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Q&A on Distribution Agreements

Part 1: Legislative framework

Q1. Please specify the legislative framework generally applicable to the conclusion and execution of distribution agreements (a)? Please include a link to the official publication of the applicable rules (e.g., relevant link to the Official Gazette) (b) and, if available, to the English translation of the legislative framework (c).

a.  Legislative framework:

Generally speaking, in Spain, distribution agreements are not specifically regulated. Therefore, the general contractual system contained in the Spanish Commercial Code and the Spanish Civil Code and, in certain circumstances, also the Spanish Agency Contract Law (“ACL”) may apply by analogy and contractual integration.

b. Link(s) to official publication:

The Law 12/1992 on Agency Contracts is accessible via this link

The Royal Decree of 24 July 1889 publishing the Spanish Civil Code is accessible via this link.

The Royal Decree of 25 August 1885 publishing the Spanish Code of Commerce is accessible via this link.

The Law 7/1996 of 15 January 1996 on the Regulation of Retail Trade Act is accessible via this link.

The Royal Decree 201/2010, of 26 February 2010, which governs the exercise of commercial activity under the franchising regime and the communication of data to the register of franchisors is accessible via this link.

The Organic Law of the Judiciary 6/1985, 1 July 1985 is accessible via this link.

The Law 1/2000 of 7 January 2000 on Civil Procedure is accessible via this link.

The Act 29/1998 of 13 July, regulating the jurisdiction of Judicial Review is accessible via this link.

The Act 60/2003 of 23 December on Arbitration is accessible via this link.

c. Link(s) to English translation:

A free translation of Law 12/1992 on Agency Contracts will be provided by the Distribution Law Centre in due course.

A free translation of Royal Decree 201/2010, of 26 February 2010, which governs the exercise of commercial activity under the franchising regime and the communication of data to the register of franchisors will be provided by the Distribution Law Centre in due course.

An official translation of the Royal Decree of 25 August 1885 publishing the Spanish Code of Commerce is accessible via this link.

An official translation of the Royal Decree of 24 July 1889 publishing the Spanish Civil Code is accessible via this link.

An official translation of the Law 1/2000 of 7 January 2000 on Civil Procedure is accessible via this link.

An official translation of Act 29/1998 of 13 July, regulating the jurisdiction of Judicial Review is accessible via this link.

An official translation of Act 60/2003 of 23 December on Arbitration is accessible via this link.

Q2. Other than for agency agreements pursuant to Directive 86/653 (EEC) on the coordination of the laws of the Member States relating to self-employed commercial agents, are there specific rules depending on the distribution format (e.g. franchising, exclusive distribution)?

Yes. In Spain, distribution agreements are atypical. In any case, there are some regulations specifically governing certain aspects of some agreements, such as the franchise agreement.

Specific rules apply to franchise agreements: Art. 62 Regulation of Retail Trade Act and Royal Decree 201/2010 of 26 February, regulating the exercise of commercial activity under the franchise system and the communication of data to the register of franchisors, implemented by Royal Decree 201/2010 of 26 February, regulating the exercise of commercial activity under the franchise system and the communication of data to the register of franchisors.

The specific rules are accessible via this link

A free translation of Royal Decree 201/2010 of 26 February, regulating the exercise of commercial activity under the franchise system and the communication of data to the register of franchisors is accessible via this link.

Q3. Other than general contract law and competition law, are there other rules which may generally restrict the parties when drafting and concluding distribution agreements (e.g., rules in relation to unfair contract terms in B2B contracts, specific requirements in the context of a prohibition of abuse of economic dependence)?

Yes. 

If yes, which general rules apply (a)? Where available, please also include a link to the official publication of the applicable rules (b) and to the English translation of the regulatory framework (c).

a. General rules

In Spain, there are no rules limiting the freedom of the parties to negotiate and conclude distribution agreements. However, the abuse of economic dependence is regulated by Art. 16.2 of Law 3/1991 on Unfair Competition. The scope of application of this rule is general and applies to all types of agreements, in particular, distribution agreements.

b. Link(s) to official publication:

The specific rules are accessible via this link.

c. Link(s) to English translation:

Not available.

