solved by using the tools provided by Art. 1341 of the Civil Code, which provides, in a very condensed form, (para. 1) that the GTC are effective vis-à-vis the party who received them, if they were known or knowable by him using ordinary diligence at the time of the conclusion of the contract, with the exclusion (para. 2) of the clauses "vexatious" the validity of which is, however, subject to specific written acceptance by the recipient.
With regard to non-'vexatious' clauses, there are essentially two limits to the enforceability of the GTC imposed by law:
- the reference to the time of the conclusion of the contract, the purpose of which is to exclude the effectiveness of general terms and conditions that the adherent has had the opportunity to become aware of at a time subsequent to the perfection of the contract (e.g. a text inserted in the invoice[9]);
- As for the criterion of ordinary care, this must refer to a concept of normalitywhich must be calibrated according to the type of economic transaction, it being however excluded that the adherent may be required to make a special effort or expertise in order to know the general terms and conditions used by the predisposing party.[10]
- Read also: General terms and conditions in national and international online sales. When are they valid?
If the Vienna Convention applies to the relationship, in addition to Art. 19, Arts. 14 and 18, which govern the "formation of the contract", as well as Arts. 7 and 8, which govern the criteria of interpretation, will come to the rescue.
Indeed, according to much of the doctrine[11] and case law[12]In the event of the application of the CISG to the relationship, the above rules are the only ones that must be adopted in order to understand the formal requirements to which the CISG must be subject, with the consequent inapplicability of the rules of Art. 1341 of the Civil Code.
- Read also: General Terms and Conditions, 1341 of the Civil Code and the Vienna Convention.
Like already analysed in a previous article, Art. 14 provides that a proposal addressed to one or more persons, in order to be such, must be sufficiently precise (sufficiently defined) and indicate its author's willingness to be bound.
In adopting this principle to the general terms and conditions of sale, the German Supreme Court stated that it must be apparent at the formation of the contract:
- expresses the offeror's intention to incorporate the GTC into the offer;
- the text must have been transmitted or, in any event, made available to it prior to the conclusion of the contract.[13]
The actual 'availability' of the GTC must be bilaterally assessed in each case, in the sense that it is also incumbent on the receiver, at the negotiation stage, to ascertain and understand whether or not the GTC are applicable to the relationship, using the diligence of the 'general terms and conditions of sale'.reasonable person"imposed on him by Art. formerly Article 8(2).[14]
It would seem, therefore, that the Convention imposes a higher degree of diligence on the entrepreneur in ascertaining and verifying by what contractual terms the relationship is governed; this is certainly in line with the spirit of the Convention, designed to regulate international sales relationships between operators in the sector who are required, necessarily, to have a level of competence appropriate to the activity they perform.
Similarly to civil law, the time at which the GTC are made known to the recipient is essential, which is why case law has held that GTC that have been submitted to the recipient once the relationship has already been concluded, i.e. by means of a reference thereto in the sales invoice, cannot form part of the contract.[15]
3. Implied acceptance by conclusive facts.
Once it has been established that the conditions were known or knowable to the recipient, the Convention being characterised by the principle of freedom of form (and evidence) under Art. 11, in the absence of express acceptance, it must be understood whether they were accepted implicitly, in accordance with the combined provisions of Art. 11 and Art. 11.Article 18 (acceptance of the proposal) and Article 8.
In fact, Article 18(1) states firstly that "a statement or other conduct of the recipient indicating consent to an offer constitutes an acceptance."Furthermore, Art. 18(3) states that "the recipient of the offer may indicate consent by performing an act relating, for instance, to the shipment of goods or payment of the price."
On this point, a US court ruled that:
"under the CISG, acceptance does not require a formal signature or acceptance of the offer. [...] The investigation showed that at the time STS had sent sales quotations to Centrisys, including general terms and conditions as an annex to the communication. By adopting the sales quotation, Centrisys accepted the contractual proposal for the sale of the centrifuge, including the general sales conditions."[16]
It is thus inferred that if the GTC were known or knowable (using the diligence of the reasonable man set forth in Art. 8) by the receiver and have been accepted by the latter by implication, they will form part of the contract unless the parties agree or the usages and customs applicable to the relationship make their validity conditional on a form which the parties have not complied with.
