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.
Termination of the sales concession contract and inventory management: rights and obligations of the parties.
Sales dealership agreements often contain an agreement on how to deal with the stock of goods purchased by the dealer during the term of the agreement; this regulation may take the form of an option for the franchisor to repurchase the goods at a certain price, or the former dealer may distribute these goods.
Other times, the parties do not provide for any contractual provision governing this case, and upon termination of the relationship, the problem arises as to whether or not the former dealer may resell the stock in inventory, or require the supplier to repurchase the goods.
In the following, these cases will be analysed, albeit briefly, in view of their relevance from both a technical and legal as well as a practical and commercial point of view.
1. Absence of a written agreement in the concession contract.
1.1. Right to resell products in stock.
In the absence of different contractual agreements, the case under analysis must be treated from two different aspects: under the principles of civil law, on the one hand, and those of intellectual property law, on the other.
Civilly the grantor may not prevent his dealer from reselling the goods purchased by the latter, unless the same have been sold subject to reservation of title and the dealer disposes of the contractual goods before becoming the owner: in this case, in addition to the breach of contract, the disposal will even constitute the offence of embezzlement (Art. 646 of the Criminal Code).[1]
From the point of view of intellectual property lawInstead, it is necessary to take up a principle that has already been addressed several times in this blogthat of thebrand exhaustionreferred to inart. 5 c.p.i.
Read also - Parallel sales and the principle of trade mark exhaustion.
According to this principle, once the owner of one or more industrial property rights places a good directly or with his consent on the market in the territory of the European Union, he loses the relevant rights.
The exclusivity is therefore limited to the first act of marketingwhereas no exclusivity can subsequently be claimed by the proprietor of the trade mark on the circulation of the product bearing the mark.
Since in a sales dealership agreement, the consent to the first placing on the market (i.e. the sale by the grantor to the dealer) stems from the contractual relationship between the parties, in the absence of any agreement to the contrary, the grantor may not oppose the resale of the contractual goods even once the relationship has ended.
It is stated in case law on the subject that:
"the entrepreneur, who has purchased goods with distinctive signs, is indeed entitled to market the product even after termination of the relationship because, according to the principle of exhaustion, the holder of an industrial property right cannot oppose the circulation of a product, to which that right relates, when that product has been placed on the market by the holder of that right or with his consent in the territory of the state or in the territory of other Member States of the European Union."[2]
The principle of exhaustion nevertheless knows a limitation: the second paragraph of Art. 5 of the IPC contains a safeguard rule that allows the trade mark proprietor to oppose the circulation of the product placed on the market with his consent and, therefore, "exhausted", if there are
"legitimate reasons for the proprietor to object to the further marketing of the products, in particular when their condition is changed or altered after they have been placed on the market".
Therefore, in the absence of 'legitimate reasons'[3]the supplier may not prevent the dealer from reselling inventories, let alone from using its trade mark, if it is used by the dealer for the sole purpose of advertising the availability of the product it intends to sell or lease and the advertising activity is not such as to create in the public the belief that the dealer is part of the licensor's authorised network, otherwise such conduct would constitute a confusing offence under Article 2598(1)(1) of the Civil Code on the subject of unfair competition.[4]
1.2. Right to have inventories repurchased.
In the absence of a contractual obligation, in order to understand whether the dealer may require the grantor to repurchase the goods remaining in stock, one must refer primarily to the principles of loyalty and good faith formerly Article 1375 of the Civil Code.
The clause of good faith in the performance of the contract operates as a criterion of reciprocity, requiring each party to the obligatory relationship to act in such a way as to preserve the interests of the other, and constitutes an autonomous legal duty incumbent on the parties to the contract, irrespective of the existence of specific contractual obligations or of what is expressly laid down by law.[5]
Since this is a very broad principle and certainly not easy to implement in practice, it is necessary to assess from time to time how it should be applied to the concrete case, on the basis of all those factors that may impact on the contractual balance: it will certainly be assessed differently if the concessionaire had been contractually obliged to maintain a stock in stock, as opposed to the case where the stocks are due to a failure to adhere to the rules of prudence, which should have advised the dealer to suspend or otherwise reduce purchases and dispose of medium warmth inventories in view of an upcoming report.[6]
A ruling by the Court of Milan is recorded,[7] which considered contrary to these principles the conduct of a supplier who prevented (contrary to the principle of exhaustion) the plaintiff from marketing the product it had supplied prior to withdrawal, without having cooperated in safeguarding the interest of the other party by making available - although not contractually provided for - the repurchase of the goods.
