Italy: Distribution Contracts: The Paradise For Forum And Applicable Law Shopping

Last Updated: 19 October 2005
Article by Livia Oglio

Originally published August 2005

Distribution contracts fall outside the categories of contracts specifically defined by the Italian Civil Code: there is no legal definition or specific regulation of distribution to be found in other statutes, as is the case in most countries.

Scholars and case law have construed the relevant regime applicable to distribution contracts governed by Italian law by reference to the general principles appropriate to contractual obligations, as well as to the statutory rules suitable to contracts of a similar nature.

This is why, whenever a dispute arises and the parties have not determined the competent jurisdiction and/or applicable law, the competent forum remains uncertain and conflicting arguments are invariably put before the court or the arbitrators, who must establish the substantive law governing the contractual relationship concerned.

With regard to jurisdiction, whenever the issue arises before a European court, the solution is usually determined in accordance with the jurisdiction criteria laid down by the Brussels and Lugano Conventions, and now by EU Regulation No 44/2001.

The ‘obligation in question’ test referred to in Article 5.1 of the Brussels and Lugano Conventions and now in Article 5.1 EU Regulation No 44/2001, ie the test which examines where obligations are to be carried out under the contract in order to determine jurisdiction when such has not been stipulated by the parties, usually allows the choice between the manufacturer’s and distributor's countries when distribution agreements are the subject matter of the dispute, since by their very nature they contain several different sets of obligations on both parties.

Although the court should confine itself to identification of the obligation upon which the claim is based and of the place of performance of such obligation under the contract and the law, the claims raised by the plaintiff may arise from breach of several different obligations.

In fact, the ‘obligation in question’ test can result in jurisdiction being granted on the basis of any of the manufacturer’s or distributor’s obligations, or any combination thereof.

If a claim arises out of the distributor’s obligations related to the marketing and promotion of the contractual products, a court could find that only the court of the country where the distribution activities are carried out is competent to hear the case, which is often the country where the distributor has its main place of business. Therefore, whenever this is true, the manufacturer cannot sue the distributor in any other country. However, if the subject matter of the dispute is, say, the use of the manufacturer’s trademarks or other IP rights or the (non) performance of the sale of products, aspects which are also a substantial part of the distribution relationship, the scenario could be very different.

Under the Brussels and Lugano Conventions the courts should distinguish first which type of obligation is ‘in question’, ie payment of the price or delivery of conforming goods, etc whose place of performance may vary from one contract to another, from one applicable law to another.1 Under EU Regulation No 44/2001, the main rule is now supplemented by provisions in Article 5.1(b).

However, given the complex structure of the distribution contracts, it is difficult to assess whether the courts will be more inclined to refer to Article 5.1(b), first indent of EU Regulation No 44/2001 and thus determine the place of performance of the sales under the distribution contract, rather than to Article 5.1(b), second indent of the same Regulation, if they consider the distribution contract to be a service contract, thereby conferring jurisdiction upon the courts of the distributor’s country.

We believe that it could also be argued that none of the presumptions in Article 5.1(b) EU Regulation No 44/2001 could apply. For example, this could be the case when the claim is based on various obligations stipulated under the distribution contract both relating to sales and to promotional services. If none of the presumptions in Article 5.1(b) EU Regulation No 44/2001 apply, the court should determine at its discretion the ‘obligation in question’ pursuant to the rule set forth in Article 5.1(a) as is provided in Article 5.1(c).

Different solutions can result and will depend upon which approach the court decides to follow.

For example, when many claims are brought at the same time, based on several different obligations set forth in the distribution contract, pursuant to a judgment rendered by the European Court of Justice,2 the court should determine ‘the main obligation’ among those actually referred to in the plaintiff's arguments. By its nature, such evaluation is subjective and not always predictable, even if it can be manipulated to some extent by skilled counsel.

Once the ‘main’ obligation in question is determined, the court which has jurisdiction is that of the place of performance of such obligation. However, the result of the court’s analysis is generally not that straightforward, especially when the solution depends on the court’s determination of the place where payment should be made to the seller, or where delivery of the goods should take place. If no specific clause exists in the contract, the court’s determination must be made on the basis of the substantive law applicable to the contract, which in turn could be an additional issue in dispute to be decided by the court on a casebycase basis, thus opening the way to further arguments, which can be ultimately decided only by a judgment.

Similarly, determination of the substantive law applicable to distribution contracts, absent the parties’ choice, is far from being a settled issue.

The applicability of the 1980 Vienna Convention on the International Sales of Movable Goods (CISG) to distribution contracts is a highly debatable subject.

When the issue before the court is the performance of the sale obligations, or when it forms a preponderant part of the contractual relationship, the parties should expect the courts to apply CISG, provided that either of the conditions set forth in its Article 1 is met.

