The Supreme Court has confirmed in a Judgement of December 11, 2014 that the excessive turnover agreed by the parties could not be considered reasonable and, therefore, could not justify a unilateral termination by the Supplier because of a previous infringement of the Distributor.
The parties were Agco Iberia S.A. (Massey Ferguson) as Supplier, and the Distributor Agrícola Madrileña who asked for a global indemnity of 1 723 112 euros [including lack of previous notice, non-amortized stock, dismissal of personnel, damages in goods and goodwill (clientele) compensation].
First Instance Court accepted partially the amount claimed (60 % for the dismissal of employees and excluding the indemnities for non-amortized stock and damages in goods) and granted a total indemnity of 1 075 197 euros (including all the amount claimed for clientele and lack of previous notice). The Court of Appeal (Audiencia Provincial) in Madrid accepted this decision.
The distribution agreement dated of March 11, 1988. The parties had agreed the territory of Eastern Andalusia and signed a clause accepting that “none of the parties will be responsible before the other party of any compensation, loss or damages caused by the termination of the agreement”. An additional clause also included a provision stating that termination (in any form it may occur) will be effective without prejudice of any rights or obligations generated until the termination date. The agreement also permitted to terminate it without previous notice in case of a previous infringement of the other party.
According to the Supplier, the Distributor did not attaint the minimum purchases indicated for 2007; and following his interpretation, this permitted the termination without previous notice and no indemnity.
The Supreme Court considered, however, that the turnover fixed for 2007 (a rate of 11.25 % in the agreed territory compared to a 4.6 % in the rest of the Spanish territory with different Distributors) was not clear enough; was in a sort of way imposed by the Supplier and outside of any reasonable possibility of attainment (based in the testimony of a former Sales Director). For those reasons, the non-attainment of that minimum turnover was not a previous infringement of the Distributor, did not justify the immediate termination of the agreement by the Supplier and, therefore, a previous notice was needed.
The court has then interpreted that the “rights or obligations generated until the termination date” included the damages indemnity, the indemnity for lack of previous notice and the goodwill (clientele) indemnity during the duration of the agreement (more than 20 years). The Distributor had, therefore, the right to claim for them and confirmed the previous courts judgements.