Part 2: Pre-contractual phase

Q4. Are there mandatory provisions in relation to the disclosure of pre-contractual information prior to concluding and/or executing distribution agreements?

Yes. 

If yes, which mandatory provisions apply (a) and which information must be disclosed (b)? Where available, please also include a link to the official publication of the applicable rules (c) and, if available, to the English translation of the regulatory framework (d).

a. Mandatory provisions:

As mentioned above, in Spain distribution agreements are atypical and the general rules and principles of contract law apply. In distribution agreements, therefore, the principles of good faith and mutual trust govern the preliminary negotiations. The duty of confidentiality must be stated expressly or tacitly.

In the specific case of a franchise agreement, the obligation to provide pre-contractual information is governed by Art. 62.2 Regulation of Retail Trade Act and by Art. 3 Royal Decree 201/2010 of 26 February 2010, which governs the exercise of commercial activity under the franchise system and the communication of data to the register of franchisors.

b. Information to be disclosed:

Article 62.2 of Law 7/1996 of 15 January on the Regulation of Retail Trade:

"At least 20 days prior to the signing of any franchise agreement or pre-contract or the delivery of any payment by the future franchisee to the franchisor, the franchisor must have delivered the necessary information in writing to the future franchisee so that he/she may decide to join the franchise network freely and with full knowledge of the facts and, in particular, the main information identifying the franchisor, a description of the sector of the franchised business, content and features of the franchise and its operation, the structure and size of the network and the essential elements of the franchise agreement. The other basic conditions for the franchising activity will be established by regulations."

Article 3 Pre-contractual information to the potential franchisee:

"At least twenty working days prior to the signing of the franchise agreement or pre-contract or the delivery by the prospective franchisee to the franchisor of any payment, the franchisor or principal franchisee shall provide the prospective franchisee with the following truthful and non-misleading information in writing:

a)         Identification data of the franchisor: name or corporate name, registered office, as well as, in the case of a trading company, the equity capital stated in the most recent balance sheet, with a statement of whether it is fully paid up or in what proportion, and registration data in the Commercial Registry, where applicable.

In the case of a principal franchisee, the above circumstances with respect to its own franchisor shall also be included.

b)         Proof that the title of ownership or licence to use the trademark and distinctive signs of the franchisor has been granted for Spain and is in force, and proof of any legal appeals filed that may affect the ownership or use of the trademark, if any, stating, in any case, the duration of the licence.

c)         A general description of the sector of activity that is the object of the franchise business, which shall include the most important data of the same.

d)         The experience of the franchising company, which shall include, among other data, the date of establishment of the company, the main stages of its development and the growth of the franchised network.

e)         Content and features of the franchise and its operations, which will include a general explanation of the system of the business that is the object of the franchise, the features of the know-how and of the permanent commercial or technical assistance that the franchisor will provide to its franchisees, as well as an estimate of the investments and expenses necessary for the start-up of a typical business. In the event that the franchisor provides the potential individual franchisee with forecasts of sales figures or operating results of the business, these must be based on sufficiently substantiated experiences or studies.

f)          The structure and size of the network in Spain, which shall include the form of organisation of the franchise network and the number of establishments in Spain, distinguishing those operated directly by the franchisor from those operating under the franchise assignment regime, stating their location and the number of franchisees who have ceased to belong to the network in Spain in the last two years, specifying whether the termination occurred due to the expiration of the contractual term or other circumstances.

g)         Essential elements of the franchise agreement, which will include the rights and obligations of the respective parties, the duration of the agreement, the conditions of termination and, if applicable, of renewal thereof, economic considerations, exclusivity agreements, and limitations on the franchisee’s free use of the franchised business."

c. Link(s) to official publication:

The Law 7/1996 of 15 January on the Regulation of Retail Trade Act is accessible via this link

The Royal Decree 201/2010 of 26 February 2010 is accessible via this link

d. Link(s) to English translation:

The Royal Decree 201/2010 of 26 February 2010 which governs the exercise of commercial activity under the franchising regime and the communication of data to the register of franchisors will be provided by the Distribution Law Centre in due course.

