Distribution-Delivery Vs. Distribution-Sale
June, 2016 - Luciana De Lio Perego
The recent First Chamber Supreme Court’s (SC) case law has been consistent when determining that the granting of clientele compensation in case of unilateral termination of the distribution agreement by the manufacturer could not be made automatically by analogous application of the Agency Contract Act, but by taking into account the particular casuistry. Requiring the claimant distributor to prove the effective contribution on the growing clientele during the duration of the agreement and, additionally, the potential future advantage for the manufacturer, who has terminated the agreement. The recent SC’s decision, number 273/2015, May 27, has given a certain twist to this interpretation when establishing the distinction between “distribution delivery” and “distribution sale”, thus recognizing that the scope of the subject of a distribution agreement may vary significantly from case to case and hence providing the distributor with greater chances to perceive clientele compensation in certain cases.
In the aforementioned decision, the SC differentiates between three steps conforming the product commercialization process: (i) pre-sale activities such as promotion and/or the reception of customer orders; (ii) product delivery activities to the previously attracted customers (either by the manufacturer or by the distributor); and (iii) the invoicing and credit collection tasks.
The SC ruled that the subject of a contractual relationship is focused on distribution only if the distributor only performs activities included in step (ii) described above, such as the delivery of products to clients following instructions from the manufacturer, independently of the exclusivity of the service. In such cases, the claim for compensation to a distributor-delivery is less likely to be successful due to the rationale behind the compensation, which is to offer a fair remedy against the unjust enrichment situations where the manufacturer benefits from the clients attracted by the commercial activity of the distributor who has been unilaterally terminated. On the other hand, the SC related the “distribution sale” activity with the assumption of a higher risk by the distributor, who has usually invested a larger amount of resources in marketing and customer-attraction activities, as well as in improving the relationship with preexisting clients; these being potentially beneficial for the manufacturer once the agreement is terminated. The SC considers that the distributor-seller is involved in the performance of billing and credit collection activities, which goes beyond delivery and physical distribution of the products commercialized under the agreement in question.
As a consequence of the performance of said pre-sale and post-sale activities, the distributor-seller must respond to the manufacturer of its obligation to provide a certain organizational structure in terms of facilities, resources and personnel, among others, which makes the distributor vulnerable in front of any eventual changes the manufacturer may decide to implement (such as changes in the product lines commercialized by the distributor or modifications on the exclusive distribution territory). All this would lead the courts to be more likely to recognize the right of the distributor-seller to receive compensation for the clientele generated during the performance of his duties under the agreement. The strong implication of the distributor will be captured in these cases as there exists the possibility that the manufacturer continues benefitting from the distributors’ efforts once the agreement is terminated.
When determining whether a distribution agreement should be labelled as a “distribution-delivery” or a “distribution-sale” agreement, its specific clauses should be taken into account as they reveal the common intention of the parties when entering the agreement and serve as a guide to set or define the degree of commercial involvement of the distributor to be achieved under that contract, also taking into consideration relevant factors such as the existence of non-competition agreements which could affect the distribution activity of the distributor once extinguished the relationship with the manufacturer.
Finally, it is important to take into account the business sector in which the distribution takes place in each case, since the distribution tasks and their effect on the attraction of new clients or in the increase in the business activity with the existing ones may be affected by the particularities of a specific industry and thus, affect the extension of an eventual clientele compensation. Take the well-known SC judgement number 538/1999, of June 12th (later quoted by, among others, the SC judgement number 28/2009, of January 21st) as an example. In this judicial case, and given that internationally-known brands were involved, it was ruled that the distribution activities in the automotive sector were accessory and therefore not determinant. The SC considers that the unilateral extinction of a distribution agreement has not given rise to unjust enrichment, as the internationally-known brands themselves serve as advertisement for the purchase of new vehicles by individuals, who pay greater attention to the general advertisement carried out by the manufacturer than to the limited advertisement the distributor or the dealer may deploy, and who in any case takes profit from the first. For this matter the judgement concludes that the attraction of customers in the automotive sector does not derive exclusively from the performance of the dealer because of the pre-contractual relationship the client has developed with the brand, as well as because of the loyalty effect when repeating the purchase of a new vehicle of the same brand.
In conclusion, if we can extrapolate the ruling of the abovementioned judgement to the fashion industry, in which the existence of brands is fundamental, it would not be difficult to advocate before a Spanish court for the inexistence of an unjust enrichment situation which gave rise to clientele compensation when the distribution agreements considered products from a well-known brand. It could be alleged that the purchase of those products obey to a pre-existing relationship between them and the brand in question (may it represent a special quality, design, life style or others). In general terms, as in this industry the aesthetics and brands are key elements when positioning the products, it is not unreasonable to think that the eventual broadening or strengthening of a client portfolio responds to branding tasks done by the manufacturer rather than the performance of the distributor, not giving rise to a customer-based compensation at the termination of the contractual relationship.
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