- Read also: International trading and the importance of customs and traditions: Vienna Convention and Civil Code compared.
4. Language of the CGC.
A very brief digression on the subject of the obligations of diligence of the receiving party, there are divergent orientations as to the validity of general terms and conditions written in a language not known to the receiving party; part of the case law, in fact, considers that the GTC written in a foreign language are in any event valid, precisely by virtue of the obligations under Art. 8(2), it being held that an entrepreneur or in any event an international operator, before signing a contract, is bound to verify what he is signing even (trivially) by having a simple translation made.[17]
5. Battle of the forms: knock-out and last shot rules.
At present, the scenario where only one of the two parties has sent its general terms and conditions has been analysed.
What happens, on the other hand, if one party sends a proposal to the other party, enclosing its own GTC, and the other party responds, albeit accepting the proposal, by enclosing its own GTC that differs from those received, and then both commence performance of the contract?
Considering that the parties have executed the contract, the need arises to understand from which clauses standard the relationship is regulated and two main approaches are used to do this: the last shot rule and the knock-out rule.
As an advocate of "last shot rule"it is deemed appropriate to refer to the most authoritative doctrine:
"if the general terms and conditions of the acceptor substantially alter the terms of the proposal, the contract cannot be considered to have been concluded, not even by excluding the conflicting general terms and conditions, as would be the case in part of the doctrine and case law which favour the so-called "Rechtsgültigkeitslösung" o "knock-out rule'. In our view, if the contract is performed, this must be considered as acceptance by the (original) offeror of the acceptor's counter-proposal - of which the general terms and conditions that substantially modify the original proposal also form part; in doctrine it has been referred to as the "knock-out rule".last shot rule'[18]
According to the different theory of 'knock-out rule"In the event that the parties have exchanged conflicting forms, the fact that the contract has been executed should be interpreted as the intention of the parties, not so much that they have not reached an understanding (otherwise the execution of the contract would not be explained), but rather that they have reached a consensus regardless of the conflicting clauses, which clauses must instead be removed from the contract.
The German Federal Court espoused this theory, justifying it on the basis of the criteria of good faith and fair dealing (Art. 7(1) CISG), stating that clauses contained within general terms and conditions become part of the agreement (only) if they do not conflict with each other.[19]
Certainly, this theory has implications that are far from easy to execute and difficult to apply in practice, if one thinks of the fact that it will have to be left to the judge to reconstruct the actual will of the parties pursuant to Art. 8, going so far as to delete the clauses on which there was no actual meeting of wills between the contracting parties.
[1] Bortolotti F. ''Handbook of International Commercial Law'' vol. II L.E.G.O. Spa, 2010; Ferrari F. ''General terms and conditions of contract in contracts for the international sale of movable goods'' in Obb. e Contr., 2007, 4, 308; Bonell M.J. ''The general terms and conditions in use in international trade and their evaluation at the transnational level'' in ''Le condizioni generali di contratto'' edited by Bianca M., Milan, 1981); Larry A. DiMatteo, International sales law. A global challenge, Cambridge, 2014.
[2] Cass. Civ. 2003, no. 16016.
[3] Oberster Gerichtshof, Austria, 20.3.1997.
[4] China Internationale Economic & Trade Arbitration Commission, 10.6.2002.
[5] Oberlandesgericht Hamm, Germany, 22.9.1997.
[6] Landgericht Baden-Baden Germany, 14.8.1991.
[7] Cour d'Appel de Paris, France, 22.4.1992.
[8] Bellelli, sub. art. 19, Vienna Convention on Contracts for the International Sale of Goods, commentary coordinated by Bianca, CEDAM, 1992.
[9] Cass. Civ. 1962, 2890.
[10] Bianca, Civil Law, The Contract, 1987.
[11] Bortolotti F. ''Handbook of International Commercial Law'' vol. II L.E.G.O. Spa, 2010; Ferrari F. ''General Terms and Conditions of Contract in Contracts for the International Sale of Goods'' in Obb. e Contr., 2007, 4, 308; Bonell M.J. ''Le condizioni generali in uso nel commercio internazionale e la loro valutazione sul piano transnazionale'' in ''Le condizioni generali di contratto'' edited by Bianca M., Milan, 1981).
[12] Trib. Rovereto 24.8.2006; Cass. Civ. 16.5.2007, no. 11226.