Q5. Is there a standstill obligation linked to the requirements imposed for the pre-contractual phase?

Yes.

If yes, what does this standstill obligation entail (how long, specific procedural requirements, etc.)?

The pre-contractual phase in distribution agreements is not expressly provided for, since they are atypical agreements.

However, specifically in relation to franchise agreements, Art. 62.2 Regulation of Retail Trade Act and Art. 3 Royal Decree 201/2010 of 26 February 2010 establish that at least twenty working days prior to the signing of the franchise agreement, pre-contract, or the delivery by the prospective franchisee to the franchisor of any payment, the franchisor or principal franchisee shall provide the prospective franchisee with the prospectus.

Q6. Does the relevant regulatory framework impose sanctions if the pre-contractual obligations are not (fully) respected?

Yes.

If yes, which sanctions apply (e.g., nullity of contract, penalty payment)?

In distribution agreements, the system of ineffectiveness or nullity is governed by the general rules of obligations and agreements.

As mentioned above, the Regulation of Retail Trade Act governs certain aspects (the obligation to provide pre-contractual information) relating to the franchise agreement in particular. Breach of the provisions of this legislation will result in the imposition of sanctions provided for in Art. 68 Regulation of Retail Trade Act and subsequent articles (fines ranging from €6,000 to €900,000 depending on the severity of the offence).

Q7. Can a party be held liable if it terminates the pre-contractual negotiations?

Yes.

If yes, on what grounds (a); under what conditions (b); and what consequences are generally linked to such liability (c)?

a. Grounds for pre-contractual liability:

The grounds are based on non-contractual liability, case law and Art. 1902 Spanish Civil Code, which states: “A person who, as a result of an action or omission, causes damage to another through his fault or negligence shall be obliged to repair the damaged caused.”

b. Conditions for pre-contractual liability:

According to doctrine (among others, Díez Picazo, L., "Fundamentals of civil property law I. Introduction, contract theory, Pamplona, 2007". (Fundamentos del derecho civil patrimonial I. Introducción, teoría del contrato, Pamplona, 2007) and Spanish case law (among others, Supreme Court Judgment of 14 June 1999, which has been followed in subsequent judgments) the necessary conditions for pre-contractual liability are the following:

1. A situation of reasonable confidence in the conclusion of the frustrated agreement must have been created.

2. The breakdown of the negotiations must be unjustified.

3. The breakdown of the negotiations must have caused actual damage to the other party.

4. There must be a causal link between the breakdown of the preliminary negotiations and the damage suffered by the other party.

c. Consequences of pre-contractual liability:

In cases of pre-contractual liability, the compensable damage would be limited, in principle, to the so-called negative interest or interest of trust, which would include the reimbursement of the expenses incurred (i) as a consequence of the conduct attributable to the party that breaks off the negotiation (not arising from the injured party's own activity) and (ii) in relation to the conclusion of the agreement that was not finally concluded.

Q8. Are there other relevant rules and/or restrictions that apply during pre-contractual negotiations between supplier and distributor?  

No.

Part 3: Contractual phase

A. Form of distribution agreements

Q9. Must a distribution agreement be executed in writing to be valid and enforceable?

No.

Q10. Are there any (other) requirements as to the form of the distribution agreement for it to be valid and enforceable?

No.

B. Content of distribution agreements

Q.11 Other than restrictions imposed by EU competition law (including Regulation (EU) 330/2010), do specific rules and/or restrictions apply in distribution agreements with respect to

  • the territory in which or the customers to whom the goods/services will be sold;
  • an exclusivity granted to the distributor;
  • (exclusive) sourcing/purchasing obligations;
  • resale prices;
  • non-compete clauses

No specific rules apply.

