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Concession of sale and severance pay. The new legislation in the car industry (and how does it work in Germany?)

The termination indemnity for distributors or sales dealers in Italy has been the subject of recent legislative developments, which have led to significant changes.

The recently introduced law in the motor vehicle distribution sector establishes an 'innovative' right to fair compensation for authorised distributors and a minimum contractual term of five years for fixed-term contracts, as well as twenty-four months' notice for open-ended contracts.

Although the interpretation of the rule and the determination of the amount of the severance payment still present significant complexities, pending further developments in law and jurisprudence, the German model, which has recognised it for years in all business sectors, could provide interesting pointers.

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1. Introduction. Damages and compensation.

Until a few months ago, in the Italian legal landscape, the termination indemnity in sales concession contracts was devoid of any legal regulation and case law remained firm and unanimous in holding that any indemnity should be paid to the concessionaire for the customers contributed by them, thus excluding an analogical application of the agency provisions.

In the Italian legal system, upon termination of the contractual relationship, the interests of the dealer were mainly protected in the context of an assessment of the legitimacy and/or appropriateness of the termination or dissolution of the contract, by means of an estimate of the profits that the dealer could have received if the contract had been fulfilled until its natural expiry. The instrument used is that of damages, calculated in the loss of the expected profit and in the absorption of the costs inherent in the organisation and promotion of sales, as well as the investments undertaken in reliance on the continuation of the contract.[1]

On the other hand, compensation is not intended to reward the dealer for his work in building up a customer base, as is in fact provided for in agency relationships in Article 1751 of the Civil Code.

The termination of the sales and/or distribution dealership contract. Brief analysis.

So that, for the fixed-term contractsunilateral termination of the relationship is excluded (unless expressly agreed by the parties) and termination of the contract may only occur in the event of serious breach.[2]

Otherwise, for the open-ended contractsunilateral termination is permitted, even in the absence of non-performance, provided that adequate notice is given.[3] Where the parties have not agreed on a period of notice, it must be assessed by reference to the interests of the party 'suffering' the termination, the termination party having to grant a period of notice that may enable it to prevent, at least partially, the negative effects resulting from the termination of the relationship;[4] the concessionaire must have the possibility of recovering part of the investments made (e.g. the disposal of inventories), while the grantor must have sufficient time to be able to buy back the goods still in stock from the concessionaire, so that they can be reintroduced into the distribution circuit.[5]

If the parties had contractually agreed and quantified the period of notice, it is debatable whether the judge can assess its adequacy; the majority jurisprudence holds that this period, even if short, must be observed, and that the judge does not have to assess its adequacy.[6]

However, mention must be made of a case in which the Court of Cassation, in a ruling of 18 September 2009 in the automotive sector,[7] dealt with a dispute between an association of former car dealers and Renault; in particular, the manufacturer had terminated the contracts with the dealers, acknowledging the contractual notice period of twelve months. The dealers considered the termination to be abusive, and the court upheld the plaintiffs' claims, ruling that the court can assess whether the right of termination was exercised in good faith or whether it was abused, relying on the criterion of objective good faith, which is considered the fundamental benchmark for the parties' conduct.

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2. The novella on motor vehicle distribution.

In this context, the new regulations introduced for the automotive distribution sector with the Law No. 108 of 5 August 2022later updated by Law No. 6 of 13 January 2023.

In particular, Art. 2 specifically regulates the duration of the contract, providing that:

  • if the ratio is at fixed-termthe minimum duration of the agreement is five years, with each party being obliged to give written notice, at least six months before the expiry date, of its intention not to renew the agreement, on pain of ineffectiveness of the notice;
  • as regards relations to indefinitethe written notice period between the parties for termination is twenty-four months.

It is then introduced in Article 3 of the Act, an obligation on the manufacturer or importer to provide the dealer withprior to the conclusion of the agreement, as well as in the event of subsequent amendments thereto, all information in its possession, which are necessary to make an informed assessment of the extent of the commitments to be undertaken and the sustainability of the same in economic, financial and asset terms, including an estimate of the marginal revenue expected from the marketing of the vehicles.

Article 4 then introduces a 'revolutionary' (at least for Italian law) obligation on the manufacturer or importer, who terminates the agreement before the contractual deadline, to pay the authorised distributor a fair compensationwhich is to be measured on the basis:

  1. of the investments it has made in good faith for the purpose of performing the agreement and which have not been depreciated at the date of termination of the agreement;
  2. goodwill for the activities carried out in the performance of the agreements, commensurate with the turnover of the authorised distributor over the last five years of the agreement.

