Italy: Agency vs. Commercial Distribution - No Antitrust Annoyances

Last Updated: 10 November 1996
The contract of commercial agency, which sees an independent undertaking bound to promote the conclusion of contracts in the interests of its principal for a remuneration, has always represented one of the preferred instruments for the distribution and sale of industrial products.

The rigidity of costs and the complexity of management of a direct sale network which is sufficiently extensive, render in fact in many cases the latter solution anti-economic or even impracticable, whereas the possibility of partially transferring the financial risks through the involvement of third parties in the distribution process is substantially attractive.

On the other hand the use of independent distributors or even, to a lesser extent, of franchisees, often does not allow the principal a sufficient control over the distribution and marketing of the product concerned, given the fact that the purchaser/distributor would act as a distinct contractual party between the manufacturer and the customer. It must also be underlined the importance in the present field of anti-trust provisions, which sanction as "abuses of a dominant position" all those policies aimed at restricting the absolute freedom of the distributor such as his having to respect the territories granted to others, price-fixing, non competition obligations with the manufacturer in certain market areas, etc. Although there is also pressure to extend said provisions to agency relationships, at present they are not applicable and probably never will be since the manufacturer remains the only party legally involved in the contract to the end customer, and is naturally free to sell or not sell to whom it wishes and upon the conditions it prefers.

It is therefore necessary to draw attention to the profound revolution which, following the enactment of EC Directive no. 653/86, affected in the greater part of European countries the provisions on agency law previously applicable. Said revolution was mostly oriented toward an economic protection of the agent, almost as if he were a type of employee, as in the traditional direction of Italian provisions, rather than in that of other European legislations.

In implementation of this Directive new laws were enacted as well as in Italy, by Law Decree no. 303 of 10/09/91 - which will be illustrated in a next issue - in Germany (L. 23/10/1990), France (L. no. 593 of 21/06/91), Holland (L. 01/11/91) and Denmark (L. no. 272 of 02/05/90) and bills are pending in other member states such as, for example, the United Kingdom.

Furthermore, if, on the one hand, some provisions contained in the foreign laws substantially reproduce the content of provisions of the old Italian Civil Code, such as for example on the matter of the rights and obligations of the agent and the principal, or, in certain cases, the non-competition clause, on the other hand many provisions are more detailed and articulated, such as the right to the commission, the duration of the notice period in the case of a contract of indeterminate duration and the indemnity to be paid to the agent upon termination of the agency.

As far as regards, for example, the right to the commission, the new paragraph 87 of the German HGB, and arts. 6 and 7 of the French law establish that the right of the agent to a commission exists in the case of transactions concluded which lead back to the activities of the agent or concluded by the principal with third parties previously contacted by the agent for transactions of the same type. Of course the agent, if he has been assigned a specific territory or specific customers, will still receive a commission even for those transactions concluded in said territory or with said customers independently of his intervention, in the same way as under the former art. 1748 (2) of the Italian Civil Code. Both these laws govern inter alia, even if the German one is more detailed, those cases where the commission is due to the agent for transactions concluded after termination of the agency, thus resolving expressly a matter on which Italian precedents had for some time been uncertain. Similar provisions are also contained in the Dutch law (art. 74d), in the Danish law (paras. 9 and 10) and, with certain limitations, in the UK bill.

The above mentioned provisions are also innovative of Italian provisions prior to the reform on the matter of notice periods for withdrawal from an agency agreement of indeterminate duration. In fact, strictly observing art. 15 of the EC Directive they provide for a minimum notice of one month if the withdrawal occurs in the first year of the agency agreement, two months if in the second year and three months if it occurs in the third or subsequent years.

There is still the right of immediate withdrawal for serious fault of the other party or, only in the French law, in the case of force majeure; and furthermore the parties can establish longer notice periods, so long as the period provided for the withdrawal of the principal is not longer than that provided for the agent.

As regards the termination indemnity to be paid to the agent, art. 17 of the Directive provides that the Member States may choose between a termination indemnity in the true sense of the word, or a compensation for the prejudice suffered as a result of the termination. Germany, Holland (art. 740) and Denmark (paras. 25-27) have chosen the former of these alternatives, the German HGB in paragraph 89 establishing that the indemnity is payable should the agent, through his substantial activities, have procured advantages to the principal, or if the agent is thus deprived of the commissions to which he would have been entitled in the absence of withdrawal, or if it thus appears equitable in the circumstances; all within the limits of an amount equal to one year of commissions, calculated on the basis of the volume of transactions in the last five years.

