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Sales Distribution Agreement – Goods or Services?
28 августа 2018
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Arbitration is a well-known system for dispute resolutions, and works as an alternative to judicial procedures. Parties are free to choose this system and to submit their conflicts to specific arbitrators or institutions.
It is usually considered that arbitration is a good way to solve conflicts but preferable to those arisen between big corporations or involving important amounts of money. Although this assumption is generally accepted, there is an alternative for distribution disputes suitable for smaller companies and cases with lower amounts claimed.
And here is the essential question: why a manufacturer/franchisor or a distributor/agent/franchisee should choose a specialized arbitration for their agreements instead of a more general one or, even, a judicial procedure? The answer seems clear: an arbitrator with knowledge not only in procedural questions but in substantive matters will be able to better understand the conflict between the parties and, therefore, to grant a better award. Take into account that, for instance in my Country, Spain, a Judge of First instance can deal in the same day with a distribution contract, a construction case, a conflict between heirs, and a discussion in a community of owners. All of this requires the analysis of different facts and completely different legislations and it is true that specific commercial problems do not usually have judges experts in international trading. But, how to choose a good specialized arbitrator? And, how to choose the arbitral procedure and the institution in terms of organization, neutrality, costs and time?
The IDArb was created in 2016 by the International Distribution Institute (www.idiproject.com) in collaboration with the Chambre de Commerce d’Industries et de Services de Genève (CCIG www.ccig.ch) and the Swiss Chambers’ Arbitration Institution (SCAI www.swissarbitration.org) and offers to the distribution sector (distribution, agency, franchising, selective distribution) a specialized, expedited and affordable arbitration procedure, not only for big international corporations but also for smaller cases. In fact, the expedited procedure is particularly foreseen for amounts below one million CHF (approx. 880.000 €).
The objectives and main characteristics of IDArb which make it suitable for all the distribution disputes are:
- A list of specialized arbitrators experts in this particular field is available for ad hoc or institutional arbitration and IDArb is able to assist the parties to choose one of them.
Specialized arbitrators from different countries and legal cultures have been appointed by a Selecting Committee reviewing their experience in one or more fields of distribution law. Therefore, parties can trust that the arbitrator will have concrete skills in the business with an in-depth understanding of the disputed issues. This is not a general knowledge on commercial law, but a concrete one on distribution, expressly verified by the Committee. Parties can even examine some examples of cases in which every arbitrator has been involved in.
- In order to maintain its high quality, the IDArb organizes training seminars for its appointed arbitrators. In these seminars, they are able to discuss about the general management of the arbitration, the procedural aspects and how to solve possible incidents in collaboration with the Institutions and their Rules. This will make all the proceedings more manageable and the possible difficulties more easily solved. Last seminar took place in Geneva in November 8, 2018 and participants have discussed, amongst other subjects, on evidences, witnesses and document production.
- The expedited arbitration procedure permits the parties to have a tailored procedure managed by SCAI under the Swiss Rules of International Arbitration, specially adapted for small disputes in the field of distribution.
- Time is also an essential element: the award in the expedited procedure will be issued in a maximum term of six months (only exceptional circumstances permit the Court to extend such time-limit), and, if parties agree, it can be decided only on documentary evidence.
- Costs are reasonable and known in advance.
- And, as final but important remark, IDArb has also adopted some recommendations where, upon request of the parties, mediation is favoured, the arbitrator my consider giving a preliminary non-binding and provisional assessment of the dispute and should have a pro-active position in order to facilitate an amicable settlement.