Compensation under para. 4 is not due in the event of termination for non-performance or when termination is requested by the authorised distributor.

Finally, Article 5-bis of the regulation expressly states that the provisions of paragraphs 1 to 5 are "mandatory".

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3.     Some insights into the new legislation.

To date, there are no case law precedents that allow for an interpretation of the legal provision, which remains very general and difficult to apply in practice.

In anticipation of a jurisprudential development, we briefly raise what are the major criticisms that can be detected even from a simple reading of the text of the law, with particular regard to two aspects, namely:

  • the duration of the contract and
  • the quantification of fair compensation.
3.1. Duration of the contract and automatic renewal

If the contract has been concluded for a fixed term, it would appear that the contract will be automatically renewed for the same period for which it was concluded if either party fails to terminate it within six months from the closing date.

One can come to this 'hasty' conclusion from a simple reading of the text, which speaks precisely of 'renewal' and not so much of transformation of the contract from a fixed-term to an open-ended term, as is the case, for example, in agency relationships (cf. Article 1750 of the Civil Code.). It is clear that this is a matter of great practical impact, given that the renewal of the contract, if indeed automatic, entails the extension of the relationship for a period of not less than five years, this being the minimum term fixed by the legislation.

This element also has a very important bearing on the possible entitlement of the concessionaire to fair compensation, which, it should be noted, is not only due in the event of the concessionaire's non-performance, i.e. its termination. If, as is more than likely to be expected, the theory of automatic renewal of the agreement passes, the indemnity will be awarded to the dealer even in the event that he declares that he does not wish to renew the agreement before its expiry, since this is not technically a case of actual termination. Similarly, compensation is likely to be due even if the parties agree to terminate the contractual relationship.

Since it is then a mandatory rule that of indemnity, the question arises, as in the case of agency, whether any waiver prior to the termination of the relationship can be considered valid, or whether it is effective only if agreed by the parties once the contract is terminated.

Read also: Which waivers and settlements may be challenged by the commercial agent.

3.2 Fair compensation.

As to the quantification of fair compensation, as we have seen, the rule refers to two very general parameters, namely:

  1. the investments made in good faith by the dealer and not amortised at the date of termination of the agreement;
  2. l'start-up of commercial activity, commensurate with the turnover developed by the distributor over the last five years of the agreement.

Firstly, it should be noted that it does not appear to be an analogical application of the principles laid down on the subject of agencysince neither requirement makes any reference whatsoever to the clientele brought in by them and the business developed with them, as stipulated by the'Article 1751 of the Civil Code.

Article 4(a) refers precisely to investments made in good faith, completely detached from what was the customer contribution and business development that the dealer managed to develop in the course of the relationship.

The choice made by the legislator seems to want to give more weight to the performance of the relationship according to good faith, which requires, on the one hand, the grantor to act in such a way as to preserve the interests of the concessionaire and thus not to require, or in any case unreasonably induce, the concessionaire to make investments disproportionate to the type and duration of the contract and, on the other hand, the concessionaire to be compensated only for non-depreciated investments made on the basis of a principle of good faith.

With reference, on the other hand, to Article 4(b), the legislature makes a general reference to the goodwill of the concessionaire, without any relevance being given, once again, to the advantages which the concessionaire has brought to the grantor and which the latter enjoys following the termination of the relationship.

Moreover, a general reference is made to the dealer's "turnover" during the last five years of the relationship; it is clear that this is a very general figure, in itself detached from the dealer's own margin or profit, and in itself not necessarily related to the customers procured by the dealer during the term of the contract.

The temporal reference of five years, would seem to recall the period of analysis applied to commercial agents, in Art. 1751 of the Civil Code, with the only (but huge) distinction, that in that case reference is made to the average commission developed by the agent in that interval.

3.3. Mandatory standards and/or standards of necessary application?

As we have seen, Article 5-bis of the new law expressly assigns the new provisions on automotive distribution a mandatory character.

In this context, a relevant question arises concerning the application of the Rome I Regulation (Regulation (EC) No 593/2008) to the new legislation. In particular, the question arises as to whether these provisions can be regarded as 'rules of necessary application' within the meaning of Article 9 of the aforementioned Regulation, also known as 'internationally mandatory' rules.