The Court therefore ordered the defendant to pay damages, quantified in the value of the goods remaining in stock.
There is also a further ruling, again by the Court of Milan,[8] relating to a licensing relationship, in which the court reached such a result with the aid of the instrument provided by Article 1340 of the Civil Code, according to which contractual usages or usage clauses are deemed to be included in the contract if it is not apparent that they were not intended by the parties.
The Court therefore held that the licensor was obliged to repurchase the goods sold, in addition to cooperation and conduct in good faith, on the basis of the fact that in the industry in which the parties operated it was customary for the licensor to purchase at least part of the unsold goods following the termination of the relationship.
2. Existence of an agreement between the grantor and the concessionaire.
2.1. Prohibition to resell stock.
A contractual clause that imposes a prohibition on the dealer to sell goods in stock following termination of the contractual relationship, without there being a commitment on the part of the grantor to repurchase such goods, is, in the opinion of the writer, of doubtful validity, both from a antitrustand civil law, for the reasons set out below.
In the field of antitrustArticle 5(b) of the Regulation 330/2010imposes limitations on the supplier's ability to require its buyer to engage in competitive activities after termination of the relationship. "The parties may not impose any direct or indirect obligation on the buyer, after the agreement has expired, not to manufacture, purchase, sell or resell certain goods or services, unless such obligation [...].:
- refers to goods or services in competition with the contract goods or services;
- is limited to the premises and land from which the purchaser has operated during the contractual period;
- is indispensable to protect the 'know-how' transferred from supplier to purchaser;
- the duration of this obligation is limited to one year. "
Since the requirements for the legitimacy of this obligation are cumulative, the rule does not normally apply to typical forms of sales concessions, which do not imply the need to protect know-how provided to retailers, but rather to the franchising,[9] with the consequence that this exemption can hardly be applied to the contractual case under analysis.
Moreover, the non-compete obligation is not part of the 'severe restrictions' (hardcore) governed by Article 4 of the Regulationbut of those that are simply not exempt, with the consequence that these limitations are only applied to contracts that have no less importancei.e. which do not appreciably restrict competition: this is the case whenever the market share held by each of the parties to the agreement exceeds 15% on the relevant markets affected by the agreement.[10]
If the dealership contract qualifies as a contract of minor importance, an agreement imposing a prohibition on the resale of the stored goods would benefit from the exemption and would (at least from a antitrust) lawful.
Mind you, this does not alter the fact that such a contractual agreement must in any case be subjected to the scrutiny of the principles of good faith and contractual fairness, so that it may be invalid if it is not adequately counterbalanced by - for example - an obligation on the part of the grantor to repurchase the goods in stock, in particular if the latter was contractually obliged to maintain a stock minimum in stock in the course of the report.[11]
2.2. The grantor's right to repurchase the goods.
A different reasoning must be made - again for the purpose of assessing its legality - in the case where the parties provide for a right of the grantor to repurchase the stock of the products, following the termination of the relationship.
To do so, it is first necessary to understand the legal nature of such an agreement, i.e. whether it should be framed as:
- preliminary contract formerly 1351 of the Civil Code, ancillary to the concession contract, i.e.
- purchase option agreement, formerly 1331 c.c.
The differences between these institutions are briefly examined below.
(a) Preliminary contract.
This is the case whenever in the contract both parties agree that upon termination of the relationship the products to stock will be bought back by the supplier at an agreed price.
Ex. The parties agree that at the end of the contract the dealer shall be obliged to resell to the licensor the entire remaining stock of products at a price equal to the invoice price net of VAT, with a discount of _____.
