Can a manufacturer prevent its distributors from selling online?
When is it possible to block the online sales of distributors or members of one's own sales network? Active sales, passive sales, geoblocking... Let's have some clarity!
L'e-commerce is undoubtedly a tool with extraordinary potential: it makes it possible to address a very wide range of users, to target offers with great precision at well-defined customer categories, and for the end consumer, let's not forget, it is undoubtedly convenient!
In view of its potential, this tool must be used with great awareness by any entity wishing to operate in the e-commerce sector; a strategy must be carefully worked out marketingIt is necessary to take into account the logistical complexities involved and to comply with increasingly complex and binding regulatory requirements (think only of the privacycertainly made more complex following the entry into force of the GDPR).
Furthermore, given the transversality of the webthe use of e-commerce contributes significantly to making the increasingly transparent prices and this not infrequently clashes with the manufacturer's distribution strategies, often aimed at protecting the brand and creating a pricing policy that is as controlled as possible.
1. The European Commission's analysis of the impacts of e-commerce.
The European Commission recently carried out an investigation into the trade impacts that thee-commerce has on the market and consumers, concluded with the drafting of the "final report on the e-commerce sector enquiry."[1] Here are some insights into the conclusions reached by the Commission:
[Through e-commerce, price transparency has] increased [and] consumers are [...] able to immediately obtain and compare product and price information online and quickly switch from one channel (online/offline) to another."[2]
[...]
The ability to compare product prices between different online retailers leads to increased price competition for both online and offline sales[3] and alternative online distribution models, such as online marketplaces, have enabled retailers to reach customers more easily [...] with limited investment and effort."[4]
This analysis paints a very effective picture of the reality of sales online, leading increasingly to one:
- greater transparency on prices;
- easier to reach a very large customer base, even beyond the territorial limits possibly imposed by the distributor.
2. Can the manufacturer block the online sales of its distributors? Regulation 330/2010.
Aware of these risks, the manufacturer, in order to defend its strategy, often decides to impose limits on its distributors' use of this medium, prohibiting them from selling online (sometimes also requiring distributors to apply the same restriction to their buyers), or preventing them from selling online outside the territory assigned to them (on this subject see also The mixed system: when the manufacturer chooses to adopt both exclusive and selective distribution).
At this point, the question arises: can the manufacturer prevent its distributor from selling online?
To answer this question, one must start with theArticle 101(3) of the Treaty on the Functioning of the EU (TFEU). This rule ban agreements and concerted practices of enterprises "which have as their object or effect the prevention, restriction or distortion of competition within the common market"This prohibition includes agreements that prevent the distributor from selling to customers domiciled outside the territory.[5]
In any case, European legislation derives specific exceptions which are fixed in the Regulation No 330/2010 concerning the so-called '.vertical agreements', i.e. agreements for the distribution and supply of goods or services concluded between undertakings each operating at a different level of the production or distribution chain. This regulation must be interpreted and supplemented in the light of the Commission Guidelines (LGC), published on 20 April 2010, which, among other things, expand on the topic of restrictions on e-commerce.
The European legislation referred to above prohibits theArticle 4 of the Regulation agreements that prevent the distributor from selling to customers domiciled outside the territory. In any event, in order to prevent a manufacturer from dividing its network of distributors into different territories, it allows restrictions only on the so-called '.active sales"[6] in the exclusive territory or to the exclusive customer base of the supplier, while not allowing the so-called '.passive sales. "[7]
As for the online salesthe Guidelines (point 52) specify that they are generally to be regarded as "passive", with the consequence that, in principle, no distributor may be prevented from using internet to sell their products. In particular, it is made express prohibition to negotiate agreements whereby the distributor agrees to:
- redirecting consumers to the site internet of the manufacturer or other distributors with territorial exclusivity;
- interrupting transactions online of consumers following the ascertainment of their geographical area of residence through their credit card data;
- limit the proportion of total sales made via internet;
- pay a higher price for products intended for resale online compared to those for traditional outlets (para. 52 LGC).
It is therefore not possible to prevent a distributor or retailer from setting up its own site for sales onlinelet alone use digital platforms (e.g. Amazon, E-bay, Alibaba, etc.) for marketing.[8] The manufacturer can find its products online, supplied by the distributor or by the shop itself supplied by the distributor, without being able to prevent this process, let alone control it (on this topic see also article "Exclusivity clauses and vertical economic agreements in the European context: e-commerce and territorial exclusivity"by colleague Vittorio Zattra).
The distributor, by the way, will not be obliged to accept all orders from customers outside its territory: in order to avoid the risk that foreign customers might assume that the offer is directed at them, for the sole reason that they have visibility of the offer on their device, it is advisable to indicate directly on the site that the offer does not concern sales involving the delivery of goods abroad. This clause is also in line with the new regulation 302/2018 on the CD. geoblockingon measures to prevent unjustified geographical blockades and other forms of discrimination based on the nationality, place of residence or place of establishment of customers within the internal market.
This regulation (mentioned here only briefly), aims to prevent unjustified geographic blockades or other forms of discrimination based directly or indirectly on the nationality, place of residence or establishment of customers: the regulation in fact removes the blockade, but does not oblige customers to sell outside their own country or to have the same prices for the whole of Europe.[9]
3. Court of Justice rulings on online sales.
3.1. The Pierre Fabre Case.
However, the Court of Justice in the case Pierre Fabre C-439/09 decided that the absolute ban on the use of internet imposed by a manufacturer on a distributor, constitutes a restriction that is not in line with the provisions of Regulation 330/2010, provided that the manufacturer demonstrates that this prohibition does not is objectively justified.
One (other) question arises: when is such a restriction justifiable and to what extent?
3.2. The Coty Germany GmbH case.
The Court in its recent judgment of 6 December 2017, C-230/16 Coty Germany GmbH clarified that in a system of selective distribution[10] of luxury products, a manufacturer (in this case Coty) is authorised to impose a clause on its distributor allowing it to sell the products via internet, but on condition that such sales activity online is realised through an 'electronic shop window' of the authorised shop and that it is thus preserved the luxurious connotation of the products.
In that case, the Court decided that a clause preventing the dealer not so much from using internet to sell/promote the goods purchased from the manufacturer, but to market them through digital platforms such as Amazon and the like. This is because the quality of the products:
"results not only from their material characteristics, but also from the style and image of prestige that gives them an aura of luxury, because such an aura constitutes an essential element of these products in order for them to be distinguished by consumers from other similar products."
In conclusion, it can be said that the manufacturer/supplier, once it has authorised a distributor to handle its goods, may not prevent the latter from using e-commerce to sell them also beyond the pre-established boundaries, invading the exclusive territory reserved for other distributors, provided that the end customer's request can be considered as spontaneous and not specifically solicited by the distributor.
There is also the possibility for the supplier to impose, in any case, on its distributors certain quality standards for the presentation of products, or specific sales methods consistent with its distribution system, provided that these conditions do not directly affect the quantity of goods marketable via internet or on the prices practicable on that platform.
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[1] Report from the Commission to the Council and the European Parliament, Final Report on the E-Commerce Sector Inquiry, 10.5.2017.
[2] Id. No. 11
[3] Id. No. 12
[4] Id. No. 14
[5] On this point See Bortolotti, Distribution Contracts, Wolters Kluwers, 2016, p. 746 ff.
[6] The LGCs, paragraph 51, define active sales as: "active contact with individual customers, e.g. by mail, including by sending unsolicited e-mails, or by visits to customers; or active contact with a specific group of customers, or with customers located in a specific territory through advertisements in the media or via the Internet or other promotions specifically addressed to that group of customers or to customers in that territory.
Advertising or promotions that are only attractive to the buyer if they (also) reach a specific group of customers or customers in a specific territory are considered active sales to that group of customers or customers in that territory. "
[7] The LGCs, paragraph 51, define passive sales as: "the response to unsolicited orders from individual customers, including the delivery of goods or the provision of services to such customers. Passive sales are advertising or promotions of a general nature that reach customers within the (exclusive) territories or customer groups of other distributors, but which are a reasonable way to reach customers outside those territories or customer groups, for instance to reach customers within one's own territory.
General advertising or promotions are considered a reasonable way to reach these customers if it is attractive for the buyer to make such investments even if they do not reach customers within the (exclusive) territory or (exclusive) customer group of other distributors'..
[8] On this point see Stefano Dindo, E-Wine, Legal-economic aspects of wine communication and distribution online, G. Giappichelli Editore, p. 47, 2018.