Q12. Do specific rules and/or restrictions apply in distribution agreements with respect to

  • obligations of the supplier vis-à-vis the distributor, including in relation to the remuneration of the distributor;
  • obligations of the distributor vis-à-vis the supplier or vice versa;
  • a non-solicitation clause during and/or after the term of the distribution agreement;
  • minimum sales quota imposed on the distributor;
  • specific sector rules?

No specific rules apply.

C. Term and termination

Q13. Are there particular rules and/or restrictions in relation to the term (incl. renewal) of distribution agreements?

No.

Q14. Are there any specific rules and/or restrictions with respect to the termination of distribution agreements (e.g. minimum notice period, statutory right to compensation (goodwill or other))?

Yes.

If yes, what do these specific rules and/or restrictions entail (a)? Please include whether these specific rules and/or restrictions differ depending on whether the distribution agreement is of definite or indefinite duration (b) or whether the distribution agreement is terminated by one party for convenience or for breach by the other party (c).

a. What do these specific rules and/or restrictions entail:

In Spain, distribution agreements are atypical and, in the first place, the will of the parties shall govern.

Failing this, the provisions of the ACL, under certain circumstances and subject to the requirements of the law, should apply by analogy and contractual integration. The ACL provides different rules for definite and indefinite duration agreements.

b. If applicable, differences dependent on whether the distribution agreement is of definite or indefinite duration:

Fixed-term distribution agreements may only be terminated if there is a justified cause. Indefinite distribution agreements may be terminated at any time by giving prior notice. The period of notice shall be such as is required in good faith.

Under certain circumstances and subject to the requirements of the law, the provisions of the ACL may, where appropriate, be applicable by analogy and contractual integration, which, in any case, serve as a reference together with the numerous judgments handed down by the courts.

In this regard, it should be noted that according to the ACL the notice period in an agency agreement for an indefinite period shall be one month for each year of the term of the agreement with a maximum of six months. If the agency agreement has been in force for less than one year, the notice period shall be one month (Art. 25.2 ACL).

It should also be noted that, in relation to the compensation system, the ACL makes a distinction between agreements for fixed or indefinite terms. Thus, the agent will be entitled to customer indemnity in both cases, provided that the requirements set out in Art. 28 ACL are met.

Art. 28 ACL - Compensation for clients:

“1. When the agency agreement, whether for a fixed or indefinite term, is terminated, the agent who has brought new clients to the entrepreneur or has significantly increased the transactions with the pre-existing clients, shall be entitled to compensation if his previous work can continue to produce substantial benefits for the entrepreneur and it is justified due to the existence of agreements limiting competition, the commissions lost or the other circumstances that may arise.

2. The right to customer indemnity also exists in the event that the agreement is terminated by the death or the declaration of the agent’s death.

3. The indemnity shall under no circumstances exceed the average annual amount of the remuneration received by the agent over the last five years, or for the duration of the agreement, whichever is shorter. “

In the case of a agreement of indefinite duration, the agent shall be entitled (in addition to the customer indemnity) to an indemnity for unamortised investments, provided that the conditions set out in Art. 29 ACL are met.

Art. 29 ACL. Compensation for loss and damage.

“Without prejudice to compensation for clients, an entrepreneur who unilaterally terminates an agency agreement of indefinite term shall be obliged to compensate the loss and damage which, where applicable, the agent has suffered due to the early termination, provided that the termination does not allow for the repayment of the expenses which the agent, instructed by the entrepreneur, has incurred in the performance of the agreement.”

c. If applicable, differences dependent on whether the distribution agreement is terminated by one party for convenience or for breach by the other party:

In Spain, distribution agreements are atypical and the general contractual principles and rules apply to them. Thus, in principle, the breach of an essential obligation of the agreement by one of the parties entitles the other party to terminate the agreement without having to respect any period of notice and without having to pay compensation.