[13] Bundesgerichtshof, Germany, 31.10.2001; on this point also Zeller, The CISG and the Battle of the Forms, in Di Matteo, op. cit.
[14] Zeller, The CISG and the Battle of the Forms, in Di Matteo, op. cit.
[15] Chateau des Charmes Wines Ltd. v. Sabaté USA, Sabaté S.A.
[16] Golden Valley Grape Juice and Wine, LLC v- Centrisys Corporation, 22.10.2011.
[17] MCC.Marble Ceramic Centre v. Ceramica Nuova D'Agostinoin the opposite direction, Oberlandesgericht Celle, Germany, 2.9.1998.
[18] Ferrari, sub art. 19, Vendita internazionale di beni mobili, op. cit. in Mastromatteo, La Vendita internazionale, Giappichelli, 2013.
[19] Bundesgerichtshof, Germany, 9.1.2002.
Proposal, acceptance and pre-contractual responsibility. Vienna Convention and the Civil Code compared.
The purpose of this article is to give the reader an overview of how the Vienna Convention has regulated the institutions of the proposal of an offer, its acceptance, pre-contractual liability in negotiations and the main differences from Italian law.
At the outset, it should be pointed out that, since the Vienna Convention is characterised by freedom of form (and of proof) under Article 11, the proposal and acceptance are also to be considered free-form acts, since they may be manifested in any manner (thus either orally or by conclusive facts).[1] This provision is in any event derogable in nature, with the consequence that not only may the parties provide for the necessity of a specific form for the validity of the contract they intend to enter into, but also that such a derogation may result from the existence of usages and customs (on this point cf. commentary on art. 9).
1. Art. 14: Definition of proposal.
"A proposal for a contract, addressed to one or more specified persons, constitutes an offer if it is sufficiently definite and if it indicates the intention of its author to be bound in case of acceptance. A proposal is sufficiently definite when it indicates the goods and, expressly or by implication, fixes the quantity and price or gives indications capable of determining them.
A proposal addressed to unspecified persons is considered only as an invitation to offer, unless the person making the proposal has clearly indicated otherwise."
The definition of a proposal in the Vienna Convention is finalised in Article 14(1), which lists in detail what are the necessary elements for it to be considered valid.
In particular, that article provides that the proposal, to be such, must be "sufficiently precise", indicate the offeror's willingness to be bound, expressly state the goods or goods to be contracted and also implicitly fix (or in any event give indications for determining them) the quantity of those goods and the price[2]by referring, where they have not been determined, to the trade customs and practices referred to in Articles 8 and 9 of the Convention.
- Read also: International trading and the importance of customs and traditions: Vienna Convention and Civil Code compared.
Importantly, if one wishes to expressly exclude that the manifestation of will can be regarded as a genuine proposal, it should therefore be expressly provided for, through the insertion of formulae such as 'this is an expression of interest, not an offer to buy'.
This provision, although it has no express equivalent in the civil code (which does not list in any article what the requirements of an effective proposal are), however, reflects principles that are basically common domestic law: the proposal must manifest the will of the party to be bound and, likewise, be of sufficient content to define the contractual programme to be performed.[3]
An element that is detaches instead from our right and certainly that of Art. 14(2), which provides that a contract proposal must be addressed to one or more specified persons. If, on the other hand, the proposal is addressed to a generality of persons, it has the value of a mere invitation to negotiate or to offer, unless the contrary is clearly indicated.
Therefore, the legislator of the Convention did not accept the rule (known and present in Italian law) of theoffer to the public referred to in Art. 1336 of the Civil Code as a proposal capable of leading to the conclusion of the contract at the time when acceptance is brought to the knowledge of the principal.
2. Art. 15: Withdrawal of the proposal.
"An offer has effect when it reaches the addressee.
An offer, even if irrevocable, may be withdrawn if the relevant declaration reaches the addressee before or at the same time as the offer."