[9] On this point see Stefano Dindo, E-Wine, Legal-economic aspects of wine communication and distribution online, G. Giappichelli Editore, p. 41, 2018.
[10] There is no definition of selective distribution, however the Metro judgement, Court of Justice, 25.9.1977, already indicates the criteria for its identification: a) the products must be products whose quality or technological content require a selective distribution system, which safeguards their quality and correct use; b) the choice of distributors is made according to objective criteria of a qualitative nature; c) the defined criteria must not go beyond what is necessary.
Business intermediary and commissions: when the right to commissions is subject to the communication of commencement of activity
In a recent ruling, the United Sections of the Court of Cassation affirmed that a person who engages in the activity of business intermediary without having communicated the commencement of business is obliged to repay the commissions received to the contracting parties.
The Court's reasoning is very complex and tortuous due to a very tortuous and non-linear regulatory framework.
In order to understand the reasons that prompted the United Sections to affirm that a business intermediary's right to commissions is subject to the obligation to commence business, it is necessary to take a few steps back and retrace what has been the regulatory path governing a figure very similar to the business intermediary, namely the broker, and thus understand how such regulatory interventions may have had such serious repercussions on business intermediaries.
1. The abolition of the role of mediators.
Until 2010, the role of mediators was governed by Article 2 of Law 1989/39, which imposed compulsory registration on all persons who carried out mediation activities, even if on a discontinuous or occasional basis. The role was divided into three sections:
- one for real estate agents,
- one for commercial agents and
- one for agents with a mandate for pecuniary interest.
Art. 73 of Legislative Decree 26.03.2010, no. 59 repealed theArticle 2 of Law 1989/39, thus going to abolish roles listed above.
Following this legislative change, the performance of the activity of real estate broker is only conditional on the:
- DIA (Dichiarazione Inizio Attività) - now SCIA (Segnalazione Certificata di Inizio Attività) - accompanied by self-certifications and certifications proving possession of the requirements;
- verification of requirements by the territorially competent Chamber of Commerce and consequent registration of brokers in the RI (Register of Companies) if the activity is carried out in the form of a company, or in a special section of the REA (Register of Economic and Administrative News).
Given that Legislative Decree 2010/59 abolished the role of mediators, but did not repeal Law 1989/39 in its entirety, the question arose as to how Article 6 of this regulatory text, which subordinates the mediator's right to commissionto its proper registration. Article 6 reads as follows:
"only those who are registered on the rolls are entitled to the commission".
Majority Jurisprudence[1] has ruled, stating that only brokers who have reported the start of their activity to the competent Chamber of Commerce and have been duly registered in the business registers or directories kept by that body are entitled to receive the commission. It reads, in fact, that:
"Article 6 of Law No. 39 of 1989, according to which , must be interpreted as meaning that, also for mediation relationships subject to the rules laid down by Legislative Decree No. 59 of 2010, only mediators who are registered in the registers of companies or in the directories kept by the chamber of commerce are entitled to commission. "
2. Difference between business intermediary and broker.
That being clarified, the question arose as to whether only brokers should be subject to this reporting obligation, or also business intermediariesde facto brokering activities.
Before giving an answer to this question, it is necessary to briefly understand the distinction between mediator and business procurer. Pursuant to Art. 1754 of the Civil Code, mediatoris the one who
"brings two or more parties together for the conclusion of a transaction, without being linked to any of them by a relationship of collaboration, dependence or representation".
The mediator therefore carries out his or her activities without constraints and assignments, in a position of impartiality and autonomy.[2]
In contrast, the business procurer acts as instructed by one of the parties, thus lacking the requirement of independence. A 2016 ruling by the Supreme Court of Cassation, which confirms a well-established orientation, distinguishes the two figures by asserting that:
"mediation and the atypical business procurement contract differ in terms of the position of impartiality of the mediator than that of the procurer who acts on behalf of one of the parties involved in the conclusion of the transaction and from whom, although not linked to that party by a stable and organic relationship (unlike the agent), he may claim remuneration.
The Court goes on to analyse what these figures have in common, namely:
"the element of the provision of an intermediary activity aimed at facilitating the conclusion of business between third parties."
Case law has held that both the figures perform de facto activities of 'brokerage"has framed the business intermediary as an 'atypical' mediator, which is distinguished from the 'typical' mediator precisely by the character of 'partiality'.
Given the inclusion of the intermediary in the 'category of brokers', the following question consequently arose: must the intermediary also comply with theobligation to notify the start of activities? The question was not (and is not) without practical consequences, since, as mentioned above, the failure to report the commencement of activity to the competent Chamber of Commerce causes the broker's right to commissions to lapse pursuant to Article 6 of Law 1989/39.
On this point, the United Sections of the Supreme Court intervened, which with Judgment No. 19161 2017firstly confirmed to be:
"In addition to ordinary mediation, a so-called atypical mediation based on a contract for pecuniary consideration can also be configured with respect to only one of the parties involved (so-called unilateral mediation)."
Secondly, they also stated that:
"precisely because of its extrinsic nature as an intermediary activity, falls within the scope of applicability of the provision laid down in Article 2(4) of Law 39/89, which, precisely, also regulates hypotheses atypical mediation for the case where the object of the deal is real estate or companies."
Conversely, where the subject matter of the deal is the movables:
"the obligation to register exists only for those who perform the said activity in a manner not occasional and therefore professional or continuous."
Therefore, the obligation to register in the brokers' register also extends to all business brokers who broker real estate or companies (even occasionally), or movable goods (on a professional basis).
La penalty for failure to report is rather strict, and is governed by Article 8 L. 1989/39:
Anyone engaging in mediation without being registered shall be punished with the administrative penalty payment of a sum of between one million and four million lire and is liable to the return to the contracting parties of the commissions received."
3. Difference between commercial agent and broker.
At this point, it is considered appropriate to make a very brief analysis of the distinction between commercial agent and brokerwhich is thus summarised by the ruling of the United Sections under examination:
[the mediator] "acts in a third-party position with respect to the contracting parties in contact, in this respect differing from the commercial agent, who, on the other hand, implements a habitual and professional collaboration with another entrepreneur. "
The reason for drawing this distinction is to emphasise the fact that, although the commercial agent is also obliged to report the start of his activity (Art. 74 of Law 2010/59, repealed not only the role of mediators, but also those of agents), failure to comply with this duty does not entail the forfeiture of the right to commissionsis not foreseen in the Law 1985/204which regulates precisely the activity of commercial agents, a sanction similar or comparable to the one examined in this article.
- Read also: Differences between agency contract and business intermediary.
Bearing in mind this substantial difference between an agent and a broker (typical or atypical), it is advisable to check with one's advisor, in the event that a principal contests the payment of commissions to the intermediary for not being registered in the register of intermediaries, whether the activity carried out by the intermediary should actually be considered as such or, on the contrary, should be considered an agency activity 'disguised' as an intermediary activity.
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[1] On this point cf. Cass. Civ. No. 762 of 2014; Cass. Civ. no. 10125 of 2011, Cass. Civ. no. 16147 of 2010.
[2] On this point cf. Cass. Civ. No. 16382 of 2009.
The obligation of exclusivity and the covenant not to compete in the dealer agreement.
The granting of the exclusive right to the concessionaire is an incidental and non-essential element of the contract, cannot be derived implicitly from the predetermination of an 'area' to the concessionaire himselfas there is no necessary connection between the area and exclusive.
The grantor may not prevent exclusive area dealers from making passive sales outside the territory entrusted to them.
1. Sales concession and exclusivity
In a sales dealership relationship, 'exclusivity' is to be understood as the obligation on the part of the grantor to supply only the dealer with certain products in the area entrusted to him.
Although this obligation is one of the most frequently used agreements, it does not constitute an essential part of the agreement and, therefore, is not necessary for the relationship between the concessionaire and the grantor to be considered valid.[1]
Therefore, if the parties have not expressly agreed to it in the contract, it cannot be inferred either that it exists merely because a sales dealership contract has been concluded, or, even less so, because the dealer has been entrusted with an area (it is not at all unusual, in fact, for a dealer to act in a certain area entrusted to him, but without exclusivity).[2] On this point, we read in Jurisprudence that:
"the granting of the exclusive right to the concessionaire, being an incidental and non-essential element of the contract, cannot be derived implicitly from the predetermination of an 'area' to the concessionaire himselfas there is no necessary connection between the area and exclusive. "
However, it is not precluded that the parties may nonetheless prove that such an obligation exists even in the absence of a written contract and prove by witnesses that, for example, such an obligation arises from an oral agreement, or that it is inferred from the actual development of the relationship (cf. on the subject of agency: Burden of proof in agency contracts). On this point, a 2007 ruling by the Court of Appeal of Cagliari held that:
"In a sales dealership, the attribution of the exclusive right to the dealer is an incidental and non-essential element of the contract, but its existence, if the contract is not in writing, may be proven by witnesses and by any other suitable means (in the present case, the existence of the exclusivity clause was inferred, inter alia, from the fact that the parent company refused direct dealings with third parties by referring them to the dealer, from the advertising in the yellow pages and from the lack of other dealers in the area)."
