Spain – Generative artificial intelligence in the legal sector

30 Julho 2024

  • Espanha
  • Inteligência artificial

Generative artificial intelligence (generative AI) is a variant of artificial intelligence aimed at creating models capable of generating new and original content. These models are trained to learn patterns and features from data sets, and can then generate similar or even completely new content based on those learned patterns.

A specific type of generative model is the generative neural network (GAN). GANs consist of two neural networks, one generative and one discriminative, working together. The generative network creates new content, while the discriminative network evaluates the authenticity of that content. The generative model can produce increasingly realistic results as these networks compete and improve.

Generative AI has applications in various areas, such as art creation, creative text generation, speech synthesis, and so on. It is also used in fields such as image enhancement and machine translation. This approach has advanced significantly in recent years and continues to be an active area of research in artificial intelligence.

Generative artificial intelligence applied to the legal sector involves using generative models to assist in various tasks and processes related to legal practice.

Positive aspects of generative AI applied to the legal sector

The integration of generative artificial intelligence in the legal field has emerged as a transformative catalyst, providing a number of significant benefits that positively impact the efficiency, accuracy, and accessibility of legal services. Throughout this evolution, several aspects highlight the substantial contribution of artificial intelligence to legal practice.

Some of these benefits are highlighted below:

Legal Document Drafting

Generative AI can be used to draft legal documents, contracts and other legal texts. It can generate content based on patterns learned from large sets of legal data, facilitating the creation of standard documents and reducing the workload for legal professionals, also ensuring consistency and accuracy in legal drafting, reducing risks associated with possible human errors.

Analysis of large volumes of data

The ability to process information at a speed and scale that surpasses human abilities enables the identification of patterns, trends and precedents with greater speed and accuracy. This advanced analysis helps strengthen legal arguments, improve strategic decision-making and provide clients with stronger legal representation.

Improved legal research

Generative artificial intelligence systems can perform faster and more accurate searches of legal databases, law libraries and case law. This streamlines the legal research process, providing professionals with access to relevant information more efficiently.

Legal Argument Generation

Generative IA can help generate sound legal arguments. By understanding case law and legal principles, it can help lawyers build better arguments and develop strategies for specific cases.

Automated Legal Advice

Automated legal advice systems can be developed that use generative AI to answer common legal questions and provide basic guidance. This could be useful for simpler legal queries and to improve access to legal information.

Personalized legal advice

Artificial intelligence can analyze case-specific data and provide personalized legal advice. This helps legal professionals make more informed and strategic decisions by considering situation-specific factors.

Legal Scenario Simulation

Generative AI can simulate legal scenarios to help lawyers evaluate possible outcomes and risks in particular cases. This could be useful in strategic decision-making and legal planning.

Automation of repetitive tasks

The ability of artificial intelligence systems to take on the workload related to standard document review and basic information management allows legal professionals to focus on more complex and strategic issues. This automation not only saves time but also decreases the likelihood of human error, thus strengthening the overall quality of legal work.

Optimization of internal processes

Artificial intelligence can significantly improve efficiency in case management, meeting scheduling, and other day-to-day operations in law firms. This optimization not only streamlines internal practices but also enables more efficient resource allocation and more effective workload management.

In short, the application of generative artificial intelligence in the legal sector transcends the mere automation of tasks, encompassing fundamental aspects that improve the quality and efficiency of legal services. From the automation of routine tasks to advanced data analysis and document generation, artificial intelligence is a powerful ally that drives positive developments in legal practice. This advancement not only improves the internal efficiency of law firms, but also strengthens the ability of legal professionals to provide accurate and strategic advice in an ever-changing legal environment.

While generative AI offers many possibilities, its implementation in the legal sector must be approached cautiously to ensure accuracy, ethics, and compliance with applicable laws and regulations. Human intervention and legal oversight remain essential to ensure quality and accountability in using these technologies.

Negative aspects of the application of generative AI to the legal sector

While promising, the integration of generative artificial intelligence in the legal sector poses a number of challenges and negative aspects that require attention and careful consideration. Despite significant advances in automation and process improvement, addressing the following adverse aspects is crucial to ensure an ethical and effective implementation.

Lack of human discernment

Although artificial intelligence systems can analyze data at impressive speed, they lack human understanding and sensitivity. Interpreting legal nuances, understanding emotional contexts, and making decisions based on ethics are skills intrinsic to legal professionals. Over-reliance on technology in interpreting complex situations could result in inadequate or insensitive assessments.

Risk of algorithmic bias

Algorithms used in generative artificial intelligence are trained on historical data, and if that data contains cultural, ethnic, or gender biases, the results generated may reflect and perpetuate those biases. This raises ethical and legal concerns, as automated decisions could be inherently discriminatory, affecting fairness and justice in the legal system.

Data security and privacy

The implementation of artificial intelligence in the legal field involves handling highly confidential information. Systems’ vulnerability to cyber attacks could expose sensitive data, compromising the confidentiality and integrity of the legal system. Good protection against cyber threats is essential to maintaining confidence in these technologies.

Job displacement

As artificial intelligence takes over routine and repetitive tasks, there is a risk that certain jobs in the legal sector will be affected. This raises questions about role restructuring and the need for legal professionals to acquire new skills to adapt to a changing work environment. The ethics of this displacement and measures to mitigate its impacts must be carefully addressed.

Ethical complexity in decision making

Generative artificial intelligence algorithms often operate opaquely, meaning that the logic behind their decisions can be difficult to understand or explain. This raises ethical questions about accountability and transparency in legal decision-making, especially in critical cases where a clear explanation of decisions is critical.

Costs associated with implementation

From initial development to ongoing training and system maintenance, law firms, especially smaller ones, can face significant financial challenges. This raises the issue of equity in access to these technologies and the need to seek solutions that do not perpetuate inequities in the legal system.

Cultural resistance and adaptation

Cultural resistance and adaptation are factors that should not be overlooked. The introduction of generative artificial intelligence may encounter resistance among legal professionals who may be reluctant to rely on emerging technologies. Organizational culture and acceptance of these tools may require time and effort for successful implementation. Training and effective communication are essential to overcome these barriers.

In conclusion, the application of generative artificial intelligence in the legal sector, while offering significant benefits, is not without its challenges. Addressing the lack of human discernment, mitigating the risk of algorithmic bias, ensuring data security and privacy, managing labor displacement, addressing ethical complexity in decision making, and managing associated costs are imperative for ethical and effective implementation. Careful thought and appropriate regulation are essential to harness the benefits of artificial intelligence without compromising fundamental principles of fairness and justice in the legal system.

The Commercial Court No. 17 of Madrid has ruled in the SuperLiga case following the guidelines set by the CJEU in its decision of December 21 last year.

The lawsuit was filed by ESCL, an entity formed by Real Madrid and other soccer clubs to promote the SuperLiga, most of which abandoned the project due to pressure from fans and their governments against FIFA and UEFA, with RFEF and La Liga voluntarily joining the defendants.

As usually happens with elections, but not with sentences, everyone, plaintiffs and defendants, has shown their satisfaction with this ruling, which is not yet final, as it can be appealed before the Provincial Court of Madrid.

In brief, the proceedings involved whether the FIFA/UEFA regulations on the organization and authorization of soccer competitions and the management of the rights deriving from such competitions were in accordance with Community competition law, articles 101 and 102 of the TFEU.