To have further information about the clause to use in the contracts, the list of specialized arbitrators, their skills, experience and complete CV, and the recommendations for expedited arbitration, you can follow the link: https://www.idiproject.com/content/idarb-idi-arbitration-project
Civil and Commercial Code of Argentina (“Code”) do not contain specific provisions for distribution contracts. Rather, a distribution contract is considered a so-called “innominate contract”, which combines, among other things, elements of purchase and sales contracts, commercial agency and mandate agreements. Article 1511 establishes that the rules of Chapter 18 (Concession Contracts) shall be applied to distribution agreements when applicable. Therefore, if the distribution agreement does not regulate a specific issue, the solution should sought by analogy referring to the statutory provisions related to these three types of contracts as default rules to the extent suitable in a given case.
Form and Formalities
Argentine Law requires no particular form or formalities for this type of agreements. However, written contracts are the most common form of agreements.
Important Provisions
For all parties:
- a) Force Majeure: Considering that Argentina tends to be an unstable environment for business due to political reasons, parties may be interested in considering the possibility of including acts of law/change in law and government acts within the scope of force majeure of the agreements.
- b) Insurance of products. It is important to have the products covered by an insurance, so that in the event of an accident, losses can be limited.
- c) Product registration.
For the supplier:
- a) Payment (if international, without taxes, provisions to receive full amount with no deduction or withholding).
- b) Currency (due to unstable of Argentine Pesos, it’s important to establish it and price increase if necessary).
- c) Product Recall.
- d) Lead Time.
- e) Delays.
- f) Stock conditions.
For the distributor:
- a) Returns.
- b) Clientele compensation.
- c) Defective product.
- d) Product samples.
Incoterms
In national distribution agreements, Incoterms are not commonly used. However, in international distribution agreements, the most common Incoterms used are the following:
For air transport: FCA (Free Carrier); for ship transport: FOB (Free On Board)
Product Liability
According to Argentine Consumers Law No. 24,240, the term for a consumer to bring an action against the distributor and/or supplier would elapse after three years, the term for other players in the commercialization chain who have a direct contractual relationship with the distributor and/or the supplier (e.g. retailers who have acquired the goods from the distributor and/or the distributor’s subcontractor) would expire only after ten years. In any event, the contractors may be interested in considering the possibility of counting the three-year term from the date of expiration of the products instead of considering the date of termination of the agreement (e.g. the product might be stored and not sold for a while and the mentioned 3-year expiration shall be therefore delayed).
Intellectual Property
Supplier shall obtain and renew registration of the products’ trademarks in Argentina. Besides, supplier should include a clause in the agreement stating that the trademarks are of its own property and that distributor only can use them to the extent granted by supplier in the agreement while it’s still in force. Moreover, distributor should protect supplier’s trademarks.
Termination
La parties may agree freely how to terminate the agreement. In case you agree a non cause resolution clause, such should have a reasonable prior notice so that the other party may have time to get another distribuitor or face the lose of the client, depending how exercise such option.
Applicable Law and Jurisdiction
The parties may agree the law wich they consider more convenient to solve any issue of the agreement. Moreover, the parties also are free to choose a court or an arbitral tribunal within the country or foreign.
The author of this post is Tomás García Navarro.
President Erdogan made a presidential decree that mandatorily requires use of Turkish lira for transactions concluded between parties resident in Turkey. The Decree amending the Decree on Protecting the value of Turkish Lira, (The Decree) is published in the Official Gazette and came into force on 13th September 2018.
The Decree orders use of Turkish Lira for purchase and sale of all kinds of goods, commodities, services and real estate. All kinds of lease and rental of vehicles and all kinds of goods and real estate must also be made by using Turkish Liras. The decree also stipulates that no reference to currency exchange tying a contract payment or value to foreign currency can be made and the all contracts between Turkish residents even if foreign owned must be based on Turkish Liras.
Let’s see the changes introduced by the regulation point by point.
No Use of Foreign Currency in domestic Contracts
New currency policy states that all payments related to contracts between local parties i.e. Turkish Residents whether legal persons or real persons must be made in Turkish liras.
Accordingly all real estate transactions must be made in Turkish liras and no reference can be made to foreign currencies.