Such a contractual clause (which would indeed constitute a preliminary contract) is certainly valid, unless it is proved that the contract was null and void ab originee.g. for lack of consent of one of the parties, abuse of rights, etc.
(b) Call option covenant.
If, on the other hand, in the contract one party undertakes to hold firm to its own proposal and the other party (the beneficiary) is granted the right to make use of the option to accept the proposal or not, we fall into the different case of the option contract formerly Article 1331 of the Civil Code.
Ex. At the end of the contract, the grantor has the option to repurchase the stock at the price _______, to be notified within _____ of the termination of the contract.
Such an agreement must also tend to be considered valid; the only problem might be connected with the case where the option right is granted free of charge, i.e. without payment of a price (so-called premium).
Some (albeit minority) case law[12] holds that in such a case the option agreement would be null and void, since the right cannot be granted free of charge (e.g. a discount on the repurchase of goods). It should be noted, however, that the majority jurisprudence is in favour of the option being gratuitous: "Article 1331 of the Civil Code does not provide for the payment of any consideration and, therefore, the option may be offered for consideration or free of charge".[13]
[1] Torrente - Schlesinger, Handbook of Private Law, Giuffrè, § 377.
[2] Trib. Milan, 6.5.2015; in case law Court of Justice, 8.7.2010, Portakabin case.
[3] The following constitute 'legitimate reasons' for the non-application of the principle of trade mark exhaustion: (a) the modification or alteration of the condition of the goods, after they have been put on the market and (b) all those cases implying a serious and grave prejudice: the latter must be ascertained in concreto. On this point cf. Trib. Milan 17.3.2016.
[4] On this point Civil cassation 1998, no. 10416; Trib. Rome, 28.4.2004.
[5] Cass. Civ. 2014, no. 1179.
[6] On this point cf. Trib. Milan, 19.9.2014.
[9] Bortolotti, Distribution Contracts, Walters Kluver, 2016.
[10] Cf. De Minimis Communication 2014 of the EU Commissionin conjunction with the Commission Notice on Guidelines on the effect on trade concept contained in Articles 81 and 82 of the Treaty.
[11] On this point cf. Trib. Milan, 19.9.2014.
[12] See Appeal Milan 5.2.1997.
[13] Trib. Milan 3.10.2013
The effects of the coronavirus on agency and distribution contracts.
The restrictive measures the government has taken against the coronavirus through the DCPM of 11.3.2020,[1] have led to the suspension of a large number of commercial activities, with a serious impact on existing contractual relationships. This article will attempt to focus attention on agency and distribution contracts, trying to understand what remedies are provided by our legal system to deal with the problems that are most likely to arise between the parties.
In contractual matters, following the above-mentioned ministerial order, the legislator did not intervene with measures ad hoc (only a few measures of a predominantly tax and contribution-related nature are to be found in agency matters),[2] merely providing in Article 91 Decree-Law of 18 March 2020, better known as 'Cura-Italia', on the subject of "provisions on delays or breach of contract resulting from the implementation of containment measures", as follows:
"compliance with the containment measures set out in this decree shall always be assessed for the purpose of excluding, pursuant to and for the purposes of Articles 1218 and 1223 of the Civil Code, the debtor's liability, also with respect to the application of any forfeiture or penalty related to delayed or omitted performance. "
The sense of this regulatory provision would seem to delegate to the judge a more accurate and prudential assessment of a possible culpable breach (Art. 1218 of the Civil Code) caused by the "compliance with containment measures" of the pandemic, also for the purpose of quantifying damages (art. 1223 Civil Code), raising compliance with these measures to a parameter for assessing the imputability and importance of the breach (art. 1455 Civil Code).
1. Civil law regulations.
As is well known, Art. 1218 of the Civil Code establishes the criteria for determining the liability of a debtor who fails to perform its bondby providing for its exemption from liability for damages (Art. 1223 of the Civil Code) whenever the non-performance or delay was caused by impossibility of performance resulting from a cause not attributable to it (Art. 1256 of the Civil Code).[3]
Art. 1256 of the Civil Code also provides that supervening impossibility may lead to the extinction of the obligation, although a distinction must be made between the case of definitive impossibility e impossibility temporary. While the former, being irreversible, extinguishes the obligation automatically (Art. 1256(1) of the Civil Code), the latter determines the extinction of the obligation only if it lasts until such time as the obligor can no longer be required to perform the obligation, or the obligee no longer has an interest in performing it.[4]
Given that in the contracts for consideration the impossibility of performing an obligation does not always automatically imply the impossibility of performance (e.g. if the seller cannot deliver a product, the buyer may still be able to pay the price of the thing sold)[5] The legislature intended to protect the non-performing party by providing in Art. 1460 of the Civil Code that either party may refuse to perform its obligation if the other does not perform or does not offer to perform at the same time, unless otherwise agreed in the contract (i.e. the seller may refuse to make payment if the manufacturer does not deliver the goods).
However, this exception may only be raised if there is proportionality between the two benefits, taking into account their respective impact on the balance of the relationship.[6]
In order to prevent the contractual relationship from being transformed into a "limbo" in which both parties merely declare that they do not wish to perform their respective obligations, if the non-performance (in our case of the seller) depends on supervening external factors (e.g. If the non-performance (in our case, the seller's non-performance depends on supervening external factors (e.g. the suspension measures of the covenant-19) the legislature (taking over the general principles dictated on the subject of rescission of the contract for non-performance, as in Art. 1453 of the Civil Code), provides the parties with certain remedies for cases where the impossibility is total or only partial.
Art. 1463 of the Civil Code (total impossibility) provides that the party who has been released from its obligation due to the supervening impossibility of performance (e.g. the seller who because of covid-19 can no longer deliver fruit that has perished because it could not be harvested during the pandemic), may not claim the counter-performance (i.e. payment of the price) and must also return what it may have already received (e.g. an advance).
Art. 1464 of the Civil Code (partial impossibility), on the other hand, provides that when the performance of one party has become partially impossible (e.g. delivery of 50% of the goods sold), the other party is entitled to a corresponding reduction of the performance owed by it (payment of 50% of the goods delivered), or may dissolve the contract if it has no appreciable interest in partial performance.
Thus, while in the case of total impossibility the termination of the contractual relationship operates as a matter of right, in the case of partial impossibility the party suffering the non-performance may opt for partial performance or (if there is an appreciable interest) termination of the contractual relationship.
Still different is the case governed by Art. 1467 et seq. of the Civil Code, relating to relationships with continuous or periodic performance, or with deferred performance, where due to external factors the performance of one of the parties requires efforts that are excessive and disproportionatethan those that were enforceable once the relationship had been entered into. Even in such a case, the party who suffers the excessive onerousness of the performance may request the termination of the contractual relationship if a serious economic imbalance is created between performance and counter-performance.
In this case, the party against whom termination is sought may avoid it by offering (formerly Art. 1467(3) of the Civil Code) to modify the terms of the contract in an equitable manner so as to bring the relationship between the performances within the limits of thenormal alea of the contract.
It is therefore very important to emphasise that the does not provide for an obligation of the parties to renegotiate and reschedule the relationshipSuch an obligation cannot be inferred from an extensive application of the principle of good faith under Art. 1374 of the Civil Code, the subject matter of which is a different case. Nor, in the writer's opinion, can such an obligation be derived from an extensive application of the principle of good faith set forth in Art. 1374 of the Civil Code, which has as its object the different case of "integration of the contract" in cases of incomplete or ambiguous expression of the contracting parties' will (and not of modification of the contractual terms, in the event of variations in the equilibrium position of the contractual relationship due to facts not attributable to the parties).[7]
Bearing in mind that these are the instruments offered by the legal system, we go on below to try to respond to some of the problems that may arise in the context of commercial distribution, bearing in mind that the legislature's reference to the institutions set forth in Articles 1218 and 1223 of the Civil Code suggests that the legislator's concern was above all to keep contractual relations alivewhere possible and in the interest of the parties.[8]
2. Effects on distribution contracts
2.1. What happens if the manufacturer can no longer supply its distributors and/or customers because of the coronavirus?
As a general rule, if the manufacturer cannot supply its distributors due to a blockage and/or slowdown in production due to the implementation of government restrictive measures, it cannot be held liable for such delays if the impossibility was original (thus not known at the time the obligation arose) and occurred after the debtor's default (Art. 1219 of the Civil Code), the contract being in a state of 'quiescence'.