The CJEU judgment of last December had already ruled that the regulatory rules of FIFA and UEFA relating to prior authorization and participation, which give these entities the power to prevent any competing company from accessing the market, constitute an abuse of a dominant position and infringe the provisions of Articles 101 and 102 TFEU, mainly because they are not accompanied by certain limits and controls guaranteeing transparency and objectivity in the decision not to authorize such international competitions, which allow the risk of abuse of a dominant position to be excluded.

Likewise, the Court of Justice, using the same arguments and about the exploitation rights deriving from sporting competitions, states that the FIFA and UEFA rules are contrary to the provisions of Articles 101 and 102 TFEU, since they attribute to themselves exclusive responsibility for the marketing of the rights in question.

Following the guidelines set by the CJEU judgment, the judgment of Madrid Commercial Court No. 17 partially upheld the lawsuit filed by ESLC against UEFA and FIFA. It declared that both organizations have abused their dominant position and are preventing free competition in the market by granting themselves the discretionary power to prohibit participation in alternative competitions and impose unjustified and disproportionate restrictions, conduct that infringes Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU).

The ruling condemns FIFA and UEFA to cease the anticompetitive conduct sanctioned and prohibits them from repeating them in the future. It also condemns them to immediately remove all the effects of the anticompetitive actions that occurred before or during the duration of the lawsuit, which began on April 18, 2021, when ESLC announced the launch of the SupeLiga.

Finally, the judgment states that the content of the declarations issued by FIFA, UEFA and other entities (including the federations and leagues of England, Italy and Spain, some of whose clubs were part of the project) on April 18, 2021 (referred to in the lawsuit as the ‘Declaration’) in relation to the pan-European international competition project, also infringes Articles 101 and 102 TFEU.

It should be noted that the judgment expressly states that “inasmuch as the SuperLiga in the terms initially set forth in the lawsuit, i.e. in accordance with the initial project has been abandoned and discarded by the promoters themselves, the motions in relation thereto must likewise lapse; it is not possible to impose a prohibition or restriction in the abstract, i.e. to impose a prohibition in the future of any other project or modification of the one already presented”.

Based on this argument, the Judgment rejects the requests included in section f) of the lawsuit which, in summary, requested that FIFA and UEFA be ordered to refrain from any conduct, measure, or action or issue any statement that prevents or hinders in any way the preparation of the SuperLiga; and the commercial judge concludes by stating in this regard that the purpose of these proceedings is not “the authorization of any competition, but to lay the foundations to channel a system of free competition for the organization of soccer competitions”.

Thereafter, everyone is happy with the result; La Liga issued a statement stressing that the ruling does not endorse a project which, moreover, according to the same ruling, has been abandoned by its promoters. UEFA says that it is pleased to note that the judge has given a good and valid system of prior authorization for third-party competitions to be approved in accordance with UEFA’s authorization rules and has recognized the undoubted benefits of these rules for the soccer sporting system, concluding that “the judgment does not give third parties the right to develop competitions without authorization and does not refer to any future project or to any modified version of an existing project”.

The plaintiffs, too, are happy and content to proclaim that UEFA’s statutes and the aggressive measures taken to protect its monopoly have stifled innovation for decades. Clubs should not have to fear threats of sanctions simply for having ideas and having conversations. The era of monopoly is definitely over.

Rarely does one find that a judgment leaves all the litigants so happy and content, but that seems to be the case here. Or at least that is what all of them have been interested in communicating, when the harsh reality is, on the one hand, that the SuperLiga project as it was structured when the lawsuit started and FIFA/UEFA reacted furiously, is dead and buried, and on the other hand, that the happy world in which FIFA and UEFA regulated soccer and competitions as a private preserve, considered themselves immune and alien to ordinary justice and shared the money generated without being accountable to the Courts of Justice and threatened to expel or expel the rebellious spirits, has come to an end.

Commercial agents have specific regulations with rights and obligations that are “mandatory”: those who sign an agency contract cannot derogate from them. Answering whether an influencer can be an agent is essential because, if he or she is an agent, the agent regulations will apply to him or her.

Let’s take it one step at a time. The influencer we will talk about is the person who, with their actions and comments (blogs, social media accounts, videos, events, or a bit of everything), talks to their followers about the advantages of certain products or services identified with a certain third-party brand. In exchange for this, the influencer is paid.[1]

A commercial agent is someone who promotes the contracting of others’ products or services, does so in a stable way, and gets paid in return. He or she can also conclude the contract, but this is not essential.

The law imposes certain obligations and guarantees rights to those signing an agency contract. If the influencer is considered an “agent”, he or she should also have them. And there are several of them: for example, the duration, the notice to be given to terminate the contract, the obligations of the parties… And the most relevant, the right of the agent to receive compensation at the end of the relationship for the clientele that has been generated. If an influencer is an agent, he would also have this right.

How can an influencer be assessed as an agent? For that we must analyse two things: (a) the contract (and be careful because there is a contract, even if it is not written) and (b) how the parties have behaved.

The elements that, in my opinion, are most relevant to conclude that an influencer is an agent would be the following:

 

a) the influencer promotes the contracting of services or the purchase of products and does so independently.

The contract will indicate what the influencer must do. It will be clearer to consider him as an agent if his comments encourage contracting: for example, if they include a link to the manufacturer’s website, if he offers a discount code, if he allows orders to be placed with him. And if he does so as an independent “professional”, and not as an employee (with a timetable, means, instructions).

It may be more difficult to consider him as an agent if he limits himself to talking about the benefits of the product or service, appearing in advertising as a brand image, and using a certain product, and speaking well of it. The important thing, in my opinion, is to examine whether the influencer’s activity is aimed at getting people to buy the product he or she is talking about, or whether what he or she is doing is more generic persuasion (appearing in advertising, lending his or her image to a product, carrying out demonstrations of its use), or even whether he or she is only seeking to promote himself or herself as a vehicle for general information (for example, influencers who make comparisons of products without trying to get people to buy one or the other). In the first case (trying to get people to buy the product) it would be easier to consider it as an “agent”, and less so in the other examples.

 

b) this “promotion” is done in a continuous or stable manner.

Be careful because this continuity or stability does not mean that the contract has to be of indefinite duration. Rather, it is the opposite of a sporadic relationship. A one-year contract may be sufficient, while several unconnected interventions, even if they last longer, may not be sufficient.

In this case, influencers who make occasional comments, who intervene with isolated actions, who limit themselves to making comparisons without promoting the purchase of one or the other, and even if all this leads to sales, even if their comments are frequent and even if they can have a great influence on the behavior of their followers, would be excluded as agents.

 

c) they receive remuneration for their activity.

An influencer who is remunerated based on sales (e.g., by promoting a discount code, a specific link, or referring to your website for orders) can more easily be considered as an agent. But also, if he or she only receives a fixed amount for their promotion. On the other hand, influencers who do not receive any remuneration from the brand (e.g. someone who talks about the benefits of a product in comparison with others, but without linking it to its promotion) would be excluded.

 

Conclusion

The borderline between what qualifies an influencer as an agent and what does not can be very thin, especially because contracts are often not unambiguous and sometimes their services are multiple. The most important thing is to carefully analyse the contract and the parties’ behaviour.

An influencer could be considered a commercial agent to the extent that his or her activity promotes the contracting of the product (not simply if he or she carries out informative or image work), that it is done on a stable basis (and not merely anecdotal or sporadic) and in exchange for remuneration.

To assess the specific situation, it is essential to analyse the contract (if it is written, this is easier) and the parties’ behaviour.