All Contracts Must be Amended within 30 days
The Decree establishes also that all contracts between Turkish residents made before 13th September 2018 must be amended and the payments must be converted into Turkish liras from any foreign currency within 30 days from the publish date of The Decree (13th September 2018): this shall mean that all contracts based on foreign currencies must be amended within 14th October 2018.
There is no reference to a currency exchange rate when amending contracts into Turkish Liras. The parties are free to agree on any currency rate when amending however this cannot be stipulated in the contract but only for negotiation purposed when drafting the amendment.
The governmental projects which have been signed earlier should be coordinated with the related authority and adaption should be made in line with the new currency regime.
Import and Export of Goods and Services
The new decree does not impact an export or import relation, as long as one of the parties is not Turkish resident. However one must note that The Decree may have an impact on Turkish based subsidiaries of multinational companies trading with foreign currency.
There is no limitation in bringing foreign currency into country.
Sanctions
New foreign currency policy does not address any criminal or administrative sanctions. New regulations should be expected to implement the practice of The Decree. Needless to say, if one of the parties of an existing contract based on foreign currency will be eager to take the matter to the civil courts if no amendment is made within 30 days and easily obtain a court decision for amendment.
Conclusion
This move is considered as one of the steps of measure step to support the ailing local currency.
Slipping Turkish Liras has been an on-going concern for Turkey in last 6 months. The sudden drop of Turkish Liras exchange rate urged the government to find a quick cure to increase the value of Turkish liras or at least to maintain the status.
Those days, some rough policies have been adopted by governments to safeguard the fragile Turkish Lira. The measures taken indeed prevented Turkish economy to accelerate and take off. With the new liberal look after 1983 elections many of these hard measures were lifted and the law on Protection of Turkish Liras was eased. The era before 1980s when there were hard policies applied to protect Turkish Lira was in a different world than today.
The latest measure may or may not address an improvement but it is a fact that many foreign investors or local investors funded by foreign institutions will have to struggle due to the new regulations pushing them to amend their contracts into Turkish Liras from foreign currencies.
Not what you would expect
When can you terminate, how should you terminate, and how much are you exposed?!
The outcomes of termination of a business relationship with an Israeli counterpart in Israel arise again and again as a question in many disputes between International corporations and Israeli counterparts, such as distributors or franchisees.
This is mainly because Israeli law does not include specific laws regulating or regarding distribution or franchising or other kinds of business ventures (except a relatively new agency law – referring in a limited manner to specific kinds of agency only) – and thus disputes in said regards are determined based on the general principles of contract law, the contractual and factual bases – obviously resulting in considerable uncertainty as to specific matters.
However, substantial case law, such as in the matter of Johnson & Johnson International that ended up paying compensation in the equivalent to over 1.5 Million US$, indicates the basics and threshold of what can be expected in such disputes, and, if implemented wisely, may assist in planning the disengagement or termination of a business relationship, in a manner that would be the least costly for the terminating party and minimize its exposure to a lawsuit.
In many cases, domestic parties invest many years and/or fortunes, in order to penetrate the domestic market with the foreign service or products, and to promote sales in the subject region, for the benefit of both the international corporation and the domestic party.
Nevertheless, often the international corporation decides for various reasons (such as establishing an «in-house» operation» in the target location or substituting the distributor/franchisee) to terminate the oral or written contractual relationship.
What are the legal foundations involved in such termination as per due notice of termination and corresponding compensation — if at all?
Generally, this issue arises in cases in which the contract does not specify a period of the business relationship, and, as a principle of law, contracts may be terminated by reasonable notice and subject to the fundamental good faith principle.
Contracts are not perceived as binding upon the parties indefinitely. The question is always what is the reasonable time for termination notice, and is the termination done in good faith (which is always a tricky and vague issue). Compensation is commonly awarded in accordance with what the courts find as the due notice period that may also entail compensation for damages related to said breach.