According to this provision, mandatory rules are legal rules that a country considers crucial to safeguard its public interests, such as its political, social or economic organisation. In certain cases, national legislators may decide to give some of their mandatory rules an even stronger character by providing that they cannot be derogated from even by subjecting the contract to a foreign law. This means that, notwithstanding the contractual choice to apply a different law, a court may be obliged to apply such provisions if it considers them to be of 'necessary application' because they are crucial to safeguarding Italy's public interests.

One must therefore ask oneself (pending an appropriate jurisprudential and legislative development), whether the new provisions on automotive distribution should be considered not only mandatory (under Art. 5-bis) at national level, but also international, under Art. 9 of the Rome I Regulation.

Precisely in the area of sales concessions, an example of a rule of necessary application is the Belgian law of 27 July 1961, Article 4 of which imposes the internationally mandatory application of this rule in the case of disputes concerning the termination of concession contracts performed in Belgium, irrespective of the law contractually chosen by the parties. [7a]

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4. The dealer's indemnity in the German system.

While waiting for a jurisprudential development that refines and directs practitioners to interpret the new legislation, it is interesting to analyse how a system close to ours, which has recognised this allowance for several decades, works; all this without claiming to be German jurists, but with the simple intention of providing the reader with a general overview of this model.

4.1. The prerequisites of the concessionaire's right to indemnity.

In Germany, case law for years apply analogically the principles of agency indemnity, regulated by the § 89b HGB (Handelsgesetzbuch), also to the dealer. The provision in question is the German counterpart of Article 1751 of the Civil Code, both of which were reformed to implement the 1986 European Commercial Agency Directive.[8]

For the allowance to be recognised, German case law requires the following conditions to be met:

  1. the contract shall not be terminated by the principal due to serious default by the agent, or by the agent without justified reason, or there has been an assignment of the rights and obligations of the contract to a third party;
  2. the concessionaire must be integrated within the distribution network of the grantor;
  3. a transfer of the customer list must have taken place.
4.1.1. Dissolution of the relationship.

German case law applies by analogy the principles in agency law, whereby the purpose of the indemnity is to compensate the agent for the benefits that are transferred to the principal following the termination of the contract, since the agent can no longer benefit from the relationships it has established or developed with its customers.

The purpose of the indemnity, therefore, is on the one hand to compensate the agent for the loss of commission suffered by the agent due to the termination of the relationship, and on the other hand to provide the agent with compensation for the benefits derived from the customers acquired and/or developed by the agent. A prerequisite for the claim for indemnity, as set forth in subsection (3) of § 89b HGB, is the fact that the contract has not been terminated by the principal due to the agent's serious breach of contract, by the agent without justified reason, or by the assignment of the rights and obligations of the contract to a third party.

German case law, although the law does not expressly regulate it, has held that the indemnity is due in the event of termination of the relationship due to mutual disagreement, regardless of who first proposed the consensual termination of the relationship.[9]

These criteria are also faithfully applied to dealer contracts, including consensual termination of the relationship.[10] Therefore, even in the event of consensual termination of the contract, the authorised dealer will be entitled to an indemnity, provided that the other requirements, i.e. integration into the manufacturer's distribution network and the obligation to transfer customers, are met.

4.1.2. Integration within the network.

With regard to the requirement of integration within the distribution network, it is important to emphasise that the business relationship is not limited to a simple relationship between a seller and a regular customer, a deeper form of collaboration constituting a true integrated distribution agreement being necessary.

This implies that the authorised dealer is actively involved in the manufacturer's distribution system, so that the claim is intended to compensate the dealer not only for the loss of the benefits of customer relations, but also for the active contribution to the manufacturer's distribution network.

Read also: Dealer, distributor or regular customer?

German jurisprudence[11] over time has developed a number of examples of situations that could lead to, or at least lead to the assumption that there is a real integration in the distribution system of the grantor; here are some of them:

  • be recognised as an authorised dealer;
  • grant the producer/concessionaire authorisation to enter the business and storage premises at any time;
  • be subject to minimum purchase obligations for the contractual products;
  • have an obligation to store goods in the warehouse;
  • set up and supervise authorised workshops in the contract territory;
  • provide customer support and repair services;
  • receive training from the producer/concessionaire;
  • enhance, preserve and maintain the producer's brand;
  • follow the manufacturer's sales guidelines and recommendations;
  • have the possibility of selling the producer's products outside the contract territory;
  • be assigned to a specific contractual territory, even in the absence of territorial exclusivity.
4.1.3. The transfer of customers.