In short, to draw up a contract with an influencer or, if it has already been signed, but you want to conclude it, you will have to pay attention to these elements. As an influencer you may have a strong interest in being considered an agent at the end of the contract and thus be entitled to compensation, while as employer you will prefer the opposite.

FINAL NOTE. In Spain and at the date of this comment (9 June 2024) I am not aware of any judgement dealing with this issue. My proposal is based on my experience of more than 30 years advising and litigating on agency contracts. On the other hand, and as far as I know, there is at least one judgment in Rome (Italy) dealing with the matter: Tribunale di Roma; Sezione Lavoro 4º, St. 2615 of 4 March 2024; R. G. n. 38445/2022.

The commercial agent has the right to obtain certain information about the sales of the principal. The Spanish Law on Agency Contracts provides (15.2 LCA) that the agent has the right to demand to see the accounts of the principal in order to verify all matters relating to the commissions due to him. And also, to be provided with the information available to the principal and necessary to verify the amount of such commissions.

This article is in line with the 1986 Commercial Agents Directive, according to which (12.3) the agent is entitled to demand to be provided with all information at the disposal of the principal, particularly an extract from the books of account, which is necessary to verify the amount of commission due to the agent. This may not be altered to the detriment of the commercial agent by agreement.

The question is, does this right remain even after the termination of the agency contract? In other words: once the agency contract is terminated, can the agent request the information and documentation mentioned in these articles and is the Principal obliged to provide it?

In our opinion, the rule does not say anything that limits this right, rather the opposite is to be expected. Therefore, to the extent that there is still any possible commission that may arise from such verification, the answer must be yes. Let us see.

The right to demand the production of accounts exists so that the agent can verify the amount of commissions. And the agent is entitled to commissions for acts and operations concluded during the term of the contract (art. 12 LCA), but also for acts or operations concluded after the termination of the contract (art. 13 LCA), and for operations not carried out due to circumstances attributable to the principal (art. 17 LCA). In addition, the agent is entitled to have the commission accrued at the time when the act or transaction should have been executed (art. 14 LCA).

All these transactions can take place after the conclusion of the contract. Consider the usual situation where orders are placed during the contract but are accepted or executed afterwards. To reduce the agent’s right to be informed only during the term of the contract would be to limit his entitlement to the corresponding commission unduly. And it should be borne in mind that the amount of the commissions during the last five years may also influence the calculation of the client (goodwill) indemnity (art. 28 LCA), so that the agent’s interest in knowing them is twofold: what he would receive as commission, and what could increase the basis for future indemnity.

This has been confirmed, for example, by the Provincial Court (Audiencia Provincial) of Madrid (AAP 227/2017, of 29 June [ECLI:ES:APM:2017:2873A]) which textually states:

[…] art. 15.2 of the Agency Contract Act provides for the right of the agent to demand the exhibition of the Principal’s accounts in the particulars necessary to verify everything relating to the commissions corresponding to him, as well as to be provided with the information available to the Principal and necessary to verify the amount. This does not prevent, […], the agency contract having already been terminated, as this does not imply that commissions would cease to accrue for policies, contracted with the mediation of the agent, which remain in force.

The question then arises as to whether this right to information is unlimited in time. And here the answer would be in the negative. The limitation of the right to receive information would be linked to the statute of limitations of the right to claim the corresponding commission. If the right to receive the commission were undoubtedly time-barred, it could be argued that it would not be possible to receive information about it. But for such an exception, the statute of limitations must be clear, therefore, taking into account possible interruptions due to claims, even extrajudicial ones. In case of doubt, it will be necessary to recognise the right to demand the information, without prejudice to later invoking and recognising the impossibility of claiming the commission if the right is time-barred. And for this we must consider the limitation period for claiming commissions (in general, three years) and that of the right to claim compensation for clientele (one year).

In short: it does not seem that the right to receive information and to examine the principal’s documentation is limited by the term of the agency contract; although, on the other hand, it would be appropriate to analyse the possible limitation period for claiming commissions. In the absence of a clear answer to this question, the right to information should, in our opinion, prevail, without prejudice to the fact that the result may not entitle the claim because it is time-barred.

Summary: If you are an entrepreneur, you know that in Spain at the end of an agency contract you will probably have to pay your agent a client indemnity. Is it possible to get rid of it? This is the big question we tried to answer in a previous post.

And now the question is: is it possible to pay it in advance (e.g. as a part of the commission)? And if we do it and, in the end, we didn’t owe it, can we get the money back? In Spain, the courts have answered in the affirmative. But beware: there are conditions. Let’s go into detail.

We already know: upon termination of an agency contract, the principal must normally pay the agent a client indemnity if he has increased the number of clients or operations with pre-existing clients, and if his activity can continue to produce advantages for the employer. Is it possible to pay it in advance?

Spanish courts seem to accept such an advance, but it is necessary to be very attentive to how the clause is drafted. Some rulings help us to understand it better.

The Seville Court of Appeal (24 January 2019) analysed the payment of part of the commission on account of such indemnity. And it considered that if it had been paid, this amount had to be deducted from the indemnity; and if it had not been paid, it had to be paid in full. The Madrid Court (22 November 2017) had reached the same conclusion and with a similar agreement.

The Valladolid Court (4 February 2019) also did not oppose an advance payment of indemnity for clientele. It only required that the clause was clear, that it was actually paid and as an advance payment of such compensation and not for any other reason.

The Court of Navarra (12 November 2004) confirmed that what was relevant was the clarity of the clause, although it rejected it because in drafting it, the elements that make up such indemnity were not taken into account: bringing in new clients or a significant increase in operations with pre-existing ones, nor that such activity could continue to produce substantial advantages for the employer.

Finally, the Barcelona Court of Appeal (28 June 2019) did not dispute the validity of the advance payment either. What is more, it admitted the possibility that once paid it would have to be returned if the indemnity was not appropriate.

In summary and by way of conclusion

The courts seem to admit the prepayment of the customer indemnity and that what has been paid can be deducted from a future indemnity. However, the clause must be very clear and respect the legal requirements (new or increased customers and the possible continuity of the advantages for the employer) since, in case of doubt, it will probably be rejected.

And on one occasion, the possibility of recovering the advance payment has even been admitted if in the end there was no indemnity obligation and it had been clearly agreed.

So: if you are an entrepreneur and need to draft an agency contract in Spain, consider this possibility, study it, and get advice from someone who can prepare a good clause for you.

In this first episode of Legalmondo’s Distribution Talks series, I spoke with Ignacio Alonso, a Madrid-based lawyer with extensive experience in international commercial distribution.

Main discussion points:

  • in Spain, there is no specific law for distribution agreements, which are governed by the general rules of the Commercial Code;
  • therefore, it is essential to draft a clear and comprehensive contract, which will be the primary source of the parties’ rights and obligations;
  • it is also good to be aware of Spanish case law on commercial distribution, which in some cases applies the law on commercial agency by analogy.
  • the most common issues involving foreign producers distributing in Spain arise at the time of termination of the relationship, mainly because case law grants the terminated distributor an indemnity of clientele or goodwill if similar prerequisites to those in the agency regulations apply.
  • another frequent dispute concerns the adequacy of the notice period for terminating the contract, especially if there is no agreement between the parties: the advice is to follow what the agency regulations stipulate and thus establish a minimum notice period of one month for each year of the contract’s duration, up to 6 months for agreements lasting more than five years;
  • regarding dispute resolution tools, mediation is an option that should be carefully considered because it is quick, inexpensive, and allows a shared solution to be sought flexibly without disrupting the business relationship.
  • if mediation fails, the parties can provide for recourse to arbitration or state court. The choice depends on the case’s specific circumstances, and one factor in favor of jurisdiction is the possibility of appeal, which is excluded in the case of arbitration.

