Conflicts when terminating agency and distribution contracts arise mainly in claiming compensation for clientele. Agency Act provides that when the contract expires, the agent is entitled to compensation, which, by analogy (with caveats and nuances), can be extended to distributors. For this compensation it is necessary that the agent has brought new customers or significantly increased operations with the pre-existing, that his previous activity can continue producing substantial benefits to the principal and that is equitable. Such compensation may not exceed one year’s remunerations (annual average received during the last five years or the duration of the contract if lower).
Because of these inaccuracies (new clients, significant increase, can bring substantial benefits, equitable) claims are usually supported by expert reports. There is, however, a tendency to claim directly the maximum standard (one year of remuneration) without going into further analysis. But doing so there is the risk that a judge rejects the request as unfounded. We herein give some hints to help to get the maximum amount of compensation. According to our experience, it is convenient that the agent and the expert take into account the following:
- Check what has been the contribution of the agent: if there were customers before the contract and what volume of sales existed (it is a previous condition to have increased the number of customers or transactions with them).
- Analyse the importance of such clients in order to ensure future benefits for the Principal: their recurrence, fidelity (to the Principal and not to the agent), the migration rate (how many remain with the Principal at the end of the contract). It will be difficult to recognise a “clientele” with sporadic, occasional, non-recurring clients or that still remain in the area of agent.
- How the agent remains after the termination: does the contract prevent the agent to compete with the Principal? Is this competition difficult because of the kind of market, the products or the type of agent? If the agent continues to serve the same clients but for a different Principal, clientele compensation could be put into question.
- Is this compensation fair? Examine how the agent has acted in the past: the degree of fulfilment of his obligations, his work in introducing products or new markets, the possible development of such products or services in the future, etc.
- What commissions does the agent lose in the future? See the exclusivity that he had; the difficulty to sign a new agency contract (because of his age, crisis, etc.) or a new source of revenue, the sales trend in recent years (those considered for compensation), etc.
- Calculate the maximum that can be received as compensation: the yearly average perceived during the contract period (or 5 years if it lasted more) including all fix amounts such as commissions, bonuses, awards, etc. or gross margins in case of distributors.
- And finally, if there is an expert report, do include in it all the documents used to reach the conclusions, otherwise a judge could refuse it all.
Note: In order to prepare this post, I have also considered the Commission Report of 23 July 1996 COM (96) 364 and the Judgement of the European Court of Justice of 26 March 2009, Case C-348/07