Whether it was foreseen (expressly or implicitly) for the delivery of the goods[9] a essential term (Art. 1457 of the Civil Code), the relationship will be terminated as of right once the term has expired.
If, on the other hand, the time of delivery of the goods is not essential, the contractual relationship is extinguished if the impossibility continues until the purchaser can no longer be considered obliged to perform, or if the purchaser's interest in obtaining performance ceases to exist.[10] The purchaser's right not to terminate the agreement and to demand only a reduction of the price, if the performance is/can be only partially performed (e.g. delivery of only a single batch of the purchased goods), shall remain unaffected.
2.2. Can the distribution agreement be terminated because of the pandemic?
The subject of the dissolution of the distribution relationship has already been dealt with in this blog, and reference is made to that article for further discussion.
The termination of the sales (or distribution, as the case may be) licence agreement.
As explained (briefly) in the introductory part of this article, the party who "suffers" the temporary non-performance may terminate the relationship if it has no interest in the partial continuation of performance. Therefore, given that due to covid-19 the distribution relationship is interrupted for a term that may be more or less prolonged, the interest in the continuation of the distribution contract must certainly be calibrated taking into account mainly two factors: the actual duration of the event (in this case the pandemic) and the remaining duration of the contract.
As a general rule, it may be said that the more prolonged the effects of the restraint and the closer the natural expiry date of the relationship, the greater will be the possibilities of terminating the obligatory relationship. Of course, in this assessment, one must also take into account the indirect effects of the restrictive measures, which are linked to a reasonable expectation of one of the parties of the perpetuation of a very important decline in trade even after the end of the blockade.
Furthermore, if one of the parties is contractually obliged to incur high costs for maintaining the distribution relationship (rent, employees, showroom, etc.) that make the collaboration no longer de facto sustainable, it may consider terminating the relationship for excessive onerousness pursuant to Art. 1467 of the Civil Code.
In this case, the party against whom termination is sought may avoid it by offering (Art. 1467(3) of the Civil Code) to modify the terms of the contract in an equitable manner so as to bring the relationship between the performances within the limits of thenormal alea of the contract.
2.3. Can the parties not respect the non-competition agreement?
The covenant of competition in distribution (and agency) relations may be agreed in two ways, namely:
- the manufacturer undertakes to supply only the distributor in a given territory;
- the distributor undertakes to purchase certain products only from the manufacturer.
If, because of covid-19, the manufacturer can no longer supply its distributor because it has been placed under a production freeze, i.e. the distributor can no longer perform because of the freeze, even though the manufacturer has the possibility of supplying it (e.g. because it had in stock the material), the question arises as to whether the party that no longer has an interest in maintaining the non-compete obligation due to a fact attributable to the other contracting party may decide not to perform its obligations by using the legal means referred to above.
On the assumption that the law does not provide for any obligation of the parties to renegotiate the original contractual arrangement,[11] the existence of a principle authorising one party to oblige the other to modify the contract in the interests of rebalancing cannot be inferred.
It follows that a temporary suspension of the non-compete clause (in the writer's opinion) is not legally foundedif this does not result from an agreement of both parties. Conversely, if the prohibition of 'competing' activities for the period in question creates unsustainable conditions, one may possibly consider terminating the contractual relationship on the ground of supervening impossibility or excessive onerousness.
2.4. Should advertising budgets be provided and spent as agreed even if distribution is not possible due to the pandemic?
If one of the parties is contractually obliged to incur fixed costs for marketing and advertising, might find itself in the position of deciding not to incur such expenses, believing that they are not necessary due to the halt in production.