Like Italian law (Art. 1335 of the Civil Code), the Vienna Convention also configures the proposal (and offer) as recetive actwhich takes effect only when it has been brought to the knowledge of the addressee. The Convention, in order to better explain when a proposal (and offer) is brought to the knowledge of the other contracting party, expressly provides in Art. 24 that
"For the purposes of this Part of the Convention, an offer, a declaration of acceptance or any other manifestation of intent "is received" by its addressee when it is addressed orally to the addressee or is delivered by any other means to the addressee at its place of business or mailing address or, if it has no place of business or mailing address, at its habitual residence"
The second paragraph of Article 15 also recognises the proposer's right to "withdraw"(and not revoke, a power granted to it by Art. 16(1)) the offer within the time limit of its delivery to the offeree.
The Civil Code does not regulate this difference, but only regulates the institution of the offer in Art. 1328 of the Civil Code, and the difference between these elements is 'only' developed by doctrine.[4]
It should be noted that the two hypotheses (withdrawal and revocation) differ in that in the first case the proposal is eliminated, even before it has become effective; in the second case of revocation, on the other hand, a manifestation of will already producing effects is eliminated.[5]
3. Art. 16: Revocation of the proposal
"As long as the contract has not been concluded, an offer may be withdrawn if the withdrawal reaches the offeree before the latter has made an acceptance.
However, an offer cannot be revoked:
- (a) if it indicates, by setting a specified time for acceptance or otherwise, that it is irrevocable; or
- (b) whether it was reasonable for the addressee to regard the offer as irrevocable and whether it acted accordingly."
As noted above, while Art. 15 governs the withdrawal of the proposal, Art. 16 governs the different institution of revocation.
From an initial and cursory analysis of that article, it might be thought that the uniform law discipline is aligned to the point of matching that of domestic law: although Art. 16(1) provides that a proposal may be revoked as long as the contract has not been concluded, it makes the effectiveness of the revocation conditional on the assumption that the same reaches the receiver, before it has sent its acceptance.
In fact, on closer inspection, the civil law discipline otherwise provides that the proposal may be revoked up to the conclusion of the contract, but Art. 1326(1) of the Civil Code provides that this moment occurs thereafter, i.e. when "the proposer has knowledge of the other party's acceptance"
Thus, if a person makes a contractual proposal relating to a contract of sale governed by the civil code he is free to revoke it until he has knowledge of the acceptance; if the contract is governed by the Vienna Convention, he may revoke it only until the contract is concluded, but the revocation reaches the offeree before he has sent the acceptance.
There are actually two situations in which the final moment by which the power of revocation is exercised actually coincides with the moment of conclusion of the contract.
The first hypothesis is, of course, that of a contract concluded orally: in this case there is undoubtedly contextuality between sending and receipt of acceptance.
The second hypothesis, which would in itself require more elaboration (unfortunately not compatible with the mould of the present article), when the addressee of the offer may manifest consent by means of an activity in the performance of the contract itself, pursuant to Art. 18 para.[6] Since the performance of that activity entails the conclusion of the contract, the power of revocation may only be exercised before the offeree performs that activity, which in effect replaces the declaration of acceptance.
This principle, however, has two exceptions, contained in the second paragraph of this article.
With reference to the exception provided for in Art. (a), it should be noted that in principle the fixing of a specific time limit does not in itself determine the irrevocability of the contractual proposal, but represents a presumption[7] of irrevocability. In that case, in order to avoid any uncertainty as to irrevocability, it is also advisable to include in the notice a formula such as 'this offer is valid and irrevocable until [date]'.or "our offer is still valid until [date].".
As to Art. (b) of that para. it provides that the proposal may not be revoked where the offeree has reasonably believed it to be irrevocable. It is important that, also for the purposes of proof, the offeree has actually acted accordingly, for instance by producing or designing the product, by purchasing raw materials, by entering into contracts functional to the business with third parties, by hiring seasonal workers, etc.[8]
4. Art. 17: irrevocable proposal.
"An offer, even if irrevocable, expires when its rejection reaches the offeror."
Since the offeror's power of revocation is an inconvenience for the offeree, who cannot rely with certainty on the conclusion of the contract on the terms indicated in the offer, in order to facilitate acceptance the principal may make its offer firm for a certain time. In such a case the offer is irrevocable until the expiry of the time limit.
But what happens if the offeree declares that he or she rejects the proposal.
The Convention regulates this issue clearly and explicitly in Art. 17, providing precisely that such notification (which must be made in the manner and according to the precepts briefly analysed above), entails the forfeiture of the offer.