In case the parties have not indicated thescope of application exclusivity, it must reasonably be understood to extend to the entire area entrusted to the dealer; as to the products, however, it must refer to the contractual products.[3]
2. Passive sales outside the territory.
This being said, the question arises as to whether the grantor, who has undertaken to sell certain products exclusively to an exclusive dealer in an area (e.g. Lombardy and Piedmont), may sell the same products to parties outside the territory, knowing that the same parties (potentially) could resell them in the territory of the dealer himself. The Supreme Court, in a more 'dated' orientation, held that:
"the exclusivity agreement entails, with reference to the area covered and for the duration of the contract, a prohibition to perform, not only directly, but also indirectly, services of the same nature as those forming the subject matter of the contract. [...] The prohibition to trade [...] the same products in the reserved area, [...] required the grantor - in accordance with the duty of fairness that constitutes the internal limit of any contractually assigned subjective legal situation - to refrain from any conduct likely to affect the result pursued."
However, this orientation must be updated and 'dropped' into a new regulatory framework, in line with the provisions of the Regulation (EU) No 330/2010 of the European Commission on agreements between companies operating at different levels of the production and distribution chain (vertical agreements).
In particular, Article 4 of the Regulation states that it shall not be unlawful to prevent the purchaser from making active sales in territories or customer groups which the supplier reserves to itself or allocates exclusively to another buyer, provided that the restriction does not also limit sales by the buyer's customers.
To better understand this rule, it is important to make a brief distinction between active sales and passive salesSimplifying, a passive sale can be defined as a 'purchase' in that the initiative is taken by the buyer;[4] active selling, on the other hand, is a consequence of an entrepreneurial strategy and actions of marketing targeted.
In light of the predictions briefly outlined above, a grantor can certainly create an exclusive networkdefining the territories in which their dealers can promote and market their products, but limiting such restrictions to active sales only. The licensor cannot, therefore, prevent exclusive area dealers from accepting and executing passive sales to parties outside the area entrusted to them; what can be excluded and prevented, however, is the area dealer from executing active sales, which are the result of marketing campaigns or commercial strategies carried out outside his territory.
However, the grantor has an obligation to control the network of its concessionaires (unless this obligation is contractually excluded[5]) , being liable for any breaches of exclusivity within its distribution network and, in some cases, even "intervene to counteract the behaviour of other dealers."[6]
Finally, it is emphasised that infringement of the exclusive right:
"constitutes conduct contrary to the duties of fairness and good faith and constitutes a serious breach of contract from which the termination of the contract follows."
3. Sales concession and non-compete obligation
As for thenon-compete obligation by the dealer, it too does not constitute a natural element of the contract and, therefore, in the absence of express provision, the dealer will be free to deal in competing products.[7] As with the exclusivity agreement, the parties may however prove by witnesses the existence of such an obligation.
However, the obligation of the concessionaire to carry out its activity in line with the principle of good faith in the performance of the contract remains unaffected, as it may not carry out any activity that may damage the market, brand and trade of the grantor.
Regarding the duration of the dealer's non-competition agreement, it is not subject to the limits (five years) imposed by Article 2596 of the Civil Code, insofar as it is not applicable to the discipline under examination.[8]
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[1] Appello Cagliari, 11/04/2007; Cass. Civ. 2004 no. 13079; on this point see Baldi - Venezia, Il contratto di agenzia, la concessione di vendita, il franchising, 2014, p. 135, GIUFFRÈ.
[2] Cass. Civ. 2004 No. 13079; Cass. Civ. 1994, No. 6819; Bortolotti, Distribution Contracts, 2016, p. 552, WOLTERS KLUWER.
[3] BORTOLOTTI, p. 553, op. cit.
[4] http://www.impresapratica.com/internet-marketing/vendita-attiva-o-passiva/
[5] Trib. Bologna 4.5.2012.
[6] Cass. Civ. 2003 no. 18743.
[7] BORTOLOTTI, p. 557, op. cit.
[8] Cass. Civ. 2000, no. 1238.
The post-contractual covenant not to compete of the employee, self-employed person, director, partner and agent. A brief overview.
The post-contractual covenant not to compete is certainly a very delicate element in an employment relationship and one that, depending on the addressee of this obligation, has different requirements as to form and substance. The purpose of this article is to provide the reader with an overview of this institution by briefly analysing how and with what limits this bond may bind the employee, the self-employed, the administrator, the partner and the commercial agent.
- Employee
The employee's covenant not to compete is governed by Article 2125 of the Civil Code. This article expressly provides that the covenant must, on penalty of nullity:
- (a) be made in writing;
- (b) establish a constraint contained within certain limits of subject, place and time;
- (c) provide for a consideration in favour of the employee.
With reference to (a), there are no particular issues to be addressed. The pact shall̀ be undersigned (and preferably initialled on each page) by the employee. Moreover, although according to traditional case law, the non-competition agreement does not require a double signature pursuant to Art. 13.41 of the Civil Code.[1]However, it is prudently recommended that such a post-contractual undertaking be specifically approved in writing in order to avoid possible disputes, also in view of a possible change in the above-mentioned jurisprudential orientation.
As for point (b), the time limits of the post-contractual agreement are defined in the second paragraph of Art. 2125 of the Civil Code as 5 years for executives and 3 years for other cases. It should be emphasised that the terms set forth in Article 2125 of the Civil Code constitute the maximum limits for the duration of the covenant, and the payment of the compensation due to the employee must also be calibrated to the actual duration of the covenant agreed upon by the parties.
The evaluation of the adequacy of the place within which the activity is prohibited is in close connection with the object of the activity carried out by the employee and, to this end, the indication of an excessively broad space may lead to the nullity of the covenant itself. On this point, there are controversial case law precedents, with one part of the case law considering that the pact extended to the entire national territory is null and void, inasmuch as it excessively restricts the employee's possibility of re-employment.[2] Other pronouncements, on the other hand, have considered valid EU-wide covenants,[3] in that the activity had been precisely specified so as not to excessively restrict the employee's working and professional capacity.
About the quantification of remunerationcase law assumes as an assessment criterion the congruity of the same to the sacrifice borne by the worker in the individual case[4]in holding that the sum paid to the worker must be proportionate to it.[5]
Clearly, since the concept of fairness is a very abstract one, it is very difficult to apply objective criteria to it. In any event, although there is no unambiguous and objective criterion for establishing the congruity of the covenant, case law holds that a consideration in the region of 15%-35% of the gross annual remuneration may be considered congruous.[6]
Secondly, the quantum in addition to being congruous it must be predetermined and/or predeterminable. Jurisprudence has held null and void, insofar as it was indefinite, a covenant that provided in favour of the employee a tot euro for each month until the termination of the relationship, as this covenant did not allow the employee to determine ex antealready at the time the agreement was signed, a minimum amount.[7]
In order to find a solution to the problems illustrated above and in order to attempt to stipulate a non-competition agreement that is effectively valid and with a reduced possibility of being challenged, one could hypothesise to include as an indemnity recognised to the employee, a percentage sum whose value increases with the lengthening of the relationship and which is linked to the gross sums paid to the employee in the last year of the relationship or, in a more favourable case, in the twelve months following the signing of the agreement.
- Self-employed
The covenant not to compete signed by a self-employed person,[8] is regulated by Article 2596 of the Civil Code.
The limits provided for by this rule are as follows:
- must be proven in writing
- it is valid if confined to a specific area or activity;
- may not exceed a duration of five years.
As can be seen, points a), b) and c) are similar to those already discussed above, to which we refer in full.
The essential difference is that Article 2596 of the Civil Code, unlike Article 2125 of the Civil Code, does not provide for any sanction for the failure to provide for consideration in favour of those who contractually submit to competitive restraints. Therefore, the fact that the non-competition agreement does not provide for any consideration is of no relevance, being in this respect, in any event, valid, effective and unenforceable.