As always, there are exceptions, such as breach of trust toward the manufacturer/franchisor, that may have great impact on any due notice obligations, as far as justification for immediate termination that can be deemed immune to breach of due notice or good faith obligations.
The truth is the reasonability of the due notice varies from case to case!
However, Israeli case law is extremely sensitive to the actual reasoning of termination and how genuine it is, as opposed to asserting a tactical breach argument in an attempt to «justify» avoiding a due notice period or adequate compensation.
In this respect, in many cases simple «non-satisfaction» was denied as a legitimate argument for breach of contract, while safeguarding the freedom of contracts and the right to terminate an ongoing contract with due notice and good faith.
There are various common parameters referred to in the case law, to determine the adequate time of due notice, including, for instance, the magnitude of investment; the time required for rearrangement of business towards the new situation (including time required to find an alternative supplier product which can be marketed); the magnitude of the product/service out of the entire distributor’s business, etc.
Time and again, although not as binding rule, the due notice period seems to be in the range of around 12 months, as a balance between the right of termination and the reasonable time for rearranging the business in light of the termination. There were, however, cases in which due notice for termination was deemed as short as three months and as long as two years — but these are rather exceptional.
Another guiding point in the case law is the factor of exclusivity or non-exclusivity, as well as the concept that the longer the business relationship, the less the distributor/franchisee may expect compensation/reimbursement for investment – based on the concept that he has enjoyed the fruits of the investment.
The outcome of not providing such adequate due notice might result in actual compensation reflecting the loss of profit of the business in the last year before the termination, or for the whole term the court finds a due notice was in place, or, in cases of bad faith, even a longer period reflecting the damages.
In conclusion, given the legal regime in Israel, such exposure might be extremely considerable for any international or foreign business. It would, therefore, be vital and as a consequence of real value to plan the strategy of disengagement/termination of the business with the domestic counterpart in Israel, in advance and prior to executing it, and there are, indeed, adequate and wise strategies that may be implemented for the best result.
It is often the case – in practice – that an ongoing commercial relationship builds slowly over time through a series of sales agreements, without the parties ever signing an actual distribution agreement to set down their respective rights and responsibilities.
At first blush this might appear to be a good thing: one can sidestep being bound, especially long-term, to the other party. But on closer scrutiny the solution becomes problematic, especially for anyone operating internationally.
One of the key issues that arises when an international contractual arrangement is not in writing, is identifying the court with jurisdiction over any dispute arising therefrom. In the European Union, the issue is resolved by the provisions of Regulation 1215/2012 (“Brussels I recast”). Pursuant to Article 7 of the Regulation, as an alternative to the defendant’s courts, jurisdiction in a contractual dispute may lie with the court in the place of performance of the obligation in question. Next to this general rule are two criteria to identify the “place of performance”, differentiated according to the type of contract at issue. For a contract for goods, it is the place of delivery for the goods; in a contract for services, it is the place where the services are provided.
Thus, to identify the court with jurisdiction, it is crucial that a contract fall under one of these categories: goods or services.
No doubt this distinction is quite simple in many circumstances. In the case of a distribution agreement, or of a commercial concession agreement, the issue may become thorny.
The European Court of Justice has analysed this issue on a number of occasions, most recently in their judgement of 8 March 2018 (Case no. C-64/17) following the request for a preliminary ruling from a Portuguese Court of Appeal. The parties to the action were a Portuguese distributor, a company called Lusavouga, and a Belgian company called Saey Home & Garden, that produced articles for the home and garden, including a line of products branded “Barbecook”.
Following Saey’s decision to break off the commercial relationship – notice of which was sent in an email dated 17 July 2014 – Lusavouga brought action in Portugal seeking compensation for the unexpected termination of the agreement, and goodwill indemnity. Saey raised a plea of lack of jurisdiction of the Portuguese court, citing their general conditions of sale (mentioned in their invoices) which required that a Court in Belgium be competent for dispute resolution.