This question is not, however, developed in our Civil Code; hence the problem of the fate of the irrevocable proposal once the offeror has refused it is debated (in doctrine). It therefore remains open whether the question should be resolved in the sense that the offeror would reacquire the right to revoke, or whether with the rejection the offeree consummates its power to accept, without the need for a revocation of the proposal in order to exclude the continuation of its effectiveness until the expiry of the time limit even after the rejection has occurred.[9]
5. Art. 18: acceptance of the proposal.
"A statement or other conduct of the recipient indicating assent to an offer constitutes acceptance. Silence or inaction alone cannot amount to acceptance.
The acceptance of an offer takes effect when the expression of consent reaches the author of the offer. The acceptance has no effect if it does not reach the author of the offer within the time stipulated by the offeror or, in the absence of such stipulation, within a reasonable time having regard to the circumstances of the transaction and the rapidity of the means of communication used by the author of the offer. An oral offer must be accepted immediately, unless the circumstances imply otherwise.
If, however, by virtue of the offer, custom or usage established between the parties the offeree may indicate that it accepts the offer by performing an act relating, for example, to the dispatch of the goods or the payment of the price, without giving notice to the author of the offer, the acceptance will take effect at the time when that act is performed, provided that it is done within the time limits set out in the preceding paragraph."
With reference to the first part of the first paragraph (concerning form), the principles of freedom of form art. 11 already briefly analysed above, which leave the offeree a wide choice in determining the manner of manifestation of consent (unless, of course, it has been derogated from by agreement or such derogation can be inferred from custom and usage).
With regard to the second part of the second paragraph, case law has recognised as conclusive behaviour Valid as acceptance: acceptance of the goods by the buyer; payment of the goods by the buyer; taking delivery of the goods by a third party; acceptance by the seller of a bank guarantee and commencement of production of the goods; issuance of a letter of credit; drafting and issuance of a pro forma invoice.[10]
The last part of this paragraph provides that inaction or the silence in themselves cannot constitute acceptance and therefore do not lead to the conclusion of the contract, unless of course this has been agreed between the parties or can be inferred from any usage or commercial practice between the parties.
Article 18 para. 1 has no immediate counterpart in the Italian legal system.
Indeed, although theArticle 1326 of the Civil Code does not deal with the modalities of acceptance, it is however settled case-law that acceptance may be expressed not only by a declaration, but also by any other conduct from which the person's negotiating intent may be inferred.[11]
- Read also: General terms and conditions: battle of the forms, Vienna Convention and civil code.
Similarly, silence counts as a declaration when, having established a certain relationship between the parties, a common course of action or good faith imposes on the party the burden or duty to speak.[12] Case law confirms this orientation, adding the possibility that, according to a given historical and social moment, having regard to the quality of the parties and their business relations, the silence of one may be understood as adherence to the will of the other.[13]
6. Revocation and pre-contractual liability: civil code.
Under civil law, revocation of consent is effective even if unjustified. Indeed, as noted above, the offeror may as a rule revoke its consent until it has had notice of the offeree's acceptance.
The principal who justifiably withdraws the proposal is (only) liable, formerly Art. 1328(1) of the Civil Code to indemnify the offeree for the costs and losses incurred by the offeree as a result of having unsuccessfully commenced performance of the contract before having notice of the revocation[14] (this provision of the Civil Code constitutes a case of blameless responsibility[15] and by lawful act).
When the withdrawal of consent is unjustified, it may give rise to pre-contractual liability[16] if it infringes a reasonable expectation (formerly Article 1337 of the Civil Code)[17] of the other party on the conclusion of the contract.[18] It is stated in case law:
"Where the contacts between two parties are not such as to lead to the conclusion of the contract because of the lack of unambiguous conduct, they may nevertheless constitute negotiations that have reached such a stage of development as to give rise to a justified expectation on the part of one party that the contract will be concluded; in such a case, unjustified termination gives rise only to pre-contractual liability, with the consequent obligation to pay damages. On the other hand, the conclusion of agreements on certain points of the contract to be concluded or partial agreements, in view of their provisional nature and their effectiveness subject to the positive outcome of the negotiations, do not go beyond the scope of the pre-contractual phase and certainly do not prove the conclusion of a contract.. "[19]
Thus, while the Civil Code certainly does not impose a duty on the parties engaged in negotiations to conclude a contract, it does oblige them to conduct them according to good faithsuch as to give rise to a reasonable expectation that the contract would be concluded.
