Once the Agency agreement has terminated by the Principal, the Agent usually decides to claim for some indemnities or compensations. These include damages indemnities and goodwill (clientele) compensation.

In order to claim them it is very important to consider the limitation period in which both can be demanded. We have observed that agents usually take too long to decide whether or not claiming for such compensations, they start negotiations with their principals to find a solution to their conflict, sometimes they are re-negotiating their position for a new agreement, area or conditions; or sometimes they simply consider that there is no rush to proceed.

In similar terms as in the EC Directive on Agency Agreements (art. 17.5), the Spanish Agency Act (art. 31) expressly foresees a limitation period of one year from the termination of the agreement in order to claim both the damages indemnity and the goodwill compensation.

This means that after the expiration of such term, no claim will be admitted by our Courts. And in contracts ruled by Spanish law and submitted to arbitral procedures, the agent also risks finding his claim dismissed after that period. This duration cannot be modified by the parties in their agreement, but they can take some actions to extend it.

This limitation has, therefore, important consequences. Of course, there could be an infinite number of situations and we do not intend to cover all of them, but in case the Agency agreement terminates, the following ideas can be useful:

• The one-year period starts from the day the agreement was terminated. This date should also be considered carefully if there was not a formal termination letter.

• One year, according to the Spanish Civil code, implies that the period terminates the exact day one calendar year after (from date to date, for example, May 1 to May 1 next year) or the following day if that day does not exist (for instance, February 29^th to March 1 next year).

• In general terms, the starting of this one-year period is the termination day and not the date in which the letter was sent or received or when the Principal urges the Agent to fulfil his obligations. The previous notice period (if any) shall be respected if included in the termination notice.

• In case the letter contains an immediate termination, that day will be the starting date, even if the procedure reveals that the Principal should have given a termination notice.

• Generally, this applies to each agency agreement. This means that in case of successive and not connected agreements (for instance, the first one ends and the second one starts 10 months later), the termination period will be considered for each separate agreement. Nevertheless, linked agency agreements (agreements with a specific duration that work one immediately after the previous one) are usually considered as one agreement.

• Some activities of the Agent can interrupt this one-year period, re-starting a new one. For instance (some have been accepted by the case-law, others are expressly mentioned in different pieces of legislation):

1. An extra-judicial claim sent by the Agent or by someone in his behalf claiming for the goodwill indemnity, even if the compensation is incorrectly qualified as employment dismissal instead of commercial agency compensation.
2. Claiming the goodwill compensation as a labour indemnity before the labour courts when it was not clear the sort of relationship between the parties.
3. Starting a conciliation procedure before a First Instance Court
4. Starting a mediation procedure (when done by both parties or by one of them enforcing the mediation clause in the contract) will also interrupt the term during the mediation procedure from the moment in which the request for mediation has been received by the mediator or deposited at the mediation institution.
5. The acceptance by the Principal of the debt or the goodwill compensation when asking the clients list.

• Other actions by the Agent could have different results depending on the circumstances and some have not been accepted as valid to interrupt this limitation period:

1. A claim started by the Agent before a non-competent court, will depend on the circumstances.
2. A criminal prosecution does not interrupt the one-year period
3. The starting of the preliminary procedure (diligencias preliminaries) has neither been accepted to interrupt the one-year period.

Therefore, as a conclusion, in the drafting phase of the agreement it seems to be a good idea to consider a mediation clause. This will grant the parties an additional and useful tool to solve their conflicts and a possible way to obtain extra time in case the courts will be called to intervene.

And when an agency agreement terminates (with or without mediation clause), our recommendation for the Agent is immediately submitting the case to a legal local advisor. When the Agent has, for example, received a promise for a new agreement and he is still discussing on it, or he is still negotiating the termination, it is advisable to be careful and to take the necessary actions at least to interrupt the lapse of the one-year period and not to lose the possibility of a future claim. A simple letter carefully drafted could be very useful for the Agent’s interests.

A final remark for Distribution Agreements. Although for some aspects, particularly the goodwill compensation, Spanish Supreme Court has admitted the analogy with Agency agreements, this is not the case for the limitation period of one year to claim it. The distributor claiming for the goodwill indemnity will not be limited to one year after the contract terminated. In cases like these, it is convenient, however, to have precise advice on the type of contract we are facing, since the border between the agency and the distribution is not always clear.