Go deeper

https://youtu.be/ZmNjMrdKDJM?si=ySCcUf_Hz25nQN3Y

Accepting the position of director (administrator or CEO) in a Spanish company entails increasing risks. Indeed, the Supreme Court – ruling by ruling – is outlining and interpreting the precepts of the Capital Companies Act (LSC) with an increasingly rigorous and demanding approach when it comes to delimiting the framework of directors’ liability.

Of course, the content of Article 43.1 b) of the General Tax Law is not new at all when it lays the foundations for the subsidiary liability of directors for debts owed to the Tax Agency:

The following persons or entities shall be subsidiarily liable for the tax debt:

b) The de facto or de jure administrators of those legal entities that have ceased their activities, for the accrued tax obligations of these that are pending at the time of the cessation, provided that they have not done what is necessary for their payment or have adopted agreements or taken measures causing the non-payment.

It could be deduced from the reading of the transcribed provision that the subsidiary liability of the directors who, at the time of the cessation of the corporate activity, effectively held the position of director, was established; but that the liability would not reach those directors who had been so in the past but were no longer directors at the time when the company had ceased to act in the legal and economic traffic, for the tax debts pending at that time.

Well, the Supreme Court (Third Chamber) in its recent judgment of March 7th, 2023, hammers one more nail in the coffin of the liability of the directors.

The case that was the subject of the ruling consisted of determining the subsidiary liability to the Tax Agency of a director whose position had expired (due to the expiration of the statutory term) and who had called a general meeting for the appointment of new members of the administrative body of the company.

The Supreme Court understands (and establishes a doctrine for the purposes of appeal) that the director with an expired position does not “exhaust” his obligations with the call of the meeting in question, but must also, pursuant to art. 365 LSC call another general meeting to adopt the resolution to file for insolvency or dissolution due to the existence of the causes of art. 363 LSC a) (cessation of activity) and d) (paralysis of the corporate bodies) as well as, if applicable, the request for judicial dissolution in his capacity as an interested party (art. 366.1 LSC).

The reproachable conduct according to the Supreme Court (which triggers the subsidiary liability) consists in the fact that, facing the cessation of the activity of the company, the only thing he did was to call a meeting for the appointment of a new director and therefore “it did not carry out the necessary acts to be able to face the payment of the tax debts, thus meeting the subjective element necessary to be able to declare its liability”.

The court ruling insists that the condition of director is not lost with the exhaustion of the mandate due to the expiration of the position since the mercantile and fiscal obligations persist; and that the call of a meeting to appoint a new director is not enough to understand that such meeting, once held, deprives the director with expired position of the condition of director, when there is a cause of dissolution that would have obliged to call another meeting with another object and another agenda to agree on the dissolution of the inactive company.

But what is remarkable and striking in this case is that the meeting called by the director (with expired position) for the appointment of new a new director was held in June 2012, the resolutions were made public on March 1st, 2013, they were registered in the commercial registry in July of the same year and the judgment expressly states that the cessation of corporate activity occurred in April 2013 (i.e. when the meeting for the appointment of new administrators had already been held, June 2012, and when the appointment of the new director had already been made public, March 1st, 2013).

The court resolution reads as follows:

“Given the date on which the cessation of the business activity was established by the judgment a quo, April 2013, the appellant should still be considered as a director of the company in that capacity, his conduct should be considered negligent for the purposes of inclusion in the cause of subsidiary liability of art. 43.1.b) LGT”. 

The claimant director argued that Art. 222 LSC and Art. 145.1 RRM state that the appointment of directors will expire, among other cases, when the term has expired and the meeting for the appointment of a new director has been held (or the term for its holding has elapsed) that is to resolve on the approval of the accounts of the previous year. And he explained that on top of that, he had fulfilled his obligations as director calling for a general shareholders meeting where new directors were appointed 9 months before the company ceased its activities. Therefore, he no longer was a “director” on April 2103.

Despite of that argument the Supreme Court insists that, whether or not the position has expired, said expiration does not exhaust or extinguish his responsibilities as director, which must be interpreted extensively: it is not enough for him to call a meeting for the appointment of new directors, but he must act to dissolve the company or file for insolvency proceedings, as if the position had full and complete validity. 

Thus, after this strong ruling, the directors of Spanish companies, in the event of termination of the activity, even if their position has expired, must know that their liability (and specifically the subsidiary liability for tax debts) will only be released if they call a meeting to dissolve the company, if the meeting does not adopt such resolution, if they request the court for the judicial dissolution or if they file voluntary insolvency proceedings.

To summarize, they will be liable if they do not act in the same way as if their position were still in full force and effect. As we said above, it is necessary to think very much about accepting positions of director of Spanish companies.

The so-called “Startup Law” in Spain (Law for the promotion of the emerging company’s ecosystem) after passing the corresponding filters, has been approved by the Spanish Parliament.

Among its various provisions on startups – which will be the subject of another article – the Startup Law also amended the “Beckham Law” (as this football player is the best known of those who benefited from this law), i.e. the special tax regime applicable to workers, professionals, entrepreneurs, and investors moving from abroad to Spain.

This regime grants enormous tax advantages to Spanish foreigners, who move their residence to Spain under certain circumstances which, in summary, are:

  • relocation as a consequence of an employment contract.
  • displacement that is ordered by the foreign employer with a letter of displacement to Spain.
  • displacement without being ordered by the employer and the labor activity is provided remotely by means of the exclusive use of electronic means.
  • acquisition of the condition of administrator of a company.
  • for the realization in Spain of an economic activity qualified as entrepreneurial activity.
  • highly qualified professional providing services to emerging companies.

The great novelty is that, until the entry into force of the new regulation, it was required that the interested party had been a non-resident for tax purposes in Spain for a period of more than 10 years so many managers were temporarily displaced outside Spain could not benefit from this regime because they had not been outside Spanish territory for more than 10 years (the displacements are not usually so long) and with the entry into force of the new legal text, the previous period of non-residence has been reduced to five (5) years.

The great advantage of this regime is that its beneficiaries (individuals) can opt to pay the Non-Resident Income Tax (IRNR), during the tax period in which the change of residence takes place and during the following five tax periods. This means that in the determination of the taxable income, part of the income that the interested party may obtain worldwide is not taxed and, in addition, that up to 600,000 euros of taxable income, the applicable tax rate would be 24% (all of which is undoubtedly an enormous tax advantage with respect to the applicable tax regime, in the same circumstances of income, to a tax resident in Spain without the coverage of this special regime).

In any case, it is important to emphasize that the application of this advantageous tax regime requires a previous and express request by the interested party, that is to say, first “knocking at the door” of the Treasury and, therefore, it is very important to make sure that all the requirements demanded by the Law are fulfilled very scrupulously, so it is always especially advisable to request in advance and with the due detail the appropriate legal advice in this respect.

Javier Gaspar Álvarez-Novoa

Áreas de prática

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    Spain – The Spanish sentence on the European super league: everyone is happy

    26 Julho 2024

    • Espanha
    • Antitrust

    Generative artificial intelligence (generative AI) is a variant of artificial intelligence aimed at creating models capable of generating new and original content. These models are trained to learn patterns and features from data sets, and can then generate similar or even completely new content based on those learned patterns.

