At the end of the agency and distribution contracts, the main source of conflict is the goodwill (clientele) compensation. The Spanish Law of the Agency Contract —like the Directive on Commercial Agents— provides that when the contract is terminated, the agent will be entitled, if certain conditions are met, to compensation. In Spain, by analogy (although with qualifications and nuances), this compensation can also be claimed in distribution contracts.
For the Clientele compensation to be recognized, it is necessary that the agent (or the distributor: see this post to know more) have contributed new clients or significantly increased operations with pre-existing ones, that their activity can continue to produce substantial benefits to the principal and that it is equitable. All this will condition the recognition of the right to compensation and its amount.
These expressions (new customers, significant increase, can produce, substantial advantages, equitable) are difficult to define beforehand, so, to be successful, it is recommended that claims in courts are supported, case by case, on expert reports, supervised by a lawyer.
There is, at least in Spain, a tendency to directly claim the maximum that the norm provides (one year of remuneration calculated as the average of the previous five) without going into further analysis. But if this is done, there is a risk that a judge will reject the petition as unfounded.
Therefore, and based on our experience, I find it convenient to provide guidance on how to better substantiate the claim for this compensation and its amount.
The agent / distributor, the expert and the attorney should consider the following:
Check what the agent’s contribution has been
If there were customers before the contract began and what volume of sales was made with them. To recognize this compensation, it is necessary that the agent has increased the number of clients or operations with pre-existing ones.
Analyse the importance of these clients when it comes to continuing to provide benefits to the principal
Their recurrence, their loyalty (to the principal and not to the agent), the migration rate (how many of them will remain with the principal at the conclusion of the contract, or with the agent). Indeed, it will be difficult to speak about “clientele” if there have only been sporadic, occasional, non-recurring customers (or few) or who will continue to remain loyal to the agent and not to the principal.
How does the agent operate at the end of the contract
Can he compete with the principal or are there restrictions in the contract? If the agent can continue to serve the same clients, but for a different principal, the compensation could be very much discussed.
Is the compensation fair?
Examine how the agent has acted in the past: if he has fulfilled his obligations, his work when introducing the products or opening the market, the possible evolution of such products or services in the future, etc.
Will the agent lose commissions?
Here we must examine whether he had exclusivity; his greater or lesser facility to get a new contract (for instance, due to his age, the economic crisis, the type of products, etc.) or with a new source of income, the evolution of sales in recent years (those considered for compensation), etc.
What is the legal maximum that cannot be exceeded?
The annual average of the amount received during the contract period (or 5 years if it lasted longer). This will include not just commissions, but any fixed amounts, bonuses, prizes, etc. or margins in the case of distributors.
And, finally, it is convenient to include all the documents analysed in the expert’s report
If this is not done and they are only mentioned, it could result in them not being considered by a judge.
Check out the Practical Guide on International Agency Agremeents
To read more about the main features of a contract of agency in Spain, go to our Guide.