However, very often one encounters problems related to the incorrect classification of self-employed workers, who, due to the way they carry out their activities within a company, may not have been properly classified as employees. For these figures, the problem could arise whereby, once the relationship has ceased, they intend to bring an action before the Employment Court to ascertain the subordination of the relationship and, with it, the invalidity of the non-competition agreement, since it lacks one of the essential elements provided for by Article 2125 of the Civil Code (namely, remuneration).
In any event, it is emphasised that the provision of a paid non-competition agreement in favour of such persons could be used by them as a further element to prove the subordinate nature of the relationship.
- Company director
Like self-employed persons, the non-competition agreement signed by a director is also subject to the limits set forth in Article 2596 of the Civil Code and, therefore, there is no requirement that he be remunerated.
With reference to the director's non-competition in reporting courseit is solely regulated formerly Article 2390 of the Civil Code, for directors of joint stock companies, which provides as follows:
"[1] Directors may not be unlimited partners in competing companies, nor engage in a competing activity on their own behalf or on behalf of third parties, nor be directors or general managers in competing companies, unless authorised by the shareholders' meeting.
[2] For failure to comply with this prohibition, the administrator may be removed from office and is liable for damages."
In contrast, for limited liability companies, there is no explicit prohibition for directors to act in competition during their term of office [9]with the consequence that it is the articles of association of the company that may freely provide whether the director may or may not perform such activities.
- Partners of limited liability companies
S.r.l. partners are not required to refrain from activities that compete with the company in which they hold shares. Indeed, in the Italian system, competition is only prohibited formerly Article 2301 of the Civil Code to partners in general partnerships and general partners in limited partnerships
If a non-compete obligation is also intended for partners, it could be:
- have the partners sign a non-competition agreement;
- sign a shareholders' agreement, whereby all shareholders undertake not to engage in activities in competition with the company and whose contents are in any case those provided for in Article 2596 of the Civil Code.
It should be noted that the shareholders' agreement is also valid for a maximum of five years and must therefore be renewed upon its expiry.
- Agency contract
The agency contract expressly regulates the non-competition agreement in Article 1751-bis of the Civil Code.
This issue has already been dealt with in this blog, so please refer to the following article (The non-compete obligation in the agency contract: during and after termination of the relationship).
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[1] Traditional jurisprudence has ruled out the applicability to the non-competition agreement of the provisions relating to vexatious clauses, on the ground that Art. 2125 lays down more stringent conditions than those set forth in Art. 1341, and in view of the peremptory nature of the hypotheses contemplated in para. (2) of the latter provision (see Turin Tribunal, 8.2.1979).
[2] Trib. Monza 3.9.2004.
[3] Cass. 21.6.1995 no. 6976; Trib. Milan 22.10.2003.
[4] On this point Cassation 1998 No. 4891.
[5] Cass. Civ. 1998 no. 4891; Trib. Milan 27.1.2007.
[6] E.g., a consideration quantified in 15% of the total amount of the remunerations paid to the employee in the last two years of the relationship against a non-competition obligation of two years' duration was deemed congruous) Trib. Milan, 22.10.2003.
[7] Trib. Venezia 31.5.2014.
[8] IMPORTANT. In this category does not include the commercial agent, for which there is a separate discipline, regulated in Art. 1751-.encore, which is not subject of examination for this opinion.
[9] In fact, before the reform brought about by Legislative Decree No. 6 of 2003, Article 2475 of the Civil Code made explicit reference to Article 2390 of the Civil Code. Now the reference has been eliminated.
What are the seller/manufacturer's warranties for material defects in the thing sold?
The discipline of the warranty for material (and not legal) defects is regulated in arts. 1490 et seq. of the Civil Code. Specifically, it is subdivided as follows: arts. 1490-1496 regulate the warranty for defects of the thing, while art. 1497 of the Civil Code regulates the warranty for lack of quality.
Italian jurisprudence has developed, alongside these guarantees, a further one known as 'aliud pro alio", which occurs whenever the material defect of the thing sold is so serious as to render the good completely incapable of performing the function for which it was purchased.
As far as possible, given the complexity and articulation of the issue, an attempt is made below to distinguish the various disciplines of guarantees known to the Italian legal system.
(a) Warranty for defects (Arts. 1490-1496 Civil Code)
This warranty is owed by the seller only if at the time of the conclusion of the contract the buyer was unaware of the existence of the defects, or if such ignorance is not culpable, since the defects were not readily recognisable (Art. 1491 of the Civil Code).[1]
As to its content, it confers on the buyer the possibility of acting to request, at his discretion, the termination of the contract or the reduction of the price (Art. 1492 Civil Code), in addition in any event to compensation (Art. 1494 Civil Code). Excluded from this guarantee is, on the other hand, an action for exact performance, i.e. an action whereby the seller is requested to eliminate defects by repairing the goods sold.[2]
It is important to emphasise that the choice between an action for reduction of price and an action for termination of the contract is irrevocable once it has been made by a court application (Art. 1492(2) of the Civil Code), since a party may not even bring an action requesting the reduction of the price as a subordinate claim to the application for termination of the contract, or vice versa.[3]
Finally, the parties are entitled to exclude this warranty for defects, with the only limitation being the case where the defects are concealed in bad faith by the seller. Particular attention must be given to warranty disclaimers (the discussion of which alone would require a much more extensive study), which fall under the special rules of Art. 1341 of the Civil Code,[4] which regulates so-called 'unfair terms' and provides for the obligation to expressly sign the clause with a double signature, failing which the clause is null and void.[5]
(b) Guarantees for lack of quality pursuant to Article 1497 of the Civil Code.
Whereas defect consists in an imperfection/defect of the good, lack of quality occurs whenever the thing (even though it has no manufacturing/forming/preservation defects) is ascribable to one species rather than another, even within the same genus.[6]
The discipline of this warranty is particular, since on the one hand Art. 1497 para. 1 of the Civil Code makes it subject to the terms of complaint and prescription provided for in Art. 1495 of the Civil Code (and which will be dealt with in section X below), but on the other hand it differs from them, since Art. 1497 para. 2 of the Civil Code provides that termination of the contract is allowed ".according to the general provisions on termination for non-performance".
Although case law over time has always been oscillating as to whether the presence of defects and the lack of quality should be subject to the same discipline or not,[7] the most recent judgments, seem to hold that the action under Art. 1497 of the Civil Code differs from the action under warranty for defects in that in the former:
- the buyer may exercise an action for exact performance (pursuant to Art. 1453 of the Civil Code);
- the buyer could not claim a reduction of the price, as this is not provided for by the general rules on non-performance.[8]
(c) Aliud pro alio
One has aliud pro aliowhen the thing sold belongs to a kind entirely different from that of the thing delivered, or has defects that prevent it from performing its natural function or the concrete function assumed by the parties to be essential.[9] Consider, for example, the transfer of a work of art falsely attributed to an artist. This hypothesis entitles the buyer to request termination of the contract for non-performance by the seller, pursuant to Art. 1453;[10] or to the sale of houses that are uninhabitable or otherwise lack the habitability requirements (C. 8880/2000) or of cars with forged chassis numbers (C. 7561/2006).
In case of aliud pro aliothe buyer is not subject to any duty to give notice, but has the possibility of either demanding performance or bringing an action for termination, and according to Art. 1453 the seller will be liable only if at fault, in accordance with the general principles governing non-performance and, therefore, subject to the ordinary limitation period of ten years.[11]
(d) Damages
In the case of material defects of the thing, the buyer is entitled not only to claim termination of the contract or reduction of the price, but also compensation for damages. Art. 1494 of the Civil Code also provides for a presumption of fault on the part of the seller, who is required to prove that he was blamelessly unaware of the existence of the defects of the thing.
Consistent case law holds that the purchaser must be placed in the economic situation equivalent to that in which he would have found himself if the thing had been free from defects, but not that in which he would have found himself if he had not concluded the contract or if he had concluded it at a lower price.[12] Moreover, the purchaser may also claim compensation for the expenses incurred in remedying the defects, irrespective of the actual elimination of the defects.[13]
e) Application of the Vienna Convention and the Consumer Code
It should be noted that the distinction between defects, lack of quality, defective functioning, aliud pro alio and ordinary liability has been superseded by the Vienna Convention, which provides, in Articles 35-41, homogeneous means of protection of the buyer for all hypotheses of non-conformity of the thing delivered with respect to the thing agreed upon.