    A specific type of generative model is the generative neural network (GAN). GANs consist of two neural networks, one generative and one discriminative, working together. The generative network creates new content, while the discriminative network evaluates the authenticity of that content. The generative model can produce increasingly realistic results as these networks compete and improve.

    Generative AI has applications in various areas, such as art creation, creative text generation, speech synthesis, and so on. It is also used in fields such as image enhancement and machine translation. This approach has advanced significantly in recent years and continues to be an active area of research in artificial intelligence.

    Generative artificial intelligence applied to the legal sector involves using generative models to assist in various tasks and processes related to legal practice.

    Positive aspects of generative AI applied to the legal sector

    The integration of generative artificial intelligence in the legal field has emerged as a transformative catalyst, providing a number of significant benefits that positively impact the efficiency, accuracy, and accessibility of legal services. Throughout this evolution, several aspects highlight the substantial contribution of artificial intelligence to legal practice.

    Some of these benefits are highlighted below:

    Legal Document Drafting

    Generative AI can be used to draft legal documents, contracts and other legal texts. It can generate content based on patterns learned from large sets of legal data, facilitating the creation of standard documents and reducing the workload for legal professionals, also ensuring consistency and accuracy in legal drafting, reducing risks associated with possible human errors.

    Analysis of large volumes of data

    The ability to process information at a speed and scale that surpasses human abilities enables the identification of patterns, trends and precedents with greater speed and accuracy. This advanced analysis helps strengthen legal arguments, improve strategic decision-making and provide clients with stronger legal representation.

    Improved legal research

    Generative artificial intelligence systems can perform faster and more accurate searches of legal databases, law libraries and case law. This streamlines the legal research process, providing professionals with access to relevant information more efficiently.

    Legal Argument Generation

    Generative IA can help generate sound legal arguments. By understanding case law and legal principles, it can help lawyers build better arguments and develop strategies for specific cases.

    Automated Legal Advice

    Automated legal advice systems can be developed that use generative AI to answer common legal questions and provide basic guidance. This could be useful for simpler legal queries and to improve access to legal information.

    Personalized legal advice

    Artificial intelligence can analyze case-specific data and provide personalized legal advice. This helps legal professionals make more informed and strategic decisions by considering situation-specific factors.

    Legal Scenario Simulation

    Generative AI can simulate legal scenarios to help lawyers evaluate possible outcomes and risks in particular cases. This could be useful in strategic decision-making and legal planning.

    Automation of repetitive tasks

    The ability of artificial intelligence systems to take on the workload related to standard document review and basic information management allows legal professionals to focus on more complex and strategic issues. This automation not only saves time but also decreases the likelihood of human error, thus strengthening the overall quality of legal work.

    Optimization of internal processes

    Artificial intelligence can significantly improve efficiency in case management, meeting scheduling, and other day-to-day operations in law firms. This optimization not only streamlines internal practices but also enables more efficient resource allocation and more effective workload management.

    In short, the application of generative artificial intelligence in the legal sector transcends the mere automation of tasks, encompassing fundamental aspects that improve the quality and efficiency of legal services. From the automation of routine tasks to advanced data analysis and document generation, artificial intelligence is a powerful ally that drives positive developments in legal practice. This advancement not only improves the internal efficiency of law firms, but also strengthens the ability of legal professionals to provide accurate and strategic advice in an ever-changing legal environment.

    While generative AI offers many possibilities, its implementation in the legal sector must be approached cautiously to ensure accuracy, ethics, and compliance with applicable laws and regulations. Human intervention and legal oversight remain essential to ensure quality and accountability in using these technologies.

    Negative aspects of the application of generative AI to the legal sector

    While promising, the integration of generative artificial intelligence in the legal sector poses a number of challenges and negative aspects that require attention and careful consideration. Despite significant advances in automation and process improvement, addressing the following adverse aspects is crucial to ensure an ethical and effective implementation.

    Lack of human discernment

    Although artificial intelligence systems can analyze data at impressive speed, they lack human understanding and sensitivity. Interpreting legal nuances, understanding emotional contexts, and making decisions based on ethics are skills intrinsic to legal professionals. Over-reliance on technology in interpreting complex situations could result in inadequate or insensitive assessments.

    Risk of algorithmic bias

    Algorithms used in generative artificial intelligence are trained on historical data, and if that data contains cultural, ethnic, or gender biases, the results generated may reflect and perpetuate those biases. This raises ethical and legal concerns, as automated decisions could be inherently discriminatory, affecting fairness and justice in the legal system.

    Data security and privacy

    The implementation of artificial intelligence in the legal field involves handling highly confidential information. Systems’ vulnerability to cyber attacks could expose sensitive data, compromising the confidentiality and integrity of the legal system. Good protection against cyber threats is essential to maintaining confidence in these technologies.

    Job displacement

    As artificial intelligence takes over routine and repetitive tasks, there is a risk that certain jobs in the legal sector will be affected. This raises questions about role restructuring and the need for legal professionals to acquire new skills to adapt to a changing work environment. The ethics of this displacement and measures to mitigate its impacts must be carefully addressed.

    Ethical complexity in decision making

    Generative artificial intelligence algorithms often operate opaquely, meaning that the logic behind their decisions can be difficult to understand or explain. This raises ethical questions about accountability and transparency in legal decision-making, especially in critical cases where a clear explanation of decisions is critical.

    Costs associated with implementation

    From initial development to ongoing training and system maintenance, law firms, especially smaller ones, can face significant financial challenges. This raises the issue of equity in access to these technologies and the need to seek solutions that do not perpetuate inequities in the legal system.

    Cultural resistance and adaptation

    Cultural resistance and adaptation are factors that should not be overlooked. The introduction of generative artificial intelligence may encounter resistance among legal professionals who may be reluctant to rely on emerging technologies. Organizational culture and acceptance of these tools may require time and effort for successful implementation. Training and effective communication are essential to overcome these barriers.

    In conclusion, the application of generative artificial intelligence in the legal sector, while offering significant benefits, is not without its challenges. Addressing the lack of human discernment, mitigating the risk of algorithmic bias, ensuring data security and privacy, managing labor displacement, addressing ethical complexity in decision making, and managing associated costs are imperative for ethical and effective implementation. Careful thought and appropriate regulation are essential to harness the benefits of artificial intelligence without compromising fundamental principles of fairness and justice in the legal system.

    The Commercial Court No. 17 of Madrid has ruled in the SuperLiga case following the guidelines set by the CJEU in its decision of December 21 last year.

    The lawsuit was filed by ESCL, an entity formed by Real Madrid and other soccer clubs to promote the SuperLiga, most of which abandoned the project due to pressure from fans and their governments against FIFA and UEFA, with RFEF and La Liga voluntarily joining the defendants.

    As usually happens with elections, but not with sentences, everyone, plaintiffs and defendants, has shown their satisfaction with this ruling, which is not yet final, as it can be appealed before the Provincial Court of Madrid.

    In brief, the proceedings involved whether the FIFA/UEFA regulations on the organization and authorization of soccer competitions and the management of the rights deriving from such competitions were in accordance with Community competition law, articles 101 and 102 of the TFEU.