Regarding compensable damage, case law[20] holds, however, that (in contrast to contractual liability), only the so-called "liability" in negotiations (unjustifiably interrupted) is compensable. negative interest(1), i.e. the harm the person suffers for having uselessly relied on the conclusion of the contract; this interest may be relevant both in terms of the
- emergent damage, i.e. the pecuniary loss that the person would have avoided if he had not relied on the conclusion of the contract (e.g. expenses incurred in the course of negotiations, wasted activity in negotiations), and of the
- loss of profit, which the latter could have obtained for other contracts from which it was diverted.
Therefore, anyone who has vainly trusted in the success of a negotiation is entitled to be compensated for the loss of advantage he could have made if, instead of employing his activity in the failed negotiation, he had devoted himself to other negotiations from which he could have made a certain profit: in this respect he will have to prove the profit he would have made from the execution of other potential business, the subject of specific advanced negotiations that he then abandoned in order to cultivate the one that failed due to the impropriety of the other party to the negotiation.
7. Revocation and pre-contractual liability: Vienna Convention.
Whereas in the Civil Code, as has been seen, the need to protect the offeree against the offeree's (broader) power of revocation is realised by making the offeree liable for the offeree's expenses and losses incurred formerly Art. 1328 of the Civil Code and, possibly, to compensation for negative interest, in the event of the application of the Vienna Convention (which as we have seen anticipates the time by which the offeror may revoke the proposal at the time of dispatch of acceptance by the offeree) the matter becomes not a little complicated.
Indeed, doctrine is not uniform as to whether the Vienna Convention regulates pre-contractual liability or not. There is, however, a prevailing orientation, which holds that the Convention does not regulate this.[21] On the other hand, there are, however, numerous commentators who consider that the Convention is nevertheless applicable to 'preliminary agreements', at least to the extent that such agreements provide for the manner in which the final contract is to be performed.[22]
In fact, in order to understand (or at least approach) these apparently conflicting orientations, it would first be necessary to differentiate the hypothesis of liability for breakdown of negotiations from the breach of specific contractual provisions regulated by the parties in a preliminary contract.
In fact, according to part of the doctrine, if the parties have not signed a proper preliminary contract and the issue concerns the mere breakdown of contract negotiationsthe issue would appear to be (indirectly) regulated by the Vienna Convention. In fact, since Articles 15 and 16 of the Convention, as we have seen, expressly deal with the question of the revocability of an offer, the fact that the Convention does not provide for any protection for the offeree leads us to believe that such a revocation does not confer on that party any right to claim damages,[23] resulting in the inapplicability of the civil law protections analysed above.
Less clear, however, is the case where the parties have signed a preliminary contract and one party defaults, since, as noted above, the Convention does not regulate the institution of pre-contractual liability.
It is certainly important to understand, at first analysis, whether the individual relationship is or is not regulated by the Convention. In fact, if one were to espouse the thesis that the Convention does not apply to any pre-contractual relationship, it would be common ground to argue that this issue is necessarily governed by the common law rules applicable to the existing relationship.[24]
Otherwise, if one were to follow the thesis of part of the doctrine,[25] which asserts that certain preliminary contracts are governed by the uniform law, it must be understood whether or not in the event of a breakdown of transactions or any breach of contract by one party during negotiations, the party suffering the harm can make use of the instruments recognised by the Convention, which concern, precisely, the breach of a contract of sale and certainly not of a preliminary contract. If this thesis were to be followed, the indemnifiable harm would therefore be (in fact) contractual in nature, with consequent greater protection than under civil law (which provides, as we have seen, for more limited compensation in the case of pre-contractual harm).
Certainly, this problem does not arise where the action seeks to recover damages for harm the object of which is excluded from the scope of Art. 2(a), Art. 4 or Art. 5. (e.g. damage caused during negotiations by fraudulent activity).
All these problems and doubts relating to the application and applicability of the Convention certainly entail greater uncertainty for the parties when concluding the contract than if only civil law were to be applied to the relationship; this element should certainly be taken into account, trying (compatibly with the difficulties that companies face daily in international trade) to regulate them as carefully as possible, not only the sales relationship, but also its negotiation.