Art. 35 lays down two criteria for assessing whether the goods delivered are free from defects, firstly that of conformity with what was agreed upon between the parties and, in the event that such an agreement is lacking, a series of subsidiary criteria.[14]
As to the remedies offered by the Convention, they are: the request for fulfilment (Art. 46)[15]termination of the contract (Art. 47),[16] price reduction (Art. 50)[17] and damages (Art. 45).[18]
Directive No. 1999/44/EC of 25.5.1999, implemented by Legislative Decree No. 24 of 2.2.2002 (which introduced Articles 1519 bis-1519 novies into the Civil Code) and relating to the sale of consumer goods, moved in the same direction. The new discipline provides, at the professional seller's expense, a unitary guarantee for all hypotheses of 'lack of conformity' of the goods with the contract, legitimising the consumer to request, at his choice, the repair of the goods or the termination of the contract.
___________________________
[1] Recognition of the defect is excluded if the sale was concluded at a distance, i.e. if the goods were packaged or packaged
[2] This exemption applies, of course, to sales between professionals, since the new consumer code, which was introduced in Italy with the transposition of Directive 25.5.1999, no. 1999/44/EC, implemented by Legislative Decree 2.2.2002, no. 24.
[3] Cass. Civ. 2015, no. 17138; Cass. Civ. 2004, no. 1434.
[4] Article 1341. "General terms and conditions prepared by one of the parties are effective vis-à-vis the other, if at the time of the conclusion of the contract the latter knew or ought to have known of them using ordinary diligence (1370, 2211).
In any event, conditions which establish, in favour of the one who has prepared them, limitations of liability, (1229), the right to withdraw from the contract (1373) or to suspend its performance, or which establish in favour of the other contracting party forfeitures (2964 et seq, or sanction forfeitures (2964 et seq.), limitations on the ability to raise objections (1462), restrictions on freedom of contract in relations with third parties (1379, 2557, 2596), tacit extension or renewal of the contract, arbitration clauses (Code of Civil Procedure 808) or arbitration clauses (Cod. Civil Procedure Code 808) or exceptions (Civil Procedure Code 6) to the jurisdiction of the courts'.
[5] According to authoritative doctrine (Bortolotti F. ''Manuale di diritto commerciale internazionale'' vol. II L.E.G.O. Spa, 2010; Ferrari F. ''General 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) and jurisprudence (Civil Cassation 2007, no. 1126) maintain that the double signature requirement of Art. 1341 of the Civil Code cannot be invoked and is therefore derogated from in the event of the application of the Vienna Convention. Contra minority doctrine (Pischedda P. "The evolution of export credit insurance" IPSOA, 2007).
[6] With reference to the qualities that the goods bought and sold must have, this is determined in the Italian guidelines, by the criterion of 'average quality', which operates (exclusively) in the sale of general goods. This criterion requires that the individual qualities exist to that ordinary extent which gives the goods an average value (Art. 1178 of the Civil Code).
[7] Cass. Civ. 1978 nr. 5361; Cass. Civ. 1978 nr. 206.
[8] Cass. Civ. 2000, no. 639.
[9] On the subject of the distinction between vice and aluid pro alio, the Supreme Court of Cassation recently intervened stating that there is a redhibitory vice or lack of essential qualities of the thing delivered if it presents imperfections that make it unsuitable for the use for which it should be intended or significantly diminish its value, or if it belongs to a different type or species other than that agreed upon; on the other hand, there is a delivery of aliud pro alio, which gives rise to the contractual action for termination or performance pursuant to Art. 1453, freed from the terms of forfeiture and prescription, where the goods delivered are completely different from those agreed upon, inasmuch as belonging to a different kind, they prove to be functionally wholly incapable of fulfilling the economic-social purpose of the res promised and, therefore, of providing the required utility. C. 5202/2007; C. 686/2006; C. 14586/2004; C. 18757/2004; C. 13925/2002; C. 5153/2002; C. 2659/2001; C. 10188/2000; C. 2712/1999; C. 4899/1998; C. 1038/1998; C. 844/1997; C. 244/1997; C. 5963/1996; C. 593/1995; C. 8537/1994; C. 1866/1992; C. 13268/1991; A. Rome 29.5.2008.
[10] Cass. Civ. 2008 nr. 17995.
[11] Cass. Civ. 2016, no. 2313.
[12] Cass. Civ. 2000, no. 7718; Cass. Civ. 1995, no. 1153.
[13] Cass. Civ. 1990, no. 8336.
[14] Art. 35 second paragraph 'Unless the parties agree otherwise, goods are in conformity with the contract only if: (a) they are fit for the purposes for which goods of the same kind would ordinarily be used; (b) they are fit for any special purpose expressly or impliedly brought to the knowledge of the seller at the time of the conclusion of the contract, unless it appears from the circumstances that the buyer did not rely on the seller's skill or judgement or that it was unreasonable for the seller to do so (c) possess the qualities of goods which the seller has presented to the buyer as a sample or model; (d) are packaged or packaged according to the usual criteria for goods of the same kind, or, in the absence of a usual criterion, in a manner suitable to preserve and protect them."
[15] Action available, provided that it has not resorted to an incompatible remedy. It may also require replacement of the goods if there is a fundamental non-performance under Art. 25. Reparation may be claimed instead where it does not appear unreasonable having regard to all the circumstances. See on this point Bortolotti, Il contratto di vendita internazionale, CEDAM, 2012, p. 260.
[16] Termination of the contract and consequent return of the services rendered may only be required in the event of essential non-performance or in the event of non-delivery of the goods within a reasonable additional period set by the purchaser pursuant to Art. 47.
[17] Such a claim may not be advanced if the seller remedies the defect or if the buyer rejects the seller's performance.
[18] The harm consists of the loss sustained by reason of the non-performance and the loss of profit. In any event, the recoverable harm cannot exceed the loss which the seller had foreseen or ought to have foreseen at the time of the conclusion of the contract (Art. 74), the buyer having in any event to take reasonable steps to limit the harm, the non-performing party being entitled to reduce the amount of damages by the amount of the loss which it could have avoided (Art. 77).
Dealer, distributor or regular customer?
A sales dealership contract is an integrated distribution agreement between two or more entrepreneurs, and it is often difficult to distinguish between a dealer-concessionaire relationship and a sales relationship with a regular customer; the European Court of Justice has indicated certain distinguishing and characterising criteria that help its qualification, such as price predetermination, exclusivity and a high volume of sales relationships.
The sales dealership contract (also referred to as a distribution contract) is one of the most widespread forms of integrated distribution and is used both at the level of marketing through dealers (such as exclusive importers in charge of a state) and at the retail level (think of the classic example of car dealers).
This contract, although in our country is not legislatively regulated,[1] takes the form, in principle, of the marketing of particular products, through a coordinated action between two or more entrepreneurs: the licensor (who undertakes to produce) and the dealer who undertakes to purchase the products periodically.[2]
Here are the main distinguishing features of this type of contract:[3]
- is a distribution contract, having as its main object and purpose the marketing of the grantor's products;
- the dealer enjoys a position of privilege (such as, for example, although not necessary, area exclusivity), in return for the obligations it assumes to ensure a correct distribution of products;
- the concessionaire acts as buyer dealer and therefore, unlike the agent and/or procurer, does not merely promote the parent company's products, but purchases them and bears the resale risks (cf. main differences between the agent and the grantor).
- the dealer is integrated into the grantor's distribution networkbeing obliged to resell the products according to the directives and directions of the grantor himself.
That being said, very frequently, especially in cases where the parties have not specifically regulated the relationship, the question arises as to whether the grantor's counterpart is a dealeror a simple "regular customer". Think of the case in which the grantor starts selling in a market to a certain person, who gradually assumes more responsibilities and commitments typical of a dealer (e.g. obligation to promote): in such cases, the problem arises as to whether the relationship between the parties can be qualified as a series of sales contracts, rather than as the execution of a sales dealership contract, and therefore whether the buyer has in fact "transformed" from a mere customer into a dealer, responsible for the distribution of the products in a certain territory under his jurisdiction.
Case law on this point holds that a sales concession contract exists whenever a
"unnamed contract, [...] is characterised by a complex function of exchange and cooperation and consists, on a structural level, of a framework contract [...], from which arises the obligation to conclude individual sales contracts or the obligation to conclude pure product transfer contracts on the terms set out in the initial agreement. "[4]
One of the main consequences of classifying a relationship as a sales dealership, and not simply a relationship between manufacturer and regular customer, is that the dealership contract is normally framed as contract of durationwhich cannot be terminated without giving the distributor reasonable notice. Accordingly, if the situation is indeed the latter, there will be an obligation on the seller to give notice if it decides to cease supplying the other party, and vice versa, an obligation on the purchaser to purchase the products from the grantor during the notice period.[5]
In 2013, the European Court of Justice, in the Corman-Collins judgment,[6] attempted to define as precisely as possible what are the characteristic traits of the dealer, in order to distinguish this figure from the 'regular customer'.