    The CJEU judgment of last December had already ruled that the regulatory rules of FIFA and UEFA relating to prior authorization and participation, which give these entities the power to prevent any competing company from accessing the market, constitute an abuse of a dominant position and infringe the provisions of Articles 101 and 102 TFEU, mainly because they are not accompanied by certain limits and controls guaranteeing transparency and objectivity in the decision not to authorize such international competitions, which allow the risk of abuse of a dominant position to be excluded.

    Likewise, the Court of Justice, using the same arguments and about the exploitation rights deriving from sporting competitions, states that the FIFA and UEFA rules are contrary to the provisions of Articles 101 and 102 TFEU, since they attribute to themselves exclusive responsibility for the marketing of the rights in question.

    Following the guidelines set by the CJEU judgment, the judgment of Madrid Commercial Court No. 17 partially upheld the lawsuit filed by ESLC against UEFA and FIFA. It declared that both organizations have abused their dominant position and are preventing free competition in the market by granting themselves the discretionary power to prohibit participation in alternative competitions and impose unjustified and disproportionate restrictions, conduct that infringes Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU).

    The ruling condemns FIFA and UEFA to cease the anticompetitive conduct sanctioned and prohibits them from repeating them in the future. It also condemns them to immediately remove all the effects of the anticompetitive actions that occurred before or during the duration of the lawsuit, which began on April 18, 2021, when ESLC announced the launch of the SupeLiga.

    Finally, the judgment states that the content of the declarations issued by FIFA, UEFA and other entities (including the federations and leagues of England, Italy and Spain, some of whose clubs were part of the project) on April 18, 2021 (referred to in the lawsuit as the ‘Declaration’) in relation to the pan-European international competition project, also infringes Articles 101 and 102 TFEU.

    It should be noted that the judgment expressly states that “inasmuch as the SuperLiga in the terms initially set forth in the lawsuit, i.e. in accordance with the initial project has been abandoned and discarded by the promoters themselves, the motions in relation thereto must likewise lapse; it is not possible to impose a prohibition or restriction in the abstract, i.e. to impose a prohibition in the future of any other project or modification of the one already presented”.

    Based on this argument, the Judgment rejects the requests included in section f) of the lawsuit which, in summary, requested that FIFA and UEFA be ordered to refrain from any conduct, measure, or action or issue any statement that prevents or hinders in any way the preparation of the SuperLiga; and the commercial judge concludes by stating in this regard that the purpose of these proceedings is not “the authorization of any competition, but to lay the foundations to channel a system of free competition for the organization of soccer competitions”.

    Thereafter, everyone is happy with the result; La Liga issued a statement stressing that the ruling does not endorse a project which, moreover, according to the same ruling, has been abandoned by its promoters. UEFA says that it is pleased to note that the judge has given a good and valid system of prior authorization for third-party competitions to be approved in accordance with UEFA’s authorization rules and has recognized the undoubted benefits of these rules for the soccer sporting system, concluding that “the judgment does not give third parties the right to develop competitions without authorization and does not refer to any future project or to any modified version of an existing project”.

    The plaintiffs, too, are happy and content to proclaim that UEFA’s statutes and the aggressive measures taken to protect its monopoly have stifled innovation for decades. Clubs should not have to fear threats of sanctions simply for having ideas and having conversations. The era of monopoly is definitely over.

    Rarely does one find that a judgment leaves all the litigants so happy and content, but that seems to be the case here. Or at least that is what all of them have been interested in communicating, when the harsh reality is, on the one hand, that the SuperLiga project as it was structured when the lawsuit started and FIFA/UEFA reacted furiously, is dead and buried, and on the other hand, that the happy world in which FIFA and UEFA regulated soccer and competitions as a private preserve, considered themselves immune and alien to ordinary justice and shared the money generated without being accountable to the Courts of Justice and threatened to expel or expel the rebellious spirits, has come to an end.

    Commercial agents have specific regulations with rights and obligations that are “mandatory”: those who sign an agency contract cannot derogate from them. Answering whether an influencer can be an agent is essential because, if he or she is an agent, the agent regulations will apply to him or her.

    Let’s take it one step at a time. The influencer we will talk about is the person who, with their actions and comments (blogs, social media accounts, videos, events, or a bit of everything), talks to their followers about the advantages of certain products or services identified with a certain third-party brand. In exchange for this, the influencer is paid.[1]

    A commercial agent is someone who promotes the contracting of others’ products or services, does so in a stable way, and gets paid in return. He or she can also conclude the contract, but this is not essential.

    The law imposes certain obligations and guarantees rights to those signing an agency contract. If the influencer is considered an “agent”, he or she should also have them. And there are several of them: for example, the duration, the notice to be given to terminate the contract, the obligations of the parties… And the most relevant, the right of the agent to receive compensation at the end of the relationship for the clientele that has been generated. If an influencer is an agent, he would also have this right.

    How can an influencer be assessed as an agent? For that we must analyse two things: (a) the contract (and be careful because there is a contract, even if it is not written) and (b) how the parties have behaved.

    The elements that, in my opinion, are most relevant to conclude that an influencer is an agent would be the following:

     

    a) the influencer promotes the contracting of services or the purchase of products and does so independently.

    The contract will indicate what the influencer must do. It will be clearer to consider him as an agent if his comments encourage contracting: for example, if they include a link to the manufacturer’s website, if he offers a discount code, if he allows orders to be placed with him. And if he does so as an independent “professional”, and not as an employee (with a timetable, means, instructions).

    It may be more difficult to consider him as an agent if he limits himself to talking about the benefits of the product or service, appearing in advertising as a brand image, and using a certain product, and speaking well of it. The important thing, in my opinion, is to examine whether the influencer’s activity is aimed at getting people to buy the product he or she is talking about, or whether what he or she is doing is more generic persuasion (appearing in advertising, lending his or her image to a product, carrying out demonstrations of its use), or even whether he or she is only seeking to promote himself or herself as a vehicle for general information (for example, influencers who make comparisons of products without trying to get people to buy one or the other). In the first case (trying to get people to buy the product) it would be easier to consider it as an “agent”, and less so in the other examples.

     

    b) this “promotion” is done in a continuous or stable manner.

    Be careful because this continuity or stability does not mean that the contract has to be of indefinite duration. Rather, it is the opposite of a sporadic relationship. A one-year contract may be sufficient, while several unconnected interventions, even if they last longer, may not be sufficient.

    In this case, influencers who make occasional comments, who intervene with isolated actions, who limit themselves to making comparisons without promoting the purchase of one or the other, and even if all this leads to sales, even if their comments are frequent and even if they can have a great influence on the behavior of their followers, would be excluded as agents.

     

    c) they receive remuneration for their activity.

    An influencer who is remunerated based on sales (e.g., by promoting a discount code, a specific link, or referring to your website for orders) can more easily be considered as an agent. But also, if he or she only receives a fixed amount for their promotion. On the other hand, influencers who do not receive any remuneration from the brand (e.g. someone who talks about the benefits of a product in comparison with others, but without linking it to its promotion) would be excluded.

     

    Conclusion

    The borderline between what qualifies an influencer as an agent and what does not can be very thin, especially because contracts are often not unambiguous and sometimes their services are multiple. The most important thing is to carefully analyse the contract and the parties’ behaviour.

    An influencer could be considered a commercial agent to the extent that his or her activity promotes the contracting of the product (not simply if he or she carries out informative or image work), that it is done on a stable basis (and not merely anecdotal or sporadic) and in exchange for remuneration.

    To assess the specific situation, it is essential to analyse the contract (if it is written, this is easier) and the parties’ behaviour.

