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 29th 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):
- 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.
- Claiming the goodwill compensation as a labour indemnity before the labour courts when it was not clear the sort of relationship between the parties.
- Starting a conciliation procedure before a First Instance Court
- 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.
- 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:
- A claim started by the Agent before a non-competent court, will depend on the circumstances.
- A criminal prosecution does not interrupt the one-year period
- 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.