In particular, according to the Courts of the Court, a durable commercial relationship between economic operators is configurable as a sale of goods when
"is limited to successive agreements, each concerning the delivery and collection of goods. "
Conversely, the relationship must be regarded as a sales concession when the distribution is regulated (in writing or de facto) by
"a framework agreement having as its object a supply and procurement obligation concluded for the future, which contains specific contractual clauses relating to distribution by the dealer of the goods sold by the grantor."
In conclusion, according to the Court, if the relationship is limited to the supply of goods, regardless of whether it continues even over a long period of time, it must be qualified as a regular customer, who makes several purchases over time. If, on the other hand, the reseller assumes specific obligations typical of distribution, the relationship must be qualified as a sales licence.
However, these interpretative criteria dictated by the Court of Justice must be used by national courtswhich are required to identify the elements from which it may be inferred whether or not such obligations have been undertaken. In particular, it will be necessary to ascertain how the relationship between the parties actually developed, even irrespective of whether or not the parties entered into a contract.
These principles are not always easy to apply and do not always lead to an unambiguous interpretation. Attached below, by way of example, are some characterising elements and which may, according to Italian case law, lead to the qualification of the relationship as a sales concession, i.e.
- the predetermination of resale prices and related discountsthe existence of an exclusive, significant, continuous and economically conspicuous series of contracts of buying and selling the grantor's products;[7]
- agreements on the sale of products "submarine"the fact that the dealership was repository of products, that the volume of turnover of sales was relevant.[8]
[1] Only in Belgium was the sale concession already regulated by the law of 27 July 1961.
[2] See on this point Bocchini and Gambino, I contratti di somministrazione e di distribuzione, 2017, UTET, p. 640 ff.
[3] See on this point Bortolotti, Manuale di diritto della distribuzione, CEDAM, 2007, p. 2 et seq.; Bortolotti, Contratti di Distribuzione, Itinera, 2016, p. 538 et seq.
[4] Cass. Civ., no. 1469 of 1999; Cass. Civ., no. 13569 of 2009.
[5] Cass. civ. no. 16787 of 2014; Appeal Cagliari 2 February 1988.
[6] Judgment 19.12.2013, in case C-9/12.
[7] Cass. Civ., no. 17528, 2010.
[8] Cass. Civ., no. 13394 of 2011.
Contract of sale or contract of sale? ...and what if the Vienna Convention applies?
Under Italian law, for the purposes of differentiating between a contract and a sale (of a future thing), it is a general principle that prevalence or otherwise of work over the supply of matter. This means that, in principle, there is a contract of contract and not of sale whenever the performance of the subject matter constitutes a mere means for the production of the work and the work is the essential purpose of the transaction.
1. Difference between contract of sale and applato.
In the case of the sale of a future thing, i.e. whenever the object of the transaction is a good that has yet to be realised, an issue of great practical relevance and considerable legal complexity may arise as to whether the contract can be identified as a sale or, conversely, as a contract.
Under Italian law, for the purposes of differentiating between a contract of contract and a contract of sale (of a future thing), it is a general principle that the prevalence or otherwise of work over the supply of matter. This means that, in principle, there is a contract of contract and not of sale whenever the performance of the subject matter constitutes a mere means for the production of the work and the work is the essential purpose of the transaction.
Consider the classic example where the object of the transaction is a good that is part of the ordinary production of a business, but to which the principal requests that certain modifications be made. In such cases, according to case law, you will have contractedwhenever such changes, they consist not of marginal adjustments and secondary aimed at adapting them to the specific needs of the recipient of the service, but are such as to give rise to a new good, different from that of normal production. Italian jurisprudence focuses, in particular, not so much on the amount of work required to make such changes, but rather on the type of changes that have actually been made to the product. [1]
Moreover, should the contract provide for the commissioning and/or installation of the good itselfItalian jurisprudence makes a further distinction: a contract of sale (with an attached obligation of installation) is to be considered a contract of sale if
"the supply and, where appropriate, also the installation if the subcontractor of the works is the same manufacturer or usual trader of the products and materials in question, unless, of course, the contractual clauses oblige the subcontractor of the said works to carry out a quid novi with respect to the normal production series [...].
Where, on the other hand, the contractor is neither the manufacturer nor the reseller of the goods to be installed or put in place, the activity of installing a good performed by the service provider, being autonomous from that of production and sale, identifies or refers to a contract of contract, since the subject matter is considered to be the instrument for the performance of a work or the rendering of a service."[2]
2. What if the Vienna Convention applies?
A different approach occurs, on the other hand, in the event that the Vienna Conventionon the International Sale of Goods, 1980.
This Convention applies to the relationship whenever the subject matter of the contract is the sale between parties having their place of business in different states; specifically, Art. 1 of the Convention provides that it applies:
- "when these States are Contracting States; or
- "when the rules of private international law refer to the application of the law of a Contracting State."
Read also - Other articles on the Vienna Convention.
Of course, even in the case of the application of the Vienna Convention, the question still arises as to the identification of the contractual relationship and, specifically, whether the relationship can be identified as a sale (with the consequent application of the Convention itself), or whether it is a contract.
On this point, the Convention itself dictates interpretative principleswhich allow the parties to identify what is to be considered a 'sale'. L'Article 3(1) of the Conventionand, includes as a contract of sale, also
"[...] contracts for the supply of goods to be manufactured or produced shall be regarded as sales unless the party ordering them is to supply an essential part of the materials necessary for such manufacture or production."
Furthermore, the second paragraph of the aforementioned article states that:
"This Convention does not apply to contracts in which the predominant part of the obligation of the party supplying the goods consists in the provision of labour or other services."
This article also extends to the scope of the Convention contracts for which the seller, in addition to delivery of the thing and transfer of ownership, it also undertakes to offer labour or other servicesprovided that such services do not constitute the "preponderant part"(in English 'preponderant part'), of the seller's obligations.
In order to understand whether the contribution of labour/services is "predominant", a comparison must be made as to the economic value of the services offered and the value of the tangible component of the goods themselves,[3] as if they constituted two separate and distinct contracts.[4] Thus, where the obligation for the provision of labour or services exceeds 50 per cent of the seller's obligations, the Convention does not apply.[5] Some courts require that the value of the service obligation "clearly" exceed that of the goods.[6]
What essentially distinguishes the two approaches, is that the Italian Courts, tend to give less weight to the relationship between the economic value of the material and the services connected to it: the difference between a contract and a contract of sale, consists mainly in the obligation that the entrepreneur has undertaken, i.e. to identify whether he has undertaken to supply a product that is part of his normal production activity, or whether it is necessary to make substantial modifications to the (line) product, such as to give rise to a product that is different in its essence from the one normally produced by the supplier.
[1] Cass. Civ. 2001 nr. 6925; Cas. Civ. 1994 nr. 7697.
[2] Cass. Civ. 2014, no. 872.
[3] Obergericht Aargau, Switzerland, 3 March 2009; Bundesgerichtshof, 9 June 2008; Court of Arbitration of the International Chamber of Commerce, 2000.
[4] Kantonsgericht Zug, Switzerland, 14 December 2009
[5] Kantonsgericht Zug, Switzerland, 14 December 2009, available on the Internet at www.cisg-online.ch; Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russia, Award No. 5/1997, English translation availa- ble on the Internet at www.cisg.law.pace.edu;
Bundesgericht, Switzerland, 18 May 2009, English translation available on the Internet at www.cisg.law.pace.edu (applying the Convention to a purchase of a packaging machine consisting of ten individual devices as well as several transportation and interconnection systems, which also imposed upon the seller the obligation to install the packaging machine and prepare its operation at the buyer's works).
[6] Kreisgericht Bern-Laupen, Switzerland, 29 January 1999, available on the Internet at www.cisg-online.ch.
Vienna Convention and termination of the contract of sale. Limitation and prescription periods of the action.
As already noted, the Vienna Convention does not deal with the limitation of actionswhich, according to the most authoritative doctrine[1] and case law,[2] is governed by the domestic rules. The limitation period, therefore, pursuant to Article 7(2) of the same Convention, is governed by the rules of the applicable law and, in the case of Italian law, by Article 1495 of the Civil Code et seq.