    In short, to draw up a contract with an influencer or, if it has already been signed, but you want to conclude it, you will have to pay attention to these elements. As an influencer you may have a strong interest in being considered an agent at the end of the contract and thus be entitled to compensation, while as employer you will prefer the opposite.

    FINAL NOTE. In Spain and at the date of this comment (9 June 2024) I am not aware of any judgement dealing with this issue. My proposal is based on my experience of more than 30 years advising and litigating on agency contracts. On the other hand, and as far as I know, there is at least one judgment in Rome (Italy) dealing with the matter: Tribunale di Roma; Sezione Lavoro 4º, St. 2615 of 4 March 2024; R. G. n. 38445/2022.

    The commercial agent has the right to obtain certain information about the sales of the principal. The Spanish Law on Agency Contracts provides (15.2 LCA) that the agent has the right to demand to see the accounts of the principal in order to verify all matters relating to the commissions due to him. And also, to be provided with the information available to the principal and necessary to verify the amount of such commissions.

    This article is in line with the 1986 Commercial Agents Directive, according to which (12.3) the agent is entitled to demand to be provided with all information at the disposal of the principal, particularly an extract from the books of account, which is necessary to verify the amount of commission due to the agent. This may not be altered to the detriment of the commercial agent by agreement.

    The question is, does this right remain even after the termination of the agency contract? In other words: once the agency contract is terminated, can the agent request the information and documentation mentioned in these articles and is the Principal obliged to provide it?

    In our opinion, the rule does not say anything that limits this right, rather the opposite is to be expected. Therefore, to the extent that there is still any possible commission that may arise from such verification, the answer must be yes. Let us see.

    The right to demand the production of accounts exists so that the agent can verify the amount of commissions. And the agent is entitled to commissions for acts and operations concluded during the term of the contract (art. 12 LCA), but also for acts or operations concluded after the termination of the contract (art. 13 LCA), and for operations not carried out due to circumstances attributable to the principal (art. 17 LCA). In addition, the agent is entitled to have the commission accrued at the time when the act or transaction should have been executed (art. 14 LCA).

    All these transactions can take place after the conclusion of the contract. Consider the usual situation where orders are placed during the contract but are accepted or executed afterwards. To reduce the agent’s right to be informed only during the term of the contract would be to limit his entitlement to the corresponding commission unduly. And it should be borne in mind that the amount of the commissions during the last five years may also influence the calculation of the client (goodwill) indemnity (art. 28 LCA), so that the agent’s interest in knowing them is twofold: what he would receive as commission, and what could increase the basis for future indemnity.

    This has been confirmed, for example, by the Provincial Court (Audiencia Provincial) of Madrid (AAP 227/2017, of 29 June [ECLI:ES:APM:2017:2873A]) which textually states:

    […] art. 15.2 of the Agency Contract Act provides for the right of the agent to demand the exhibition of the Principal’s accounts in the particulars necessary to verify everything relating to the commissions corresponding to him, as well as to be provided with the information available to the Principal and necessary to verify the amount. This does not prevent, […], the agency contract having already been terminated, as this does not imply that commissions would cease to accrue for policies, contracted with the mediation of the agent, which remain in force.

    The question then arises as to whether this right to information is unlimited in time. And here the answer would be in the negative. The limitation of the right to receive information would be linked to the statute of limitations of the right to claim the corresponding commission. If the right to receive the commission were undoubtedly time-barred, it could be argued that it would not be possible to receive information about it. But for such an exception, the statute of limitations must be clear, therefore, taking into account possible interruptions due to claims, even extrajudicial ones. In case of doubt, it will be necessary to recognise the right to demand the information, without prejudice to later invoking and recognising the impossibility of claiming the commission if the right is time-barred. And for this we must consider the limitation period for claiming commissions (in general, three years) and that of the right to claim compensation for clientele (one year).

    In short: it does not seem that the right to receive information and to examine the principal’s documentation is limited by the term of the agency contract; although, on the other hand, it would be appropriate to analyse the possible limitation period for claiming commissions. In the absence of a clear answer to this question, the right to information should, in our opinion, prevail, without prejudice to the fact that the result may not entitle the claim because it is time-barred.

    Summary: If you are an entrepreneur, you know that in Spain at the end of an agency contract you will probably have to pay your agent a client indemnity. Is it possible to get rid of it? This is the big question we tried to answer in a previous post.

    And now the question is: is it possible to pay it in advance (e.g. as a part of the commission)? And if we do it and, in the end, we didn’t owe it, can we get the money back? In Spain, the courts have answered in the affirmative. But beware: there are conditions. Let’s go into detail.

    We already know: upon termination of an agency contract, the principal must normally pay the agent a client indemnity if he has increased the number of clients or operations with pre-existing clients, and if his activity can continue to produce advantages for the employer. Is it possible to pay it in advance?

    Spanish courts seem to accept such an advance, but it is necessary to be very attentive to how the clause is drafted. Some rulings help us to understand it better.

    The Seville Court of Appeal (24 January 2019) analysed the payment of part of the commission on account of such indemnity. And it considered that if it had been paid, this amount had to be deducted from the indemnity; and if it had not been paid, it had to be paid in full. The Madrid Court (22 November 2017) had reached the same conclusion and with a similar agreement.

    The Valladolid Court (4 February 2019) also did not oppose an advance payment of indemnity for clientele. It only required that the clause was clear, that it was actually paid and as an advance payment of such compensation and not for any other reason.

    The Court of Navarra (12 November 2004) confirmed that what was relevant was the clarity of the clause, although it rejected it because in drafting it, the elements that make up such indemnity were not taken into account: bringing in new clients or a significant increase in operations with pre-existing ones, nor that such activity could continue to produce substantial advantages for the employer.

    Finally, the Barcelona Court of Appeal (28 June 2019) did not dispute the validity of the advance payment either. What is more, it admitted the possibility that once paid it would have to be returned if the indemnity was not appropriate.

    In summary and by way of conclusion

    The courts seem to admit the prepayment of the customer indemnity and that what has been paid can be deducted from a future indemnity. However, the clause must be very clear and respect the legal requirements (new or increased customers and the possible continuity of the advantages for the employer) since, in case of doubt, it will probably be rejected.

    And on one occasion, the possibility of recovering the advance payment has even been admitted if in the end there was no indemnity obligation and it had been clearly agreed.

    So: if you are an entrepreneur and need to draft an agency contract in Spain, consider this possibility, study it, and get advice from someone who can prepare a good clause for you.

    In this first episode of Legalmondo’s Distribution Talks series, I spoke with Ignacio Alonso, a Madrid-based lawyer with extensive experience in international commercial distribution.

    Main discussion points:

    • in Spain, there is no specific law for distribution agreements, which are governed by the general rules of the Commercial Code;
    • therefore, it is essential to draft a clear and comprehensive contract, which will be the primary source of the parties’ rights and obligations;
    • it is also good to be aware of Spanish case law on commercial distribution, which in some cases applies the law on commercial agency by analogy.
    • the most common issues involving foreign producers distributing in Spain arise at the time of termination of the relationship, mainly because case law grants the terminated distributor an indemnity of clientele or goodwill if similar prerequisites to those in the agency regulations apply.
    • another frequent dispute concerns the adequacy of the notice period for terminating the contract, especially if there is no agreement between the parties: the advice is to follow what the agency regulations stipulate and thus establish a minimum notice period of one month for each year of the contract’s duration, up to 6 months for agreements lasting more than five years;
    • regarding dispute resolution tools, mediation is an option that should be carefully considered because it is quick, inexpensive, and allows a shared solution to be sought flexibly without disrupting the business relationship.
    • if mediation fails, the parties can provide for recourse to arbitration or state court. The choice depends on the case’s specific circumstances, and one factor in favor of jurisdiction is the possibility of appeal, which is excluded in the case of arbitration.