The facts thus presented two issues to be resolved in light of the Brussels I recast Regulation: deciding whether a jurisdiction clause in a vendor’s general terms and conditions pursuant to Art. 25 of the Regulation shall apply, and, if not, choosing the court with jurisdiction under Art. 7 of the Regulation.
Shall a jurisdiction clause contained within a vendor’s general terms and conditions apply to a distribution relationship?
The supplier company apparently considered their course of dealing with the Portuguese retailer nothing more than a concatenation of individual sales of goods, governed by their general terms and conditions. Consequently, they argued that any dispute arising from the relationship should be subject to the jurisdiction clause identifying Belgium as the court with jurisdiction under those terms and conditions.
Thus, a determination was needed on whether, under these facts, there was a valid prorogation of jurisdiction under Article 25, paragraph 1 of Regulation 1215/2012.
The Court of Justice has long opined that if the jurisdiction clause is included in the general contract conditions drafted by one of the parties, the contract signed by the other party must contain an express reference to those general conditions in order to ensure the real consent thereto by the parties (judgement of 14 December 1976, Estasis Salotti di Colzani, case no. 24/76; judgement of 16 March 1999, Castelletti, case no. C-159/97; judgement of 7 July 2016, Höszig, case no. C-225/15). Moreover, to be valid, the clause must involve a particular legal relationship (judgement of 20 April 2016, Profit Investment SIM, case no. C-366/13).
In the instant case, the referring court found it self-evident that the legal relationship at bar was a commercial concession agreement entered into for the purpose of distributing Saey products in Spain, a contract that was not evidenced in writing.
From this perspective, it is clear that the general conditions contained in the Saey invoices could have no bearing on the commercial concession agreement: assuming Lusavouga’s consent had been proven, the selection of Belgium as the forum would have applied if anything to the individual sales agreements, but not to those duties arising from the separate distribution agreement.
What, then, would be the court with jurisdiction for the duties arising from the commercial concession agreement?
Absent any jurisdiction clause, the issue would be decided under Art. 7, point 1 of Regulation 1215/2012, under which it becomes imperative to establish whether a contract is for goods or for services.
The “provision of services” has been defined by the Court of Justice as an activity, not mere omissions, undertaken in return for remuneration (judgement of 23 April 2009, Falco, case no. C-533/07).
With the judgements in Corman Collins of 19 December 2013 (case no. C-9/12), and Granarolo of 14 July 2016 (case no. C-196/15), the Court held that in a typical distribution agreement, the dealer renders a service, in that they are involved in increasing the distribution of supplier’s product, and receives in consideration therefor a competitive advantage, access to advertising platforms, know-how, or payment facilities. In light of such elements, the contract relationship should be deemed one for services. If on the other hand the commercial relationship is limited to a concatenation of agreements, each for the purpose of a delivery and pickup of merchandise, then what we have is not a typical distribution agreement, and the contractual relationship shall be construed as one for the sale of goods.
Once the contract has been categorised as one for services, one must then determine “the place where, under the contract, the services are provided”. The Court specifies that such location shall be understood as the member state of the place of the main provision of services, as it follows from the provisions of the contract or – as in the case at issue – the actual performance of the same. Only where it is impossible to identify such location shall the domicile of the party rendering the service be used.
From the referring court’s description of the contractual relationship, and from the Court of Justice’s understanding of the distributor’s performance of services, it would be logical to find that the principal location for performance of services was Spain, where Lusavouga “was involved in increasing the distribution of products” of Saey.
It is clear that neither the manufacturer nor the distributor would ever have intended such a result, and they might have avoided it being chosen for them by reducing their agreement in writing, including a jurisdiction clause therein.
By the same token, viewed from the outside, the Portuguese judges’ apparent conviction that the situation was one of an actual dealership contract would leave ample room for debate. After all, a number of elements would lead to the opposite conclusion. However, even in terms of that aspect, the absence of a written contract left room for interpretation that might lead to unforeseen – and perhaps rather risky – consequences.