- Time limits under Art. 39 and 49 of the Convention
In contrast, the Convention expressly regulates the time limits for the forfeiture of the purchaser's right to warranty. Art. 39 reads as follows:
- The purchaser forfeits the right to rely on a lack of conformity if he does not report it to the seller, specifying the nature of the lack of conformity, within a period of one year. reasonable termfrom the time it found or should have found it.
- In all cases, the purchaser loses the right to assert a conformity defect if he does not report it at the latest within a period of two yearsfrom the date on which the goods were actually delivered to it, unless such expiry is incompatible with the duration of a contractual guarantee.
Art. 39 thus provides that the buyer's right to rely on a lack of conformity of the goods, including the right to terminate the contract, ceases to exist if he does not report it to the seller within a reasonable time after he has discovered it or ought to have discovered it and, in any case at the latest within two years from the date on which the goods were actually delivered to it.
Contrary to civil law rules, in the event that the purchaser wishes to request termination of the contractual relationship, the Convention provides for a further limitation period, in addition to that described above for reporting the defect, which requires it to notify the seller of its intention to declare the contract terminated. Art 49 of the Convention provides as follows:
- The purchaser may declare the contract terminated [avoided]:
- if the seller's non-performance of any of its obligations under the contract or this Convention constitutes a fundamental breach of the contract; [...].
- However, when the seller has delivered the goods, the buyer's right to declare the contract terminated expires if it has not done so:
- in the event of late delivery, within a reasonable time from the time it became aware that delivery had taken place;
- in the event of non-compliance other than late delivery, within a reasonable deadline.
This article contemplates the most radical of remedies for non-performance by the seller: termination of the contract. Para. (2) of Art. 49 provides that where the buyer has delivered, the purchaser loses the right to terminate the contract if it does not exercise it within a "term reasonable" through its own unilateral declaration.
The buyer under the Vienna Convention must therefore:
- within a reasonable time (and at the latest within two years after delivery) to notify the defect (Art. 39);
- within a reasonable time after delivery, declare the contract terminated (Art. 49).
On the interpretation of 'reasonable time' in Art. 49 for the declaration of termination of a contract, the Courts have pronounced themselves taking into account the type of goods sold and product sector.
The period of five months from the moment the buyer informed the seller of the defects in the goods was deemed unreasonable;[3] a declaration of termination made eight weeks after the buyer became aware of the existence of the defects was also held to be out of time;[4] "The period of eight months after the buyer should have known of the defects was also held to be 'unreasonable'.[5] On the other hand, the period of one month to five weeks was considered reasonable and therefore timely to make the declaration referred to in Art. 49 (2) (b).[6]
Moreover, according to authoritative doctrine, the reasonable period of time referred to in Art. 49(2) may never exceed the period of time referred to in Art. 39(2), i.e. two years from the date on which the goods were actually delivered.
"The buyer loses the right to rely on the lack of conformity and consequently to terminate the contract. In such a case, the time limit provided for in Art. 39 prevails over that provided for in Art. 49(2)(B); the date of the complaint under Art. 39 and that of the declaration of termination under Art. 49 may not coincide, but the time limit for both starts at the same time, and has the same expiry date [note date of actual delivery].[7]"
This implies that within a maximum of two years after delivery, the buyer must either denounce the defects (ex art. 39) or declare the contract void (ex art. 49)if it intends to seek termination of the contractual relationship in court.
About the mode with which such a declaration must be made, Article 26 of the Convention provides:
"A declaration of termination is effective only if it is made by notice to the other party."
This implies that this declaration must contain expressly and unequivocally that the contract has been terminated and therefore terminated.[8]
[1] Digest of Case Law on the United Nations Convention on Contracts for the International Sale of Goods, UNCITRALS, 2016 UNITED NATIONS, 2016 Edition, p. 25; Schlechtriem, Internationales UN-Kaufrecht, Tübingen 2007, 124, n. 162; Honsel, Das einheitliche UN-Kaufrecht, available at. http://20iahre.cisg-library.org."
[2] Bundesgerichtshof, Germany, 23 October 2013, Internationales Handelsrecht 2014, 25 = CISG-online No. 2474; Bundesgericht, Switzerland, 18 May 2009, English translation available on the Internet at www.cisg.law.pace.edu; Appellationsgericht Basel-Stadt, Switzerland, 26 September 2008, English translation available on the Internet at www.cisg.law.pace.edu; Supreme Court, Slovakia, 30 April 2008, English translation available on the Internet at www.cisg.law.pace.edu; Oberlandesgericht Köln, Germany, 13 February, 2006, also in Internationales Handeslrecht 2006, 145 ff.; Cour d'appel de Versailles, France, 13 October 2005, English translation available on the Internet at www.cisg.law.pace.edu, Tribunale di Padova, sez. Este, 20 February 2004, available at http://www.uncitral.org/docs/clout/ITA/ITA_100106_FT_clean.pdf.
[3] Bundesgerichtshof, Germany, 15 February 1995; see also Oberlandesgericht München, Germany, 2 March 1994] (4 months).
[4] Oberlandesgericht Koblenz, Germany, 31 January 1997.
[5] Cour d'appel Paris, France, 14 June 2001; see also Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, Russia, 22 October 1998. (which considered a complaint made after five or six months to be untimely); Hof 's-Hertogenbosch, Denmark, 11 October 2005.
[6] [Tribunal cantonal du canton de Valais, Switzerland, 21 February 2005] (one month); CLOUT case No. 165 [Oberlandesgericht Oldenburg, Germany, 1 February 1995] (five weeks); Bundesgericht, Switzerland, 18 May 2009, Internationales Handelsrecht 2010, 27 (one to two months).
[7] Bianca and Bonell, Commentary on the Vienna Convention on the International Sale of Goods, New Civil Laws Annotated, CEDAM, Padua, 1989.
[8] Kantonsgericht des Kantons Zug, Switzerland, 30 August 2007; UNCITRAL Digest of Case Law on the United Nations Convention on Contracts for the International Sale of Goods, UNCITRALS, 2016 UNITED NATIONS, 2016 Edition, p. 233.
Exclusivity clauses and vertical economic agreements in the European context: e-commerce and territorial exclusivity
Territorial exclusivity clauses, constituting a pactual limitation on free competition, are subject, in addition to Italian law, to the strict European rules on the subject.
In particular, theArticle 101(3) of the Treaty on the Functioning of the EU (TFEU) sets a general ban concerning all agreements and concerted practices of undertakings "chand may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market".
Among prohibited agreements, this provision mentions in particular those aimed at
- directly or indirectly fix the prices of purchase or sale or other terms of transaction;
- limit or controlling productionoutlets, technical development or investment;
- share markets or sources of supply;
- apply, in trade relations with other contractors, dissimilar conditions for equivalent performance;
- make the conclusion of contracts conditional on the acceptance by the other contracting parties of additional benefitswhich, by their nature or according to commercial usage, have no connection with the subject matter of the contracts.
From this framework, European legislation derives specific exceptions which, as far as we are concerned, are set out in the Regulation No 330/2010 (in force since 1 June 2011 replacing the previous Reg. No 2790/1999) concerning so-called 'vertical agreements', i.e. agreements for the distribution and supply of goods or services concluded between undertakings each operating at a different level of the production or distribution chain.
The regulation, in essence, draws the boundaries within which a distribution agreement between undertakings may be exempted from the general prohibition of restrictive business practices and must be interpreted and supplemented in the light of the Commission's Guidelines (LGC), published on 20 April 2010, which among other things expand on the subject of restrictions on e-commerce.
The Regulation No 330/2010 (in force since 1 June 2011 replacing the previous Reg. No 2790/1999) relating to so-called "vertical agreements", i.e. agreements for the distribution and supply of goods or services concluded between undertakings each operating at a different level of the production or distribution chain, essentially draws the boundaries within which a distribution agreement between undertakings may be exempted from the general prohibition of commercial agreements. It must be interpreted and supplemented in the light of the Commission's Guidelines (LGCs), published on 20 April 2010, which, inter alia, expand on the subject of restrictions on e-commerce.
Regarding specifically the Restrictions to share the market by territory group of customers by guaranteeing the exclusive use of certain distributors, they are only allowed when they restrict
i) so-called 'active sales' (defined below) in the exclusive territory or exclusive customers reserved to the supplier or allocated by the supplier to another buyer, but without imposing any limitation on sales by the buyer's customers;
(ii) sales to end users by wholesalers;
(iii) sales by members of a selective distribution system to unauthorised distributors in the territory that the supplier has reserved for that system; and
(iv) the buyer's ability to sell components, supplied for the purposes of incorporation, to customers who would use those components to manufacture goods similar to those produced by the supplier (Article 4 of the Regulation).