    Go deeper

    https://youtu.be/ZmNjMrdKDJM?si=ySCcUf_Hz25nQN3Y

    Accepting the position of director (administrator or CEO) in a Spanish company entails increasing risks. Indeed, the Supreme Court – ruling by ruling – is outlining and interpreting the precepts of the Capital Companies Act (LSC) with an increasingly rigorous and demanding approach when it comes to delimiting the framework of directors’ liability.

    Of course, the content of Article 43.1 b) of the General Tax Law is not new at all when it lays the foundations for the subsidiary liability of directors for debts owed to the Tax Agency:

    The following persons or entities shall be subsidiarily liable for the tax debt:

    b) The de facto or de jure administrators of those legal entities that have ceased their activities, for the accrued tax obligations of these that are pending at the time of the cessation, provided that they have not done what is necessary for their payment or have adopted agreements or taken measures causing the non-payment.

    It could be deduced from the reading of the transcribed provision that the subsidiary liability of the directors who, at the time of the cessation of the corporate activity, effectively held the position of director, was established; but that the liability would not reach those directors who had been so in the past but were no longer directors at the time when the company had ceased to act in the legal and economic traffic, for the tax debts pending at that time.

    Well, the Supreme Court (Third Chamber) in its recent judgment of March 7th, 2023, hammers one more nail in the coffin of the liability of the directors.

    The case that was the subject of the ruling consisted of determining the subsidiary liability to the Tax Agency of a director whose position had expired (due to the expiration of the statutory term) and who had called a general meeting for the appointment of new members of the administrative body of the company.

    The Supreme Court understands (and establishes a doctrine for the purposes of appeal) that the director with an expired position does not “exhaust” his obligations with the call of the meeting in question, but must also, pursuant to art. 365 LSC call another general meeting to adopt the resolution to file for insolvency or dissolution due to the existence of the causes of art. 363 LSC a) (cessation of activity) and d) (paralysis of the corporate bodies) as well as, if applicable, the request for judicial dissolution in his capacity as an interested party (art. 366.1 LSC).

    The reproachable conduct according to the Supreme Court (which triggers the subsidiary liability) consists in the fact that, facing the cessation of the activity of the company, the only thing he did was to call a meeting for the appointment of a new director and therefore “it did not carry out the necessary acts to be able to face the payment of the tax debts, thus meeting the subjective element necessary to be able to declare its liability”.

    The court ruling insists that the condition of director is not lost with the exhaustion of the mandate due to the expiration of the position since the mercantile and fiscal obligations persist; and that the call of a meeting to appoint a new director is not enough to understand that such meeting, once held, deprives the director with expired position of the condition of director, when there is a cause of dissolution that would have obliged to call another meeting with another object and another agenda to agree on the dissolution of the inactive company.

    But what is remarkable and striking in this case is that the meeting called by the director (with expired position) for the appointment of new a new director was held in June 2012, the resolutions were made public on March 1st, 2013, they were registered in the commercial registry in July of the same year and the judgment expressly states that the cessation of corporate activity occurred in April 2013 (i.e. when the meeting for the appointment of new administrators had already been held, June 2012, and when the appointment of the new director had already been made public, March 1st, 2013).

    The court resolution reads as follows:

    “Given the date on which the cessation of the business activity was established by the judgment a quo, April 2013, the appellant should still be considered as a director of the company in that capacity, his conduct should be considered negligent for the purposes of inclusion in the cause of subsidiary liability of art. 43.1.b) LGT”. 

    The claimant director argued that Art. 222 LSC and Art. 145.1 RRM state that the appointment of directors will expire, among other cases, when the term has expired and the meeting for the appointment of a new director has been held (or the term for its holding has elapsed) that is to resolve on the approval of the accounts of the previous year. And he explained that on top of that, he had fulfilled his obligations as director calling for a general shareholders meeting where new directors were appointed 9 months before the company ceased its activities. Therefore, he no longer was a “director” on April 2103.

    Despite of that argument the Supreme Court insists that, whether or not the position has expired, said expiration does not exhaust or extinguish his responsibilities as director, which must be interpreted extensively: it is not enough for him to call a meeting for the appointment of new directors, but he must act to dissolve the company or file for insolvency proceedings, as if the position had full and complete validity. 

    Thus, after this strong ruling, the directors of Spanish companies, in the event of termination of the activity, even if their position has expired, must know that their liability (and specifically the subsidiary liability for tax debts) will only be released if they call a meeting to dissolve the company, if the meeting does not adopt such resolution, if they request the court for the judicial dissolution or if they file voluntary insolvency proceedings.

    To summarize, they will be liable if they do not act in the same way as if their position were still in full force and effect. As we said above, it is necessary to think very much about accepting positions of director of Spanish companies.

    The so-called “Startup Law” in Spain (Law for the promotion of the emerging company’s ecosystem) after passing the corresponding filters, has been approved by the Spanish Parliament.

    Among its various provisions on startups – which will be the subject of another article – the Startup Law also amended the “Beckham Law” (as this football player is the best known of those who benefited from this law), i.e. the special tax regime applicable to workers, professionals, entrepreneurs, and investors moving from abroad to Spain.

    This regime grants enormous tax advantages to Spanish foreigners, who move their residence to Spain under certain circumstances which, in summary, are:

    • relocation as a consequence of an employment contract.
    • displacement that is ordered by the foreign employer with a letter of displacement to Spain.
    • displacement without being ordered by the employer and the labor activity is provided remotely by means of the exclusive use of electronic means.
    • acquisition of the condition of administrator of a company.
    • for the realization in Spain of an economic activity qualified as entrepreneurial activity.
    • highly qualified professional providing services to emerging companies.

    The great novelty is that, until the entry into force of the new regulation, it was required that the interested party had been a non-resident for tax purposes in Spain for a period of more than 10 years so many managers were temporarily displaced outside Spain could not benefit from this regime because they had not been outside Spanish territory for more than 10 years (the displacements are not usually so long) and with the entry into force of the new legal text, the previous period of non-residence has been reduced to five (5) years.

    The great advantage of this regime is that its beneficiaries (individuals) can opt to pay the Non-Resident Income Tax (IRNR), during the tax period in which the change of residence takes place and during the following five tax periods. This means that in the determination of the taxable income, part of the income that the interested party may obtain worldwide is not taxed and, in addition, that up to 600,000 euros of taxable income, the applicable tax rate would be 24% (all of which is undoubtedly an enormous tax advantage with respect to the applicable tax regime, in the same circumstances of income, to a tax resident in Spain without the coverage of this special regime).

    In any case, it is important to emphasize that the application of this advantageous tax regime requires a previous and express request by the interested party, that is to say, first “knocking at the door” of the Treasury and, therefore, it is very important to make sure that all the requirements demanded by the Law are fulfilled very scrupulously, so it is always especially advisable to request in advance and with the due detail the appropriate legal advice in this respect.

    Javier Gaspar

    Áreas de prática

    • Arbitragem
    • Distribuição
    • Franchising
    • Contencioso
    • Desporto
    Contato Javier