In order to understand whether (and which) marketing activities can be blocked, it is necessary to analyse the nature of the individual advertising/marketing activities. It can tend to be said that all those 'general' activities that serve to maintain the brand positioning within the market, must be carried out even in the event of a distribution blockade, as they are in fact necessary prior to reopening.
A different reasoning should be made on the activities of marketing relating to sales actions that cannot be performed during the pandemic. In such a case, the problem is not so much that those performances cannot be performed (and thus permit the invocation of supervening impossibility), but rather the fact that they do not bring any commercial advantage to the party promoting them; moreover, very often those expenses will not burden the party obliged to bear them so much economically that they can sustain the breach of the contractual equilibrium and thus permit the invocation of the supervening excessive onerousness of the performance.
In such a case, if the parties fail to reach an agreement, the party obliged to perform the promotional activity may have as its only (rather blunt) weapon the decision not to perform and thus not to carry out such activities, relying essentially on the fact that the non-performance may be deemed by the court (having regard also to Art. 91 of the above-mentioned Decree) to be of minor importance (Art. 1455 of the Civil Code), taking into account that the performance would not have brought any commercial advantage to the parties in any event.
3. Effects on agency contracts
3.1. Does the principal still have to pay a fixed commission/expense reimbursement, if contractually agreed?
Especially in agency contracts, it is often stipulated that the entrepreneur pays a monthly fixed amount (as reimbursement of expenses, or as a fixed commission) to which a variable part is normally added.
In this period, since the promotion activity has in fact been largely blocked, one wonders whether the principal might decide to remove (at least this phase) this fixed part.
As noted above, although the law does not provide for an instrument entitling a party to unilaterally modify the contract, it is not at all atypical to find in agency contracts contractual clauses conferring on the principal the potestative right to unilaterally modify the agent's commissions, territory and/or customers.
Cf. Unilateral changes to the agency contract by the principal.
According to the prevailing view of the Court, the granting of this power to the principal must "be justified by the need to better adapt the relationship to the needs of the parties as they have changed over time".[12] It may therefore be held that the adjustment of the commission fee on account of covid-19 can only be legitimately implemented if there is a contractual clause providing for such an option on the part of the principal, who will in any event be obliged to avail himself of it in a reasonable and appropriate manner.
It is a different matter, however, if AECs apply to the agency agreement, which confer on the one hand the possibility of the principal to modify the agent's commissions, but on the other hand the right of the agent to reject the modifications and terminate the relationship for cause if those modifications are significant (on this topic see commission changes based on AECs). It is argued that this rule cannot be altered in favour of the principal even taking into account the impact of the covid-19 on the principal's sales network, who must be aware that any change in the commission may lead to a termination of the relationship for cause by its agent.
3.2. What should agents do if they cannot visit their customers?
It is clear that if the agent can no longer visit his customers, he will not be forced to do so; moreover, if before the pandemic he did not carry out any promotion activities online and was not contractually obliged to do so, the principal will certainly not be able to impose disproportionate efforts on his agent by requiring the latter to engage in 'telematic' promotion by using new computer tools.
3.3. What are the consequences of not reaching the turnover minimums due to covid-19?
In recent years, the jurisprudential orientation is becoming more and more established[13] which, while confirming the unquestionable applicability of the general rule under Article 1456 of the Civil Code on the subject of express termination clauses, nevertheless specified that in order to legitimately activate the relevant termination mechanism, the court must in any event ascertain the existence of a serious breach, constituting just cause.[14]
Cf. The 'minimum turnover' clause in the agency contract.
Following this orientation, the failure to reach the minimum turnover due to covid-19, cannot be considered in itself as a breach such as to legitimise a termination of the relationship due to an act attributable to the agent, with the judge having to assess on a case-by-case basis the actual imputability and culpability of such non-compliance.
3.4. Does the commercial agent retain the right to commission if the customer terminates the contract with the principal because of the coronavirus?
If the customer terminates the contract with the principal because of the coronavirus (e.g. because his shop had to close or his carriers stopped), the question arises whether the commercial agent loses the right to commission under Art. 1748 of the Civil Code.