Another basic requirement for the dealer or reseller to be entitled to severance pay is that there has been a transfer of customer data.

According to German case law,[12] it is not indispensable that the transfer of the customer list be explicitly provided for in the contract, but may arise implicitly as an obligation or be a practice adopted by the parties (e.g. if the dealer sends the names of customers to the manufacturer for warranty management or other after-sales service purposes).

This transfer of the customer list is a crucial element because it allows the manufacturer to maintain and develop the relationship with customers acquired by the dealer even after the relationship with the dealer or reseller has been terminated.

4.2. The calculation of the allowance.

The quantification of the allowance must be carried out considering the following parameters:

  1. advantages for the producerIt is necessary to assess whether the dealer has acquired new customers or consolidated existing ones, as required by § 89b HGB (and Art. 1751 of the Civil Code), by means of an analytical prognosis of the benefits derived from the acquired customers. It is up to the dealer to provide proof of developments for each individual customeras the production of a mere list of customers that the dealer has acquired or developed in the course of the relationship is not sufficient.[13] The estimate must then be based on the results of the last five years, in analogous application of § 89b HGB;
  2. the quantification of benefits must be done in a "fair" manner, assessing the losses incurred by the dealer as a result of the termination of the relationship. Applying the commercial agency discipline by analogy, the losses to be taken into account must be by commission-based' nature. Although, as is well known, the dealer is not remunerated through commissions, but rather marginalises on the discounts granted to him by the licensor, in order to be able to apply the principles of agency by analogy, it is necessary to calculate what the manufacturer would have paid to a commercial agent on the basis of the sales made by the dealer, if the distribution had taken place through an agency and the sales had been made in this way.

In this context, in order to calculate the allowances and to attempt to "commission" the dealer's revenues, all those remuneration components typical of the dealer and extraneous to the agent must be deducted from the discount. By way of example: expenses for personnel and equipment for the business, advertising, product presentation, assumption of sales, price fluctuation, credit or equivalent value risks, etc.[14]

The limit of the allowance corresponds to the average of the last five years.[15] It is important to emphasise that this is the commission that the dealer would have earned, not the turnover generated by the dealer. This is particularly important as it shifts the focus of analysis away from the dealer's total volume of business, to concentrate instead on actual net revenue.

This approach takes into account the dealer's actual economic benefit, rather than relying on a generic figure that may not accurately reflect the dealer's commercial position. This distinction ensures that the allowance is calculated more accurately and truthfully, reflecting the dealer's actual earnings rather than the total amount of sales realised.

The allowance is then calculated on the basis of these benefits, following an approach similar to that used in the agency.

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[1] On this point, see Venezia, Il contratto di agenzia, 2016, p. 140, Giuffrè.

[2] I contratti di somministrazione di distribuzione, Bocchini and Gambino, 2011, p. 669, UTET.

[3] Concessione di Vendita, Franchising e altri contratti di distribuzione, Vol. II, Bortolotti, 2007, p. 42, CEDAM; In doctrine Il contratto di agenzia, Venezia - Baldi, 2015, p. 140, CEDAM.

[4] In doctrine Il contratto di agenzia, Venice - Baldi, 2015, p. 140, CEDAM; In jurisprudence Court of Appeal Rome, 14 March 2013.

[5] I contratti di somministrazione di distribuzione, Bocchini and Gambino, 2011, p. 669, UTET.

[6] See Trib. of Turin 15.9.1989 (which considered a term of 15 days to be congruous); Trib. of Trento 18.6.2012 (which considered a term of 6 months for a 10-year relationship to be congruous); Distribution contracts, Bortolotti, 2022, p. 659, Wolter Kluwer.

[7] Cass. Civ. 5.3.2009 'On the subject of contracts, the principle of objective good faith, i.e. of mutual loyalty of conduct, must govern the performance of the contract, as well as its formation and interpretation and, ultimately, accompany it at every stage. [...] The obligation of objective good faith or correctness constitutes, in fact, an autonomous legal duty, the expression of a general principle of social solidarity, the constitutionalisation of which is by now unquestionable (see in this sense, among others, Court of Cassation Civ. 2007 no. 3462.)"