The French law provides instead (arts. 12 and 13) that the agent is entitled to be compensated for the prejudice deriving to him as a result of the termination of the agency, the quantification of which must, like in the past, be determined on a case by case basis. Since, previously, the French Courts usually recognised the agent's indemnity equal to two years commissions, if a similar trend of precedent is confirmed, the indemnity recognised in France will be much higher than elsewhere.

In all the national legislations which we have examined, those cases in which the agent loses his entitlement to the indemnity are described in detail, and include its lapsing should it not be exercised within one year.

To conclude, the EC Directive and the relative implementing national laws appear to give the agent a more extensive protection than the previous one under the single legislations, even if with various differences. It would therefore appear opportune as of today to take account, when entering into international agency agreements within the ambit of the EC, of the considerable incidence of the new provisions on agency and of the significant differences still existing among national laws, especially in the matter of withdrawal and termination indemnities.

In Italy, the Law Decree 10/09/91 no. 303 regarding Agency Agreements has entered into force, so implementing in Italy the EC Directive no. 653/86. The amendments made by this act relate in particular to the amount of termination indemnity to which the agent is entitled, his right to commission for the contracts concluded by the principal after agency termination, the obligation to provide information to the agent, the notice period to be observed in the case of termination of the agency and finally the non-competition obligations applicable when the relationship between agent and principal has ceased.

First of all, whilst the old text of Art. 1751 of the Italian Civil Code provided for the payment, in the case of termination of an agency of indefinite duration, of an indemnity proportional to the commission paid during the agency and in the amount established by the national collective bargaining contracts, the new text of the present article provides for an amount which cannot be in excess of one year commission, to be calculated on the average of the commissions over the last five years. It appears advisable to evidence as of now how this new provision is potentially much more onerous for the principal, should the above indicated maximum amount be ordered.

It should also be mentioned that, differently from the provisions previously in force, said indemnity is not due in all the cases to the agent, but only where he has actually procured new customers for the principal or has considerably developed business with the existing clients, and the principal is still reaping substantial advantages from this, or finally should the payment of said indemnity appear equitable according the circumstances.

Naturally, the indemnity shall not have to be paid should the agency be terminated either for breach of the agent or if the agent withdraws from the agency for circumstances not imputable to the principal or in the case of assignment of the agency agreement to a third party. Furthermore, there is a limitation period of one year for the exercising of the right to the indemnity, and the establishing of the amount of it does not exclude the possibility of the agent claiming further damages.

The new wording of Art. 1748 appears to be particularly innovative as it expressly provides for the right to the commission even upon transactions concluded subsequently to the expiration of the agency, when it appears that the operation is due to the agent's activities. In this respect, the Italian legislator has not at all specified what the relevant circumstances should be, differently from the EC Directive, which instead describes analytically the cases in which the commission is to be paid.

Art. 1748 also lists a series of supplementary obligations to be observed by the principal. Amongst them, the obligation of supplying the agent with the information necessary for the performance of the agency and that relative to the acceptance, refusal or non-fulfilment of a transaction; the obligation to deliver to him, within one month, a schedule of the commission owed with regard to the previous three months' period and to pay him within the same time limit, or to supply the agent, at request of the last, with an extract of his accounting records in order to enable the same to verify the commissions which are effectively due.

With regard to notice for withdrawal from agency for an indefinite term, the new text of Art. 1750 of the Italian Civil Code now provides for a minimum of one month if the withdrawal occurs within the first contractual year and a supplementary month for each subsequent year the agency has been in force, up to a maximum of six months. Said provision appears to be more favourable to the withdrawing party rather than the provision set out in the national collective bargaining agreements in force up to the 31st of December 1991, which established, for exclusive agents, a minimum notice period of six months if the agency lasted less than eight years and of eight months for longer durations, with a reduction, in the absence of exclusivity, to four and six months. The possibility of substituting the notice period with an indemnity in lieu has also been abrogated.

Finally turning to regulations related to the non-competition undertakings which were not provided previously in Italian law specifically for agencies, Art. 1751 bis provides that said undertakings must be in writing, must relate to the same territory, clientele and type of products which are the object of the agency, and cannot exceed a period of two years after the expiration of the agreement.

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.

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