Even Abogados has defended a foreign manufacturer distributing its products in Spain with a local agent/distributor. The agent/distributor (based in Spain) sued our foreign client (the Manufacturer) claiming for the goodwill indemnity foreseen in Article 28 of the Spanish Agency Act. First Instance Court has accepted our arguments basically due to the lack of evidences produced by the plaintiff. Our intention is not to discuss about the burden of proof as general legal principle but to expose some clues in order to better prepare a similar procedure.

The facts

Mr “A” (the Agent) and the Manufacturer had a non-written agreement since long time ago. In 2000 the agent/distributor (a company owned by Mr “A”) and the Manufacturer signed a written contract transforming and substituting the old relationship.

After a period of more than five years, the Manufacturer gave a previous notice to terminate this contract. The agent/distributor then claimed the goodwill (clientele) indemnity as a consequence of this termination.

The debate

One of the discussion elements (quite frequent) was to determine if we faced an agency or a distribution agreement. The problem in this case was probably more a theoretical tan a real one due to the fact that although goodwill indemnity is expressly foreseen at the Agency Act, it is also admitted by analogy in distribution agreements. The question was, therefore, to justify its applicability. Let’s assume (as in the Court judgement) that it was an agency agreement.

Article 28 of the Agency Act (in similar terms to Article 17 of the EC Directive 86/653 of December, 18^th) states that an agent is entitled to an indemnity for customers he brought to the principal (the Manufacturer in our case) or with whom significantly increased the volume of business and provided the principal continues to derive substantial benefits and the payment of this indemnity is equitable due to special circumstances. The amount of the indemnity may not exceed the agent’s average annual remuneration over the preceding five years.

The conclusions

Goodwill indemnity benefits the agent but it is also his responsibility to prove to the Court the necessary elements in order to obtain it. In our case, First Instance Court has rejected this indemnity due to the complete absence of evidences of the main elements. The judge has stated clearly the following:

1. No invoices related to dues-but-not-paid commissions have been showed during the procedure.
2. The plaintiff (the Agent) has not proved to which services these invoices were due, the invoiced company, the commissions’ rate applied, the date from which they were due, if the activity had been correctly ended, if the sales were related to machinery or to spare parts…
3. A document called “accounting statement” (estado de cuentas) has been prepared by the plaintiff himself but has expressly been contested by the defendant (the Manufacturer): this does not show his current situation.
4. The judge did not accept the goodwill (clientele) indemnity because no invoices attesting the collection of commissions have been presented, or have been produced in foreign languages without translation into Spanish.
5. The only references to these invoices made by the accounting expert in his report to the Court are not enough considering that he does not include them in the report.
6. The “clients” included in such clientele were not proved neither it was the existing commercial relationship.
7. There is a complete lack of evidence concerning the increasing of profits that will still benefit the Manufacturer in the future or receive from possible new clients.
8. Concerning the indemnity for the budgets prepared by the agent at the end of the relationship but not still accepted by the Manufacturer these were not proved, including the alleged orders sent by the Manufacturer.
9. The previous relationship with the agent (Mr. “A”) has nothing to do with the current situation, nothing is said about the clients presented by him, his contractual relationship was substituted by the agreement with the new company, and in case of goodwill indemnity, if applicable, this was to be calculated on the basis of the five previous years without considering the previous relationship.
10. The only documents produced by the plaintiff were the signed agreement and a report prepared by an expert but which does not seem to be very trustable considering that the expert modified his conclusions during the trial.

The Provincial Court of Pontevedra (judgement of May 22 2017; rec 213/2016) analysed several contracts between Dismaca, SA (agent) and Repsol Butano, SA (principal). Although the agent alleged that it was a mixed contract and not an agency one, the Tribunal concluded that there was an agency contract independent of others that might exist between the parties.

The discussion was due to the expiration of the one-year limitation period to claim compensation for clients established by the Agency Law. The Agent waived this period and asked the application of the general one set in Article 1964 of the Civil Code due to the alleged mixed and atypical nature of the contract.

The Court rejected this claim because of its contradiction with the approach of the claim that spoke of agency contract, and by the exercise of the action of goodwill (clientele) compensation based on the regime of the Agency Law.