[7a] On this point, Bortolotti, Il contratto internazionale, p. 47, 2012, CEDAM.

[8] Council Directive 86/653/EEC of 18 December 1986 on the coordination of the laws of the Member States relating to self-employed commercial agents.

[9] On this point, compare Van Der Moolen, Handbuch des Vertriebsrechts, p. 599, 4th edition, 2016, C.H. Beck.

[10] BGH 23.7.1997 - VII ZR 130/96.

[11] BGH 8.5.2007 - KZR 14/04; BGH 22.10.2003 - VIII ZR 6/03; BGH 12.1.2000 - VII ZR 19/99; on this point see also Van Der Moolen, Handbuch des Vertriebsrechts, p. 600, 4th edition, 2016, C.H. Beck.

[12] BGH 12.1.2000 - VIII ZR 19/99.

[13] BGH 26.2.1997 - VII ZR 272/95.

[14] On this point, compare also Van Der Moolen, Handbuch des Vertriebsrechts, p. 621, 4th edition, 2016, C.H. Beck.

[15] BGH 11.12.1996 - VII ZR 22/96.

by admin

coronavirus contratti di distribuzione contratti di agenzia

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

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esclusiva non concorrenza contratto concessione di vendita

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]

_____________________________

[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.

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The termination of the sales and/or distribution dealership contract. Brief analysis.

"The sales concession contract is not governed by Italian law and follows the general rules on contracts, with the application of certain principles regarding mandate and administration. If the contract is concluded for a fixed term, it cannot be terminated in advance unless there is a serious breach; if for an indefinite term, it can be terminated unilaterally with due notice. The notice period, if not agreed, is determined on the basis of the duration of the contract and the investments made; if the parties have agreed and contractually quantified notice period is discussed whether theThe judge can make assessments of its appropriateness.

Since the contract of sale concession is not expressly regulated by our law, the general principles provided for contracts apply to it, paying particular attention to the provisions provided for the contract of supply (1559 et seq. civil code) and mandate (1703 et seq. civil code), types of negotiation very close to the one under consideration.

If the concession contract was concluded at fixed-termit will last until its natural expiry and cannot therefore be unilaterally terminated early by either party, except in the case of (serious) breach.[1]

Conversely, if the sales concession contract is of indefinite duration, it may be terminated unilaterally, without the need to invoke just cause, but subject to the granting of a reasonable notice. Doctrine and jurisprudence reach this conclusion, both by analogical application of the principles dictated on the subject of administration (Art. 1569 of the Civil Code).[2] and mandate (Art. 1725 of the Civil Code),[3] but also relying on the general provisions of the law in the area of unilateral termination and applying the principles of good faith under Article 1375 of the Civil Code.

A major problem opens up concerning theidentification of the duration of the noticein all those cases where the parties have not contractually agreed to do so; this may occur not only where the parties have not thought of regulating this issue when drafting the master agreement, but also in the much more complex situation where the relationship between the parties, which started out as a simple buyer-seller relationship, has in fact over time 'transformed' into a full-fledged distribution contract (on this point, see the article Dealer, distributor or regular customer? Differences, characterising elements and interpretation criteria).

In order to understand what is meant by adequate notice and, therefore, to give a time value to this term, reference must be made to the interests of the person who 'suffers' the withdrawal, since the withdrawing party must grant a term that will allow preventat least partially, the negative effects resulting from the termination of the relationship;[4] Therefore, the concessionaire must be able to recover part of the investments made (e.g. the disposal of inventories), while the grantor must have sufficient time to be able to buy back goods still in stock from the concessionaire, so that they can be reintroduced into the distribution circuit.[5]

To give a more practical slant to this issue, we list below some cases decided by case law where it has been held that[6]

  • a deadline of 18 monthswith reference to a contract that lasted about 25 years;[7]
  • not congruous a deadline of 6 months (later replaced by one of 12 months), for a contract of 10 years' duration;[8]
  • reasonable notice of 3 months in connection with a 26-month contract.[9]

In other situations, case law has applied the period of notice required by agency regulations.[10]

If, on the other hand, the parties had agreed and contractually quantified notice periodThe majority of case law is in agreement that reference must be made to that term in any event, even if it is very short, holding that the judge cannot make any assessment of the appropriateness of the notice period agreed upon by the parties.[11]