The current Art. 1748(6) of the Civil Code provides that the agent is obliged to return the commissions collected in the sole event that the contract between the principal and the third party has not been performed for reasons not attributable to the principal (a rule that is, inter alia, mandatory for the parties).
The notion of a cause attributable to the principal has been understood as any intentional or negligent conduct of the principal that resulted in the non-performance of the contract.[15]
Since the customer's breach of contract due to impossibility and/or supervening excessive onerousness of performance (due to the coronavirus) is not a fact attributable to the principal, the agent will not be entitled to receive the commission on such business and will be obliged to return it to the principal if it has already been paid in full or in part.
3.5. The repercussions on severance and termination payments.
As is well known, the parties have the right to terminate the relationship by giving the other party notice. The agent upon termination of the contract is entitled to a severance payment, unless:
- the principal terminates the contract for an act attributable to the agent;
- the agent terminates the contract for an act attributable to the agent.
Taking the above into account, it can be reasonably argued that the arguments made in the previous paragraph "Can the distribution agreement be terminated due to the effects of the Corona pandemic?"may, in principle, also be valid for the agency contract, although one should be aware that it is nevertheless necessary to act with the utmost care and awareness before terminating the contractual relationship, assessing prudently on a case-by-case basis.
One thing, however, is certain, that this pandemic will have a significant effect on the calculations of severance pay and loss of notice for all terminations of contracts that occur close to the arrival of the pandemic.
If those indemnities were to be excessively distorted due to the economic framework connected with covid-19, the question arises whether the agent may supplement them by availing itself of the right guaranteed by Art. 1751(4) of the Civil Code, which grants the agent the right to claim damages in addition to those indemnities.
The prevailing view holds that the damages that the agent may claim in addition to the indemnity are only those from default or tort.[16] It follows that it will be very difficult for the agent to claim further sums beyond those paid to it by way of termination indemnities, given that the decrease in turnover (which led to the decrease in indemnities) is unlikely to be attributable to fault on the part of the principal.
[1] Urgent measures to contain the infection throughout the country.
[2] Limatola, News on agency contracts in April 2020.
[3] Trabucchi, Institutions of Civil Law, § 310, CEDAM.
[4] Torrente - Schlesinger, Handbook of Private Law, §210, Giuffrè Editore.
[5] In that case the debtor's financial difficulties will not be relevant in any event, on this point see Gazzoni, Manuale di diritto privato, Edizioni Scientifiche Italiane.
[6] Cass. Civ. 2016, no. 22626.
[7] On this point, see Vertucci, Non-performance of obligations in the time of the coronavirus: first reflections, ilcaso.it
[8] Vertucci, op. cit.
[9] See Cass. Civ. Cass. of 2013, no. 3710: essentiality is a characteristic that must result either from the express will of the parties or from the nature of the contract.
[10] See on this point Studio Chiomenti, Impact of Covid-19 on contracts.
[11] See on this point Vertucci, op. cit.
[12] Cf. Cass. Civ. 2000, no. 5467.
[13] Cass. Civ. 2011, no. 10934, Cass. Civ. 2012, no. 8295.
[14] Venice, Il recesso, la giusta causa e la clausola risolutiva espressa nel contratto di agenzia, March 2020, La consulenza del lavoro, Eutekne.
[15] Toffoletto, The Agency Contract, Giuffrè.
[16] Bortolotti, Termination Indemnity and Compensation for Further Damage, www.mglobale.it
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.
Main differences between the agency contract and the commercial distribution contract
The sales dealership contract and the agency contract are among the most common forms of organising distribution. These contracts are united by the fact that both the agent and the dealer undertake the obligation to organise and promote, in an autonomous manner, sales in accordance with the manufacturer's policies, integrating themselves within the manufacturer's distribution network. What mainly differentiates these two intermediaries is the fact that, whereas the agent undertakes, in return for a commission, to promote the conclusion of contracts between the manufacturer and the customers whom the agent has procured, the dealer acts as a buyer-seller and his source of income is based on the difference between the purchase price and the resale price.