The independence of the contracts is, in the Court’s view, contradictory with a hypothetical single mixed contract. Nor does it accept the qualification as an atypical contract, given the express reference to a special Law that regulates the agency contract. The Court insists that it was the agent who claimed based on an agency contract, only with subsequent rectifications to avoid the application of the expiration term.

The recent Supreme Court judgment 137/2017 of 1 March (rec 2672/2014) considers that the criteria to calculate the amount of goodwill (clientele) compensation in a distribution contract cannot follow the criterion of the “gross margin” obtained by the distributor, but the “net margin”. In order to reach this conclusion, the Court follows its judgment 356/2016 of 30 May (rec 148/2014), which refers to the Judgement 39/2010 referring to 697/2007 of 22 June (rec. 2943/2000).

At present it seemed that the Supreme Court was inclined to calculate the clientele compensation in distribution agreements on “gross margin” as an analogy with Article 28 of Agency Act. Does this imply a change in case law?

According to well-established jurisprudence [see Supreme Court Judgment 1392/2008 of January 15, rec. 4344/2000)], a distributor may be entitled to goodwill (clientele) compensation if the inspirational idea of article 28 of the Agency Contract Law was applied by analogy. However, since there is no “remuneration” in distribution contracts such as that received by the agent (commissions or fixed amounts), but “commercial margins“, the question was whether the “gross margin” (difference between the purchase and resale price) or the “net margin” (the same difference but deducing other expenses and taxes) should be considered as the basis for this compensation. The conclusion accepted by the Supreme Court until now seemed that it was necessary to calculate the compensation on the “gross margin” being a magnitude more comparable to the “remuneration” of the agent: it was not possible to deduce other expenses and taxes, just as for the agent those same expenses and taxes were not deduced.

However, the new Judgment seems to accept the contrary and to support the calculation of clientele compensation in distribution agreements on net margins. Nevertheless, in my opinion, the reading done by the Supreme is not correct.

In the 2017 ruling, the difference between gross/net margin is mentioned referring to judgment 356/2016 of May 30. In that judgment of 2016, it was said that although in a previous Judgement 39/2010 was not concluded on whether the calculation had to be made on gross or net amounts, in a previous one (Judgment 296/2007) it was, nevertheless, accepted that the net profit obtained by the distributor (by deducing expenses and taxes) was similar to the remuneration of the agent, and not the gross margin which is the mere difference between prices of purchase and resale.

This said, in my opinion, in its Judgment of 2016, the Supreme Court did not use a correct reference when leaning on the one of 2007 for something that the latter did not say. In fact, in 2007, the Supreme Court did not quantify the goodwill (clientele) compensation, but the damages compensation. More specifically, the Court said in 2007 that “goodwill (clientele) compensation might be clearly requested in the complaint, without any confusion or ambiguity“, and after that, the Court concluded that it “should resolve according to the terms in which the debate … was raised in the initial claim. And since this one was interested in compensation for damages mainly based on the length of time the relationship … the most appropriate solution according to the case law of this Court … is to set as compensation for damages on an amount equivalent to the net profits that the plaintiff obtained by the distribution of the products of the defendant during the year immediately preceding the extinction of the contract“. Therefore, the Court did not analyse in 2007 goodwill (clientele) compensation, but damages compensation.

Then the conclusion followed in 2007 to calculate the damages indemnification on net margins, was then followed in 2016 but to calculate the clientele compensation and reiterated now in the 2017 Judgement with the same conclusions.

Regardless of all this, and also in my opinion, it does not make much sense that if the analogy with the Agency Contract is applied, any amount (such as taxes or other expenses) should be deducted from the gross margins to reach a net margin. If the intention is to analogously apply the “remuneration perceived by the agent”, it seems clear that the agent has also expenses and also pays taxes; nothing in Directive 86/653/EEC nor in the Spanish Agency Act says that it must be deducted anything from the “received” amount in order to calculate the goodwill (clientele) compensation. If the amounts the agent perceives are the commissions (from which he will pay his taxes, his rent expenses, employees, etc. obtaining his “net profit”), the same criteria should apply in a distribution contract.

In conclusion, and in my opinion, the Judgment of 137/2017 only emphasizes what I consider to be a previous error and adds additional confusion to a question that is already very much discussed: the analogous application of goodwill (clientele) compensation to distribution contracts and its method of calculation.

NOTE: The Supreme Court seems to confirm this judgement by a new one in May 19 2017 signed by the same Judge.