If the conflict-of-law provisions are to applied, as would be the case for all issues which are not regulated by CISG and do not pertain to single purchases, the European courts must refer to the rules of the Rome Convention on the Choice of Law for Contracts of 19 June 1980 (the ‘Rome Convention’), which are one and the same for the courts of all Member States.

Unfortunately, when such rules are applied to distribution contracts, solutions differ.

The applicable law, in the absence of choice-of-law clauses, is the law of the country with which the contract is most closely connected. Pursuant to Article 4(2) Rome Convention, it is presumed that the contract is most closely connected with the country in which the party who is to carry out the performance which is characteristic of the contract has its main place of business.

Surprisingly, there is no unanimity on identifying the ‘characteristic obligation’ of a distribution contract. In Italy, outstanding scholars suggest that the distributor is the party performing the obligations which are more pertinent to the economic function of the contract,3 but the Italian Supreme Court has not yet given a clear indication on this issue, and this solution is the opposite to that which is normally applied to purchase and sale agreements, where there is little doubt that the supplier’s performance is that which is ‘characteristic’ of the contract.

In Europe, there are a number of different positions also.4

As mentioned above, the legal definition of the distribution contract itself that the court or the arbitrator determines could influence the choice of the substantive law applicable to the merits.

Moreover, when the dispute is referred to arbitration, and there are no provisions in the contract which otherwise fix the law applicable to the contract, the arbitrator(s) can determine the proper law applicable to the merits or can determine the conflictoflaw principles that it will apply in order to identify the substantive law governing the contract. More flexibility means uncertainty as to the solutions which will be adopted by the arbitrators as well as more room for manoeuvre by the parties’ counsel.

In this scenario, two very recent decisions of first instance Italian courts add fuel to this debate.

The Court of Pesaro, in a judgment of 16 June 2005,5 dismissed a claim brought by an Italian manufacturer against its Portuguese distributor based on an alleged breach of the latter’s obligation to promote and market its products in Portugal, on the grounds that the obligation is question was to be performed in the defendant’s country.

By a secondary argument, the court held that the solution would not have changed if it was assumed that the sale of products was the ‘characterising obligation’ of the contract because, pursuant to Article 5 EU Regulation No 44/2001, the place of performance of the sale contract is to be identified as the country where the buyer takes actual possession of the goods sold.

First, the ‘characterising obligation’ test should not have come into play in determining the jurisdiction issue.

Secondly, it appeared that supplies were sold ‘exworks’.

On this point, the court has explicitly referred to a judgment of the Court of Rovereto dated 2 September 2004,6 which states that the place of performance of the sales contract as defined in Article 5.1(b) first indent of EU Regulation No 44/2001 is to be construed as an ‘autonomous concept’ for the purposes of determining the jurisdiction of an EU court under European law and it shall identify only one competent court (in addition to that of the defendant’s domicile).

Therefore, the Court of Rovereto held that the word ‘delivery’ in Article 5.1(b) of EU Regulation No 44/2001 is to be regarded as the physical handing over of the goods to the recipient buyer. This interpretation, the Court of Rovereto believes, is not only consistent with but best corresponds to the spirit of EU Regulation No 44/2001, ie to simplify the rules inherited by the Brussels Convention so as to ensure the highest degree of predictability.

This is indeed the goal.

Footnotes

1 ECJ, 6.10.1976, Case no C14/ 76, De Bloos c Bouyer ; ECJ 29.6.1994, Case no C288/ 92, Custom Made Commercial c Stawa Metallbau.

2 ECJ, 15.1.1987, Case no 266/85, Shevenai c Kreischer: whenever a claim is based on several obligations arising from the same contractual relationship and to be carried out in different Member States, jurisdiction is to be attributed to the court of the place where the most important of those obligations is to be performed.

3 Ballarino, Diritto Internazionale Privato (Cedam, 1999) 630; MüllerFeldhammer, ‘Der Ausgleichsanspruch des Vertragshändlers im deutschschweizerischen Handelsverkehr’ (1994) RIW 928; R Baldi, ‘Il contratto di agenzia’, Giuffrè, 2000, 486; Lagarde, ‘Le nouveau droit international privé des contrats après la Convention de Rome du 19 Juin 1980’ (1991) Revue critique de droit international privé 287.

4 Italian Supreme Court, no 7714/98, Rivista di Diritto Internazionale Privato e Processuale 1999, p 583; Tribunal de Commerce de Bruxelles, 20.12.1991, in RDCB, 1992, p 919; Oberlandesgericht Koblenz, 16.01.1992 in (1992) RIW 1019; Oberlandesgericht Düsseldorf, 16.7.1996 in (1996) IPR 449.

5 Case no 903/2003, Judgment no 419/05, not yet reported.

6 Published in Rivista di Diritto Internazionale Privato e Processuale,2005,1, p 162.

Livia Oglio is an Italian litigator and a partner of the Intellectual Property and Competition Law Dept. of Studio Legale Sutti in London and Milan.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions