Distribution law in Spain

law 12/1992 of 27 May 1992, on Agency Agreements

Are there any formal requirements on concluding Agency Agreements?

Under Spanish law, the Agency Agreement can be executed both verbally as well as in writing. There are no special formalities to take into account.

However, either party may require the other to formalise the Agency Agreement in writing.

Are there any specific information obligations on concluding Agency Agreements?

The Spanish law on Agency Agreements does not set forth any specific information obligations regarding the conclusion of Agency Agreements.

Under Spanish law, a general obligation exists to correctly answer the questions and to provide certain crucial information without special request prior to entering into an agreement (doctrine of culpa in contrahendo).

Are there any specific pitfalls which need to be borne in mind when concluding Agency Agreements?

Under Spanish law, the control of abusive standard terms and conditions is only foreseen vis-à-vis relations with consumers. Thus, said control is not valid for b2b relations, where a vast contractual freedom applies.

With regard to Agency Agreements, the Spanish law on Agency Agreements sets forth a mandatory regime, which is the result of the transposition into Spanish law of the provisions foreseen by the EU Directive. Like in other countries, said mandatory regime establishes certain restrictions as regards the contract content, which cannot contradict the legal provisions at the detriment of the Commercial Agent.

With respect to non-negotiated agreements (i.e. agreements whose clauses have been pre-established and whose incorporation into the contract is imposed by one of the parties), Spanish law does not foresee any control over their content. That said, Spanish law contains certain rules aimed at guaranteeing the knowledge and acceptance of said clauses. The inobservance of said rules implies that the clauses affected are not applicable to the contract.

Are the parties free to agree on the scope of the Commercial Agency?

The Principal and the Commercial Agent are free to agree on the scope of the Commercial Agency. In particular, the parties may decide on instructing the Commercial Agent (1) worldwide or for a certain geographic region, (2) for all or only for certain products of Principal, (3) for all or only certain customers of the Principal.

Spanish law on Agency Agreements provides for a non-compete obligation of the Commercial Agent during the contractual term (for a post-contractual non-compete obligation, see below).

Spanish law foresees that the Commercial Agent will not be entitled to name sub-agents without the specific consent of the Principal. The Commercial Agent may even be obliged to solely represent the Principal.

The EU regulation on vertical restraints (Commission Regulation No 330/2010) only plays a limited role in the field of Agency Agreements (in the field of Distribution Agreements it plays a significant role, see below). However, whether it could apply to the Commercial Agent in the individual case should be assessed at the beginning of a cooperation and this could have significant legal implications.

What are the primary obligations of the Commercial Agent and the Principal?

As a general principle, the Commercial Agent has the following obligations:

• to promote the transactions he was entrusted by the Principal and, where appropriate, to carry them out;
• to act in good faith and to be loyal towards the Principal and to watch over the Principal's interests;
• to report to the Principal any information available, in particular related to the solvency of a third party with whom transactions are being carried out;
• to comply with reasonable instructions given by the Principal, as long as these do not affect its independence;
• to receive, on behalf of the Principal, any claim related to any defects or faults in respect of quality or quantity of the delivered goods or the services provided within the transactions carried out;
• to independently keep accounting records of the transactions carried out;
• non-compete obligation: the Commercial Agent cannot accept to represent the Principal's competitors without the Principal's authorization.

As a general principle, the Principal has the following primary obligations:

• to act in good faith and to be loyal towards the Commercial Agent;
• to pay the Commercial Agent;
• to support the Commercial Agent with respect to the Principal’s business (for example, providing brochures, price lists, etc.);
• to inform the Agent of any relevant information, especially when the volume of the transactions is going to be slightly inferior to that anticipated by the Commercial Agent; and
• to advise the Commercial Agent, within 15 days, of its acceptance or refusal of the proposed transaction and within the shortest term possible, of any execution, partial execution or non-execution of the transaction carried out.

How is the Commercial Agent paid?

The remuneration of the Agent comprises either:

• a fixed amount;
• a variable commission; or
• a combination of both systems.

In the last two cases, the Commercial Agent can claim a commission fee if:

• the transaction has been concluded because of its action;
• the transaction has been concluded with a third party to whom he has previously approached or acquired as a customer for transactions of the same kind.

For business transactions which are concluded after the contractual term has ended, the Commercial Agent will be entitled to a commission if:

• the transaction is mainly attributable to the Commercial Agent's efforts during the period covered by the Agency Agreement and if the transaction was entered into within three months after that contract was terminated; or
• the order of the third party reached the Principal or the Commercial Agent before the Agency Agreement was terminated.

Term of the Agency Agreement

Parties are free to decide on the term of the Agency Agreement, for example in agreeing on a fixed term or on an indefinite term or a combination.

If the parties agree on a fixed term and, after the expiry of the fixed term, continue to perform the Agency Agreement, the Agency Agreement is considered to have been tacitly renewed for an indefinite term.

Oral agreements are deemed to have an indefinite duration.

Termination of the Agency Agreement

If the Agency Agreement has been entered into for an indefinite term, either party may terminate it by written notice. The minimum notice period set forth by the Spanish law on Agency Agreements is equal to one month for every year that the contract remains in force, with a maximum of six months.

However, minimum notice periods do not apply when the other party has infringed its obligations or in case of bankruptcy of the other party.

The indemnification claim as main consequence of the Agency Agreement’s termination

Following the termination of the Agency Agreement, the Commercial Agent is entitled to compensation if and to the extent that he has acquired new clients for the Principal or has increased business with existing customers of the Principal and the Principal continues to derive substantial benefits from such business following the termination of the Agency Agreement (‘goodwill compensation').

Besides this, the Commercial Agent is also entitled to compensation for the losses and damages that the unilateral termination of the Agency Agreement by the Principal may have caused, as long as such termination does not allow the Commercial Agent to fully amortize the expenses in which he has incurred as a direct consequence of the Agency Agreement (‘compensation for damages').

No goodwill compensation is due if the Agency Agreement is terminated for breach of the Commercial Agent or as a result of an insolvency filing.

No compensation for damages is due if the Agency Agreement was correctly terminated or if there are no non-amortised investments of the Commercial Agent.

Other consequences of the Agency Agreement’s termination

Under the Spanish law on Agency Contracts, a post contractual non-compete obligation can be agreed upon in writing for a maximum period of two years after termination of the agreement. The obligation must be limited to a specific geographical and product sector and to the type of goods or services which the latter represents under the contract.

The Commercial Agent has one year to claim for the compensations resulting from the termination of the agreement (i.e. goodwill compensation and compensation for damages).

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There are no specific rules on Distributors. Subject to certain requirements, Spanish law on Agency Agreement applies by way of analogy.

Are there any formal requirements upon concluding Distribution agreements?

Under Spanish law, there are no specific formal requirements upon concluding a Distribution Agreement. A Distribution Agreement can be entered into both verbally or in writing. For evidentiary purposes, we recommend setting the Distribution Agreement in writing.

Are there any specific information obligations on concluding Distribution Agreements?

The Spanish rules do not set forth any specific information obligations regarding the conclusion of Distribution Agreements.

Under Spanish law, a general obligation exists to correctly answer the questions and to provide certain crucial information without special request prior to entering into an agreement (doctrine of culpa in contrahendo).

Are there any specific pitfalls which need to be borne in mind when concluding Distribution Agreements?

Under Spanish law, the control of abusive standard terms and conditions is only foreseen vis-à-vis relations with consumers. Thus, said control is not valid for b2b relations, where a vast contractual freedom applies.

With respect to non-negotiated agreements (i.e. agreements whose clauses have been pre-established and whose incorporation into the contract is imposed by one of the parties), Spanish law does not foresee any control over their content. That said, Spanish law contains certain rules aimed at guaranteeing the knowledge and acceptance of said clauses. The inobservance of said rules implies that the clauses affected are not applicable to the contract.

Are the parties free to agree on the scope of the Distribution Agreement?

There are limits to the Principal’s and the Distributor’s freedom to agree on the scope of the Distribution Agreement (mainly based on EU Competition law).

In particular, when it comes to limiting the geographic region in which the Distributor may (or may not) sell the products and the customers to which it may (or may not) sell them, the EU regulation on vertical restraints (Commission Regulation No 330/2010) plays a significant role: such limitations are admissible only under specific requirements which need to be assessed in the individual case.

Furthermore, also agreements with respect to the amounts of products the Distributor must source from the Principal is subject to EU Competition law: contractual provisions which require the Distributor to source 80% or more of its demand in products solely from the Principal may only be agreed for five years.

Non-compete obligations may be agreed as a general rule based on EU Competition law, only for five years (for a post-contractual non-compete obligation, see below).

The Principal is generally not allowed to influence the Distributor's resale price of the products. The Principal may only set maximum prices or send a list with price recommendations to the Distributor. Principals should take great care when performing any activities which could be construed as an attempt (even an indirect) to influence the Distributor's freedom to determine the resale price.

What are the primary obligations of the Distributor and the Principal?

As a general principle, it is assumed that the Distributor has the following primary obligations:

• to distribute the products;
• to provide the Principal with relevant information regarding the market, (potential) customers and requirements concerning the products;
• to diligently safeguard the interests of the Principal in all business respects; and
• to maintain confidentiality.

As a general principle, it is assumed that the Principal has the following primary obligations:

• to apply reasonable efforts to deliver all products ordered by Distributor;
• to support the Distributor with respect to the Principal's business (for example in providing brochures, etc.); and
• to grant the agreed rebate to the Distributor (see below).

We strongly recommend setting out in the Distribution Agreement the obligations of the Distributor and the Principal. As no specific rules on Distributors exist, this is important to avoid disadvantages.

How is the Distributor paid?

As a general principle, the Distributor is not entitled to a specific remuneration for its distribution activities. The remuneration of the Distributor consists in the profit it generates in purchasing the Principal's product with a rebate and selling them to its customers at a higher price. The parties may, however, following the principle of freedom of contract, agree on additional remunerations such as minimum monthly payments.

Term of the Distribution Agreement

There are no specific rules on the term of Distribution Agreements. The parties are thus, as a general principle, free to set out the parameters of the contractual term, for example in agreeing on a fixed term or an indefinite term or a combination.

If the parties agree on a fixed term and, after the expiry of the fixed term, continue to perform the Distribution Agreement, the Distribution Agreement is considered to have been tacitly renewed for an indefinite term.

Termination of the Distribution Agreement

If no notice period has been agreed between the parties, the Spanish Agency law could, in theory, be applied by analogy or a reasonable notice period will be determined upon terminating contracts of indefinite duration.

The Spanish Unfair Competition Act exceptionally imposes a six months' notice period upon terminating Distribution Agreements where the Distributor could be considered as being economically dependent on the Supplier, regardless of the actual duration of the Distribution Agreement.

The indemnification claim as main consequence of the Distribution Agreement’s termination

In Spain, the indemnification claims based on the termination of the Distribution Agreements are determined on a case by case basis, according to general principles of contract law.

A goodwill compensation could be granted by applying the Spanish law on Agency Agreements by analogy. Recent case-law limits this to agreements where the Distributor's situation is deemed to be ‘identical' to the Commercial Agent's.

Furthermore, the parties can exclude the application by analogy of the compensations set forth in the Spanish law on Agency Agreement by including such a provision in the written contract.

Other consequences of the Distribution Agreements’ termination

Spanish law does not provide for a post-contractual non-compete clause. EU Competition law, as a general principle, considers a post-contractual non-compete clause as invalid and only allows for such under certain exceptional circumstances.

The Distributor under certain conditions may request that the Principal purchase back products it has in stock upon the Distribution Agreement's end. To avoid discussions in this regard, the Distribution Agreement should address this matter.

Any claim arising from a Distribution Agreement is subject to a 15-year limitation period.

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