In conclusion, the wisdom of setting down the terms and conditions of a sales distribution agreement in writing appears clear. This is not only because one can avoid those ambiguities we have described above, but also because it specifies other important clauses stipulated by the parties that should not be left to chance: exclusivity of area, if any, or with respect to specific sales channels, the contract period and termination notice, any duties to promote the product, control over end-user personal data, and the possibility of, and methods for, any online sales of products.
Agreements restricting competition are prohibited as anticompetitive agreements by Article 101 TFEU unless the agreement’s impact on trade or competition is not appreciable (cf. the EU Court of Justice in the Expedia case, C-226/11, judgment of 13 December 2012). Whether an agreement constitutes an appreciable restriction of competition or is in the «safe harbour» can be assessed according to the European Commission’s De Minimis Notice. Accordingly, an agreement is particularly appreciable if its object is to restrict competition. This applies in particular to so-called hardcore restrictions, such as vertical price maintenance (or resale price maintenance = “RPM”).
Regarding a special offer for dietary products, the German Higher Regional Court of Celle surprisingly took a different view and decided that even resale price maintenance could be considered non-appreciable and thus falling outside the ban of anticompetitive business practices under Article 101 TFEU (judgment of 07.04.2016, Case 13 U 124/15 [Kart]). In this case, the manufacturer made a special offer to a group of its customers (pharmacies) with a special purchase discount: once, for a limited period and limited to a maximum quantity. In return, the customers should commit themselves to «present the product clearly… and not fall below a resale price of EUR 15.95«.
The Hanover Regional Court had instead seen the agreement as an unlawful resale price maintenance (judgment of 25 August 2015, Case 18 O 91/15) – and now the German Federal Court confirmed the same: the minimum prices specified here within the advertising campaign appreciably restrict competition and are thus banned as anticompetitive business practice under Article 101 TFEU (judgment of 17 October 2017, Case KZR 59/16). This corresponds to the case law of the EU Court of Justice in the Expedia case (see above) and the German Federal Court with regard to the sales requirement «one bar extra « (i.e. without extra charge compared to the usual package size) of the Italian confectionery manufacturer Ferrero (judgment of 08.04.2003, Case KZR 3/02) – because the latter explicitly concerns «the scope for price increases resulting from the increased contents of the package» – not, however, the retailer’s decision to set prices freely downwards.
Practical tips
Vertical price fixing is generally prohibited, whereas providing a manufacturer’s suggested retail price (MSRP, also “recommended retail price”) and maximum selling prices are allowed – this is briefly the principle of German and European antitrust law on pricing frameworks. Furthermore, recommended retail prices and maximum selling prices (“MSP”) are subject to the restriction that they » they do not amount to a fixed or minimum sale price as a result of pressure from, or incentives offered by, any of the parties” (Article 4 lit. a Vertical Block Exemptions Regulation). That means:
- the manufacturer or supplier may provide guidance,
- however, the reseller may set his sales prices freely.
Exceptions may apply – in addition to the RPM on the price of books or in the case of specialisation agreements – by way of the efficiency defence under Article 101 (3) TFEU in individual cases, e.g.
- in the introductory period when launching new products on the market, or
- in the case of short-term special offers if accompanied by a corresponding increase in efficiency, for example by investing the higher margin into better customer advice, which benefits all customers and Resale Price Maintenance prevents retailers who do not offer the customer advice from free riding (cf. EU Guidelines on Vertical Restraints, para. 225).
Such actions, however, require excellent preparation because manufacturers can only set resale prices for very short periods if they can convincingly demonstrate efficiency gains such as preventing free-riders.
In the case of fixed prices, the competition authorities quickly become sensitive. For example, fines for vertical price maintenance have recently been imposed again in Germany. In this respect, special care must be taken particularly in distribution and sales agreements.