With reference to this specific issue, i.e. with regard to the reviewability of the notice period agreed upon by the parties, it is certainly important to bear in mind a relevant ruling of the Court of Cassation of 18 September 2009,[12] which established a number of interesting principles. On the merits, the dispute was brought by an association set up by several former car dealers against the parent company Renault, which had terminated the contractual relationship with those dealers by giving one year's notice, in accordance with the contractual provisions; the dealers sought a declaration that the termination was unlawful because abuse of right. These proceedings were dismissed at first and second instance, but upheld at last instance by the Court, which held that it could not be ruled out whether the right of withdrawal ad nutum has been exercised in good faith, or, on the contrary, an abusive exercise of that right may be conceivable. The Supreme Court came to this conclusion through the use of the criterion of objective good faith, which must be considered as "general canon to which the conduct of the parties should be anchored."[13]

This orientation has been challenged by some doctrine,[14] which he considered should be "considered with the utmost caution". This is confirmed by the very fact that:

"at is to be hoped, that the notion of abuse of rights will continue to be applied only in extreme and justified cases."

In contrast, there is no doubt about the validity of the termination in trunkand thus without the grant of notice, in the event of just cause.[15]

As to the inclusion in the distribution contract of a express termination clausedoctrine and jurisprudence agree that it can be validly included in the agreement (contrary to the guidelines on agency contracts).

If the relationship is terminated without cause, the terminating party is obliged to compensate the damage to the person who suffered such an action. For the purpose of calculating damages, account must be taken of the profits that the dealer would have presumably obtained in the remaining part of the contract (on the basis of the turnover history) or of the expenses incurred by the dealer for the organisation and promotion of sales in anticipation of the longer duration of the relationship.

Instead, case law is unanimous in holding that thetermination indemnity in favour of the concessionaire must be excluded and cannot be applied to this type of contract. agency provisions.[16]

____________________________________

 

[1] Cass. Civ. 1968 No. 1541; in doctrine Il contratto di agenzia, Venice - Baldi, 2015, p. 139, CEDAM. 

[2] It is the unanimous conviction in doctrine that Article 1569 of the Civil Code, relating precisely to the contract of supply, according to which either party may withdraw from the contract without the need to invoke a just cause, may be applied analogically to this case (see on this point I contratti di somministrazione di distribuzione, Bocchini and Gambino, 2011, p. 669, UTET)

[3] Concession of Sale, Franchising and Other Distribution Contracts, Vol. II, Bortolotti, 2007, p. 42, CEDAM.

[4] In doctrine Il contratto di agenzia, Venice - Baldi, 2015, p. 140, CEDAM; In jurisprudence Court of Appeal Rome, 14 March 2013;

[5] I contratti di somministrazione di distribuzione, Bocchini and Gambino, 2011, p. 669, UTET

[6] Distribution Contracts, Bortolotti, 2016, p. 564, Wolters Kluver.

[7] Trib. Treviso 20 November 2015 in Laws of Italy.

[8] Trib. Napoli 14 September 2009 in Laws of Italy.

[9] Trib. Bologna 21 September 2011 in Laws of Italy.

[10] Trib. Bergamo 5 August 2008 in Agents and Sales Representatives 2010, No. 1, 34.

[11] See Trib. Torino 15.9.1989 (which considered a term of 15 days to be congruous); Trib. di Trento 18.6.2012 (which considered a term of 6 months for a 10-year relationship to be congruous).

[12] Cass. Civ. 2009, no. 20106.

[13] Cass. Civ. 18.9.2009 "On the subject of contracts, the principle of objective good faith, i.e. of mutual loyalty of conduct, must govern the performance of the contract, as well as its formation and interpretation and, ultimately, accompany it at every stage. [...] The obligation of objective good faith or correctness constitutes, in fact, an autonomous legal duty, the expression of a general principle of social solidarity, the constitutionalisation of which is by now unquestionable (see in this sense, among others, Court of Cassation Civ. 2007 no. 3462.)"

[14] Distribution Contracts, Bortolotti, 2016, p. 565, Wolters Kluver

[15] Court of Appeal Rome, 14 March 2013

[16] Trib. Trento 18.6.2012; Cass. Civ. 1974 no. 1888; Contratti di distribuzione, Bortolotti, 2016, p. 567, Wolters Kluver; Il contratto di agenzia, Venezia - Baldi, 2015, p. 153, CEDAM

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