[1] MASTROMATTEO, La vendita internazionale, Giappichelli Editore, 2013.
[2] With reference to the quantification of the price, the present article merely points out that the provision under consideration would seem to be difficult to integrate with that of Art. 55 of the Convention, which anticipates: "If the sale is validly concluded without the price of the goods sold having been expressly or impliedly fixed in the contract, or by a provision enabling it to be determined, the parties shall, unless otherwise provided, be deemed to have tacitly referred to the price usually charged at the time of the conclusion of the contract, in the trade concerned, for the same goods sold in similar circumstances." Indeed, if the fixing of the price is a condition for the completion of the sale, it is difficult to admit that one can speak of a validly concluded contract without this determination, at least implicitly, having taken place. Precisely for this reason, most decisions have refused to apply Art. 55 Oberlandesgericht Frankfurt a.M., Germany, 15 March 1996, Bundesgerichtshof, Germany, 23 July 1997, Landgericht Alsfeld, Germany, 12 May 1995, Kantonsgericht Freiburg, Switzerland, 11 October 2004. On this point see. UNCITRAL Digest of Case Law on the United Nations Convention on Contracts for the International Sale of Goods, 2016 Edition.
[3] Case law holds that a statement can only qualify as a contractual proposal when it manifests a unambiguous will to commit and not merely a willingness or a wish, Cass. Civ. no. 6922 of 1982; VESSICHELLI, Commentary on Art. 14, at New civ. comm. laws, 1989, p. 51.
[4] Cf. BENEDETTI, From contract to unilateral transaction, Milan, 1969, 95.
[5] RUBIN, Commentary on Art. 15, at New civ. comm. laws, 1989, p. 51.
[6] Art. 18, third paragraph: "If, however, by virtue of the offer, custom or usage established between the parties the offeree may indicate that it accepts the offer by performing an act relating, for example, to the dispatch of the goods or the payment of the price, without giving notice to the author of the offer, the acceptance will take effect at the time when that act is performed, provided that it is done within the time limits set forth in the preceding paragraph. "
[7] MASTROMATTEO, op. cit.
[8] FERRARI, sub Article 16, International Sale of Goods tome II, in Commentario del codice civile Scaiola-Branca, edited by Galgano, 2006.
[9] On this point, see Pluris online, Annotated Civil Code, Article 1329 of the Civil Code, Wolters Kluwer, 2021.
[10] On this point cf. Unicitral digest of Case Law, sub. art. 18, 2016 Edition.
[11] Cf. Civil cassation 2003, no. 3341, which states that it is the task of the court of merit to identify and value elements from which to deduce a tacit manifestation.
[12] BIANCA, op. cit.
[13] Cass. Civ. 2014 No. 10533.
[14] On this point, see BIANCA, Civil Law, The Contract, Giuffrè, 1987.
[15] Cass. Civ. 1952 no. 1729. CIAN - TRABUCCHI, Short Commentary to the Civil Code, sub. art. 1328, CEDAM, 2014.
[16] See Cass. Civ. 1786/2015; Cass. Civ..1051/2012; Cass. Civ. 11438/2004.
[17] Art. 1337 of the Civil Code "The parties, in the conduct of negotiations and in the formation of the contract, must behave in good faith'.
[18] Cf. BIANCA,
[19] Cass. Civ. 1999 no. 5830.
[20] See on this point Cass Civ. 24795/2008, Cass Civ. 1632/2000.
[21] DIMATTEO - International sales law. A global challenge, Cambridge, 2014.
[22] TOWER - Preliminary Agreements and CISG Contracts, at Drafting Contracts under the CISG, p. 191 ff., 2008.
[23] FERRARI - Kommentar zum Einheitlichen UN-Kaufrecht, Art. 5, 2009.
[24] On this point, it should be noted that under European law, Article 12 of the Rome II Regulation states that: "The law applicable to non-contractual obligations arising out of pre-contractual negotiations, whether or not the contract has actually been concluded, is the law that applies to the contract or that would have been applicable to the contract had it been concluded." Thus, while the problem of identifying the applicable law for culpa in contrahendo does not arise in the case of application of European law, the same certainly cannot be said in the case the contractual relationship is (or may be) subject to a regulation extra-EU.
[25] TORSELLO, op. cit.