In the case before us, the first of the four cited exceptions, which introduces the distinction between so-called 'active' sales e 'passive'allowing territorial restrictions to be negotiated only with regard to the first of the two categories.
According to the Commission Guidelines, the active' sales designate practices of direct solicitation aimed at a specific territory or group of customers through mailings or the use of targeted advertising and promotions; they are defined as 'passive'on the other hand, sales in response to unsolicited orders from individual customers or the use of general advertising and promotions which constitute a reasonable way to reach customers also outside one's own territory (even in territories entrusted to the exclusivity of other distributors), provided that the customers in one's own territory remain the main and sufficient objective to justify the investment (para. 51 LGC).
As for the online salesthe Guidelines specify that they are generally to be regarded as 'passive', with the consequence that, in principle, no distributor may be prevented from using the Internet to sell its products.
In particular, it is made express prohibition to negotiate agreements whereby the distributor agrees to:
(a) redirect consumers to the website of the manufacturer or other distributors with territorial exclusivity;
(b) interrupt consumers' online transactions as a result of ascertaining their geographical area of residence through their credit card data;
(c) limit the proportion of total sales made via the Internet.
(d) pay a higher price for products intended for resale online than for traditional outlets (para. 52 LGC).
Here are some examples of such as contents can validly form the subject matter of vertical agreements:
- the restriction of practices categorised as 'active sales', including, in particular, the electronic commerce,
- the online advertising specifically targeted at certain customers,
- i banner showing a territorial link to third-party Internet sites online,
- the payment of a fee to a search engine or to an online advertising provider to present advertisements specifically directed at users located in a particular territory
- more generally, any effort made to be found specifically in a given territory or by a particular group of customers (para. 53 LGC);
- the publication on the distributor's website of a series of link to the Internet sites of other distributors and/or the supplier;
- the fixation of an absolute minimum quantity (in value or volume) of products to be sold off-line to ensure the efficient operation of its traditional point of sale. This absolute amount of required off-line sales may be the same for all buyers or may be set individually for each buyer on the basis of objective criteria, such as the size of the buyer in the network or its geographic location;
- the setting a fixed fee (i.e. not a variable fee that increases according to the turnover achieved off-line as this would indirectly represent double charging) to support the buyer's off-line or on-line sales efforts;
- the possibility for the supplier to demand compliance with quality standards in connection with the use of Internet sites for the resale of its goods (as it may do in connection with a point of sale or catalogue sale or advertising and promotional activity in general). As regards selective distribution, the supplier may for instance:
- require its distributors to have several 'non-virtual' points of sale or showrooms as a condition for becoming a member of its distribution system (this must not, however, lead to an indirect restriction of online sales),
- agree with their distributors terms and conditions of use of third-party distribution platformse.g. by preventing access to a distributor's site through another site bearing the name or logo of the third party platform (para. 54 LGC).
In conclusion, it can be said that the manufacturer/supplier, once it has authorised a distributor to handle its goods, may not prevent the latter from using e-commerce to sell them also beyond the pre-established boundaries, invading the exclusive territory reserved for other distributors, provided that the end customer's request can be considered as spontaneous and not specifically solicited by the distributor.
On the other hand, limitations aimed at regulating the possibility of the distributor using e-commerce to carry out promotional activities or direct solicitation within an area exclusively entrusted to other purchasers or reserved to the supplier are permissible.
There is also the possibility for the supplier to impose, in any case, on its distributors certain quality standards for the presentation of the products, or specific sales methods consistent with its own distribution system, provided that these conditions do not directly affect the quantity of goods tradable via the Internet or the prices practicable on that platform.
Notice of Defect and Statute of Limitations in the International Sale of Immovable Property. What does the Vienna Convention provide for?
In the European context, the law applicable to the contract of sale of movable goods is governed by Article 4 of the Regulation EC593/2008which provides that in the event of a lack of choice of the parties, "a contract for the sale of goods is governed by the law of the country in which the seller has his habitual residence."
In the event that the relationship is governed by Italian law, one must certainly be aware that, implicitly, the Vienna Convention 1980 on the International Sale of Goods.
Having said that, this article will briefly analyse two aspects of great practical and legal relevance, i.e. understanding how the time limit for reporting defects and the time limit for bringing an action are regulated when the Vienna Convention applies to the contractual relationship.
(a) Complaint of Defect
This term is governed by Art. 39.1 of the Convention, which provides:
"the buyer forfeits the right to rely on a lack of conformity if he does not report it to the seller, stating the nature of the lack of conformity, within a reasonable timefrom the time when it was ascertained or should have been ascertained."
The problem of quantification of the 'reasonable period', should be regulated on the basis of general principles of international law, taking into account the decisions of the Courts of the who have joined the Vienna Convention and the type of goods sold. This principle was expressed in Article 7.1 of the Convention, which provides that:
"for the purpose of interpreting this Convention, it shall be in view of its international character and the need to promote theuniformity of its applicationand to ensure respect for good faith in international trade."
If one looks in the European context "reasonable time limit" is normally understood as a period of approximately 20-30 days. (see Oberlandesgericht Stuttgart, 21.8.1995, Oberlandesgericht Köln 21.8.1997, Obergericht Luzern 7.1.1997, Cour d'Appel Grenoble 13.7.1995).
In any event, should the dispute be heard by an Italian court, it is noted that the Italian courts would have to take into account European rulings on the interpretation of the Vienna Convention, are not bound to them and may have a tendency to interpret this term using the parameters of Italian law.
As is well known, in this regard, Article 1495 of the Civil Code provides that:
"the buyer forfeits the right to the guarantee if he does not report the defects to the seller within eight days of their discovery, unless the parties or the law stipulate otherwise."
First, it must be specified that it is common ground in doctrine and jurisprudence that the eight-day time limit applies not only in the case of a warranty claim but also in the case of an action for damages. Moreover, the eight-day period runs from the delivery of the goods to the purchaser or, in the case of hidden defects, from the discovery of the defect.
That considered, according to some (but rare) Italian judgmentsthe reasonable deadline for the complaint is around 20-30 days (Court Vigevano 12.7.2000; F. Ferrari, Giur. It. 2001, 2) and this term was even extended to 4 months (Court of Bolzano, 27.1.2009)
In any case, it should be borne in mind that the Court of Cassation has not yet ruled on the point, and therefore it is prudently recommended, in order to be sure that the complaint was indeed timely, to first check whether it was made within 8 days of the discovery of the defect.
(b) Prescription
A second aspect, of no small importance, concerns the limitation period.
In this regard, it should be noted that the Vienna Convention does not expressly provide for a limitation periodbut only a time limit for reporting, which may not exceed two years. Article 39.2 provides that:
"in all cases, the purchaser forfeits the right to rely on a lack of conformity if he does not report it within a period of two years, starting from the date on which the goods were actually delivered to him, unless this deadline is incompatible with the duration of a contractual guarantee."
Since the issue of prescription is not dealt with in the Convention, it will be necessary to ascertain what Italian law provides in this respect. In this regard, Article 7.2 of the Convention provides that:
"questions concerning matters governed by this Convention and not expressly settled by it shall be governed in accordance with the general principles by which it is inspired, or, in the absence of such principles, in accordance with the law applicable under the rules of private international law."
The statute of limitations, in the context of contracts of sale, is regulated in Italian law in Art. 1495 of the Civil Code:
"the action is, in any event, time-barred within one year from delivery; but the buyer, who is sued for performance of the contract, may always enforce the warranty, provided the defect in the thing is notified within eight days of discovery and before the expiry of one year from delivery. "
One wonders whether such term of one year, can be coordinated with the two-year term provided for in Art. 39.2 of the Convention for reporting defects. Here, too, there are differing opinions.
In the aforementioned judgment, the Court of Bolzano considered that the term of two years in Article 39(2) of the Convention is incompatible with the provision for a limitation period shorter than one year in Article 1495(3). According to the Court of Bolzano, therefore, the time limit under Article 1495 para. 3 should be extended from one year to two years.
According to authoritative doctrine (A. Reinstadler; F. Ferrari) and the jurisprudence of the European Courts (Oberster Gerichtshof - Österreich, - 25.6.1998) the gaps in the agreement must be filled according to the law applicable to the contract, even if it provides for a term of less than two years.
Therefore, even on this point, Italian jurisprudence and doctrine are not in agreement and it is deemed advisable, as a matter of prudence, to check whether the one-year limitation period, pursuant to Article 1495 of the Civil Code, has been observed.