Italy: Agency vs. Commercial Distribution - No Antitrust Annoyances

Last Updated: 13 May 1997
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 pressure to extend said provisions also to agency relationships, at present they are not applicable and probably they never will be since the manufacturer remains the only party legally involved in the contract to the end customer, and naturally it is 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 legislation's.

In implementation of this Directive new laws were enacted as well as in Italy, by Law Decree no. 303 of 10/09/91, 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, similarly to the past, be determined on a

case by case basis. Since, previously the French Courts usually recognised to the agent an 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 legislation's 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 legislation's, 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.

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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