Under certain circumstances and subject to the requirements of the law, the provisions of the ACL may, where appropriate, be applicable by analogy and contractual integration, which, in any case, serve as a reference together with the numerous judgments handed down by the courts.

In this regard, the ACL expressly provides that the agent shall not be entitled to compensation for customers or for unamortised investments (i) where the principal has terminated the agreement due to breach of the agent’s legal or contractual obligations and (ii) where the agent has terminated the agreement, unless the termination is due to circumstances attributable to the principal, or is based on the agent’s age, disability or illness and he cannot reasonably be required to continue his activities (Art. 30 ACL).

Q15. Is it possible to terminate the distribution agreement based on certain grounds for termination (breach or other) included in the distribution agreement?

Yes.

If yes, is prior judicial intervention required in order for the termination of the agreement to take effect?

No.

Part 4: Post-contractual phase

Q16. Is the supplier required to repurchase the stock that is still at the distributor’s disposal when the distribution agreement ends?

No.

Q17. Are there other post-contractual obligations that generally apply to either of the parties in the context of the termination of the distribution agreement?

Yes. In Spain, distribution agreements are atypical and the parties must comply with the obligations expressly provided for in the post-contractual phase. If nothing has been agreed in this respect, the general contractual principles and rules will apply, particularly the principle of contractual good faith.

In any case, it is common for the parties to have agreed post-contractual obligations in the distribution agreements, such as, for example, duties of confidentiality, non-competition obligations and the allocation of surplus stock and spare parts.  Sometimes, when there is an abusive termination of the agreement by the supplier, case law and doctrine have considered that even if there is no repurchase agreement, it may be recognised on the basis of the principle of good faith (Supreme Court Judgments of 12 December 1990 and 3 March of 2008).

Part 5: Dispute resolution

Q18. Do specific rules and/or restrictions apply as regards the choice of forum and/or jurisdiction?

Yes. 

Disputes regarding judgments under private law: Art. 51 Spanish Law 1/2000 of Civil Procedure establishes the forum, which provides that a legal person must be sued at the place of its registered office. Spanish jurisdiction corresponds to the commercial courts. The Spanish commercial courts are authorised to resolve this type of dispute under Art. 86ter Law on Judicial Power.

Antitrust disputes under public law: Art. 11 Spanish Law 29/1998 on the Judicial Administrative Jurisdiction establishes the forum and jurisdiction for the hearing of appeals by the Spanish National Court arising out of administrative procedures of the Spanish National Markets and Competition Commission. Access to the courts will be granted once the administrative procedure before the Spanish National Markets and Competition Commission has been completed.

Q19. Can the parties opt for arbitration?

Yes.

If yes, are there any rules and/or restrictions as regards the enforceability of arbitration clauses in distribution agreements?

Yes. For arbitration in Spain under Spanish Arbitration Law legislation, under Art. 2 Spanish Law 60/2003 of 23 December on Arbitration, disputes on freely available matters which are not public policy pursuant to law may be subject to arbitration.

The Spanish Law 60/2003 of 23 December on Arbitration does not offer a solution for the extension of arbitration to non-signatory third parties to the agreement, which sometimes occurs in the context of distribution agreements (vertical agreements), particularly within corporate networks or in franchise agreements. This should be resolved by: (i) excluding public policy for arbitration; (ii) defining the subjective scope of the arbitration clause; and (iii) applying international standards according to the nature of the arbitration procedure and the chosen substantive law.

However, the extension of the subjects must be analysed and ruled out on a case-by-case basis.

Q20. What is the statute of limitations applicable to claims regarding the performance of a distribution agreement?

The general system is that according to Art. 1964 Spanish Civil Code, the limitation period for personal actions (e.g. contractual damages) is five years.

If the dispute involves an action for customer indemnity and should circumstances for the analogue application of the ACL concur, unless otherwise agreed by the parties, any claim for compensation for the clients (“indemnización por clientela”) or for compensation for loss and damage shall be time-barred after the expiry of one year from the termination of the agreement (Art. 31 ACL).

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