The sales concession is a particularly important instrument for the organisation of distribution in markets, both domestic and foreign, which differs from other non-integrated retailers (e.g. 'wholesalers') in that it performs aautonomous promotion and organisation of sales of the grantor's productsin a given territory, which, in principle, is granted to him on an exclusive basis.
A definition of this type of contract is not given by the Civil Codeas it has not been regulated in our legal system and must therefore be qualified as an atypical contract. In any case, if one wants to give a definition of the sales agent, it can be framed as a commercial entrepreneur, who concludes a framework contract with the manufacturer, of fixed or indefinite duration, to regulate, in a given area, all the sales that are carried out on a stable and continuous basis by the grantor to the dealer.
La definition of agent, or rather, of agency contract is, on the other hand, given by the Civil Code, which provides atArticle 1742 of the Civil Code that 'With the agency contract one party undertakes on a permanent basis the task of promoting, on behalf of the other, against remuneration the conclusion of contracts in a specified area' (see also What is the difference between an agency contract and a business intermediary?).
Therefore, while the dealer deals in his own name and on his own behalfby purchasing the goods directly from the grantor and reselling them to third parties, contrary to theagent acts on behalf of and as an autonomous collaborator of the principal, promoting the conclusion of sales contracts to third parties and, only to the extent that he has the power of representation, also in the name of the principal.
Thus, although the agent and the dealer perform a very similar function, in that both are in charge of organising the distribution of a principal's products, in a given territory entrusted to them, as autonomous entrepreneurs, but integrated into the manufacturer's sales network, at the same time, they distinguish in a very pronounced way, in the way they manage sales the agent is purely and simply an intermediary of the principal, the dealer, on the other hand, buys the products directly from the licensor and is himself responsible for reselling them directly to the end customer, who has been procured by him.
Looking at the two figures from a strategic point of view, it can be seen that thecommercial agent allows the principal to have stronger and more direct control over customersas the sale is made by the principal itself and the agent is instead responsible for passing the order on to the principal, the dealer has instead the task of organising the sales phase to the end customer and, often, also the service phase, and therefore normally has more direct control over the customerIt also performs activities related to the promotion of the sale, such as customs clearance of goods, shipment to the consignee and warehousing.
These types of contracts also differ in terms of the commercial risks that the manufacturer assumes: in the distribution the risk is definitely shifted more to the dealer, who bears the potential danger of not being able to resell the purchased products. On the contrary in the case of agencythe risk of non-performance by the end customer, falls directly back on the principal, especially if the parties have applied Italian law, since in our legal system the usability of the so-called ''default clause'' is limited.star of belief"has in fact been deleted. It is briefly recalled that with such a clause, the agent assumes in part or in full, the risk of non-payment by a third party introduced by it, undertaking to reimburse the principal, within the agreed limits, for the loss incurred by the latter.
It should be noted, however, that in most sales distribution contracts there is a clause, which postpones the dealer's obligation to pay for the goods, only after payment of the product by the end customer. It is evident that such an agreement will greatly shift the entrepreneurial risk towards the grantor.
Certainly, one aspect that strongly distinguishes the two contracts is theseverance pay (on this subject see also calculation of indemnity pursuant to art. 1751 of the civil code., calculation of former AEC 2014 allowances calculation of former AEC 2009 allowances e calculation of ex ANA allowances 2003). As is well known, the agency contract expressly provides, in Article 1751 of the Civil Code, for the agent's right to receive, under certain conditions, an indemnity following the termination of the contractual relationship. Likewise cannot be said for the sales concession contract. Italian jurisprudence, in fact, differs from the jurisprudence of several European countries - e.g. Austria and Germany) does not recognise this right to the concessionaire.
Authoritative doctrine dissociates itself from this jurisprudential orientation, stating that "even in the absence of legislative provisions, the right to an indemnity in an agency contract in which the agent is also authorised to make purchases on its own account as a dealer could be extended to the business carried on by the dealer. Indeed, it seems to us that in such cases, since it is a mixed contract, in which the cause of the agency contract prevails, the indemnity for termination, by virtue of the principle of absorption, could be extended to the business carried on by the agent as dealer"(Venice-Baldi).