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Indemnities for agents and distributors in Spain: the calculation criteria by the courts

Indemnities for agents and distributors in Spain: the calculation criteria by the courts. Ignacio Alonso ADVOCATIA ABOGADOS MADRID. Indemnities in Agency and Distribution Contracts. Agency contracts Goodwill compensation Distribution Contracts Goodwill compensation Some recommendations.

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Indemnities for agents and distributors in Spain: the calculation criteria by the courts

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  1. Indemnities for agents and distributors in Spain: the calculation criteria by the courts Ignacio Alonso ADVOCATIA ABOGADOS MADRID Advocatia Abogados - Madrid www.advocatia.com

  2. Indemnities in Agency and Distribution Contracts • Agency contracts • Goodwill compensation • Distribution Contracts • Goodwill compensation • Some recommendations Advocatia Abogados - Madrid www.advocatia.com

  3. Agency agreements • The existence of the compensation: Article 28.1 Agency Act • Termination of the contract (for determinate or indeterminate period) • New clients or sensibly increased operations with previous ones • Still substantially benefit the Principal • Other elements • Limitation of competition • Loss of commissions • Other circumstances (exclusivity) Advocatia Abogados - Madrid www.advocatia.com

  4. Agency agreements • The amount of the compensation (legal and case-law criteria) • Not automatic. Compulsory (contrary agreement not valid) • Maximum legal amount (one year / five years) • The remunerations (subventions, prices, bonuses) • Other circumstances • Reasonable moderation (increasing of commissions) • Possible sales in last period • Well-known products • The clients fidelity • Habitual clients Advocatia Abogados - Madrid www.advocatia.com

  5. Agency agreements • Some examples by courts (1) • 2 years and 9 monthscontract: • Total Commission 93.707,93 € • Compensation of 33.734,56 € (98,99% of the legal maximum) Advocatia Abogados - Madrid www.advocatia.com

  6. Agency agreements • Some examples by courts (2) • One year contract • Total commissions 17.552,51 € • compensation: 10.000 € • In case of advertising paid in a 50% by the principal • compensation reduced in 20% Advocatia Abogados - Madrid www.advocatia.com

  7. Agency agreements • Some examples by courts (3): • Long term contract (two cases): • (a) Last five years commissions: 26.085,84 € • compensation: 5.217,19 € (legal maximum); • (b) Last five years commissions: 195.189,13 € • Compensation: 39.037,83 € (legal maximum) • Two years and five months: annual average Advocatia Abogados - Madrid www.advocatia.com

  8. Agency agreements • First conclusions • Maximum vs. usual compensation • Freedom and moderation of Courts • Some specific recommendations • Special clause including compensation Advocatia Abogados - Madrid www.advocatia.com

  9. Distribution agreements • The existence of the compensation: no specific applicable law. The analogy. • Termination of the contract • New clients or increased operations • Still benefit the Principal • Other elements : • exclusivity; • exclusion if there is not bad faith Advocatia Abogados - Madrid www.advocatia.com

  10. Distribution agreements • The amount of the compensation (case-law criteria). The analogy • Not compulsory. Parties can exclude it. • Maximum amount. Analogy. • The remunerations. Difficulties and criteria proposed • Other criteria followed by the courts • Circumstances of each case • Freedom for the First Instance Judge • Moderation • Analogy Advocatia Abogados - Madrid www.advocatia.com

  11. Distribution agreements • Some examples: courts decisions (1/5) • More than two years contract. • Distributor: 58.299,29 €, • FIC: 58.064,44 € • High Court (confirmed by Supreme Court): 23.917,13 € • Short duration contract (-) • Not exclusive contract (-) • Distribution had not excessive importance in distributor (9.5%) (-) Advocatia Abogados - Madrid www.advocatia.com

  12. Distribution agreements • Some examples: courts decisions (2/5) • Exclusive 10-year contract • Distributor asked 75.842 € • FIC: not accepted (other reasons) • High Court : 50.000 €: • Long term duration (+) • Exclusivity (+) • Near relationship Distributor-final client (+) • But: Reduction of sales (-) • Distributor also sold other materials (-) Advocatia Abogados - Madrid www.advocatia.com

  13. Distribution agreements • Some examples: courts decisions (3/5) • 13-year contract • Distributor asked 90.851,69 € • FIC: only 18.170,32 due to the number of clients • High Court : 36.340,63 €: • The number of clients was higher (+) • But : The clientele was due to the prestige of the products (-) • The sales had not increased during the contract (-) Advocatia Abogados - Madrid www.advocatia.com

  14. Distribution agreements • Some examples: courts decisions (4/5) • Exclusive long term contract (six months previous notice) • FIC: 308.039,10 € • High Court confirms: • Calculation on the possible benefit the distributor would have obtained • Reduction according its capacity of moderation Advocatia Abogados - Madrid www.advocatia.com

  15. Distribution agreements • Some examples: courts decisions (5/5) • Exclusive 10-year contract • Distributor: 180.000 € (Principal’s sales increased from 54.000 to 216.000 € during the contract) • FIC: annual average of gross margin in the last five years • High Court: confirms criterion • Supreme Court (January 2008): confirms criterion Advocatia Abogados - Madrid www.advocatia.com

  16. Common recommendations • Respect to the law and contract • Exclusive (+) or not (-) • The creation of clientele • Well-known products • The publicity made by the Principal • Evolution of sales by the intervention of Agent or Distributor • The importance of the distribution in the activity or the Agent or Distributor • Other elements • Disregard of Agent or Distributor obligations • Incidence of the Principal in the distribution of products Advocatia Abogados - Madrid www.advocatia.com

  17. Thank you Ignacio Alonso Partner Advocatia Abogados - Madrid Advocatia Abogados - Madrid www.advocatia.com

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