- Correspondingly, each company’s sales team should continue following the previous case law on recommended retail prices, maximum selling prices and discount campaigns. Guidance for the practice is provided by
- the Federal Cartel Office’s paper of July 2017 on the prohibition of fixed prices in stationary food retailing,
- the European Commission’s De Minimis Notice, the Guidelines on Vertical Restraints (para. 48 et seq., 223 et seq.) and the „Guidance on restrictions of competition «by object» for the purpose of defining which agreements may benefit from the De Minimis Notice“ – all three, however, must always be assessed in the light of current case law because the understanding of the EU Commission contained in these documents does not bind neither the courts nor the national antitrust authorities.
Geoblocking is a discriminatory practice preventing customers (mainly on-line customers) from accessing and/or purchasing products or services from a website located in another member State, because of the nationality of the customer or his place of residence or establishment.
The EU Regulation no. 2018/302 of 28 February 2018 on addressing unjustified geoblocking and other forms of discrimination based on customers’ nationality, place of residence or place of establishment within the internal market will enter into force on 2 December 2018.
The current situation
The EU Commission carried out a «mystery shopping» survey on over 10 000 e-commerce websites in the EU. The geoblocking figures are quite high! 63% of the websites do not let shoppers to buy from another EU country (even 86% for electric household appliances and 79% for electronics and computer hardware).
The survey shows also that 92% of on-line retailers require customers to register on their website and to provide them with e-mail address, physical address and telephone number. The registration is denied most of the time because of a foreign delivery address for 27% of the websites. Almost half of the websites give no information about the place of delivery while shopping on the website although this information on delivery restrictions has to be provided in due time during the shopping process. At the end, according to this EC survey, only 37% of the websites truly allow e-shoppers to freely buy on-line from another EU country (without restriction as regards place of establishment, place of delivery and mean of payment).
On the other side, only 50% of European customers buy products from on-line shops based in another EU member State while the value and the volume of e-commerce, globally speaking increase thoroughly year after year, but only on a domestic scope not throughout Europe.
On 23 June 2017, the European Council asked for a real implementation of the Digital Single Market strategy in all its elements including cross border partial delivery, consumer protection and prohibition of undue geoblocking.
The lack of the current legal frameworks
The service directive (n°2006/123/CE) and article 101 of the TFUE address already the discrimination practices based on nationality or place or residence or establishment.
According to article 20 (2) of the service directive, the EU member States must ensure that professionals do not treat customers differently based on their place of residence or establishment or nationality (unless objective exception). On the other side, EU competition law on vertical restraints (article 101 TFUE and the block exemption regulation and its guidelines) considers restrictions on passive sales as hard core restrictions violating EU competition rules. However, both set of rules (service directive and competition law framework) appear not to be fully effective in practice.
With this respect, the recent report of the European commission about the competition enquiry in the e-commerce sector shows, among others, that geoblocking was used at a large scale within the European e-commerce sector.
The aim of the geoblocking regulation
The goal of the geoblocking regulation is to prevent professionals from implementing direct or indirect discrimination based on the nationality, the place of residence or the place of establishment of their customers when dealing with cross border e-commerce transactions.
The scope of the geoblocking regulations
The new Regulation will only apply to online sales between businesses and end-user consumers or businesses.
The new Regulation will apply to websites operated within the European Union or to websites operated outside the European Union but proposing goods or services to customers established throughout in the European Union.
What are the new rules of management of an e-commerce website?
As regards the access to the website
Under the Regulation, a business may neither block nor restrict, through the use of technological measures, access to their online interfaces for reasons related to nationality, place of residence or place of establishment of an internet user. However, businesses are authorized to redirect customers to a different website than the one they were trying to access provided the customer expressly agrees thereto and can still easily visit the website version they originally tried to access.
As regards the terms and conditions of sales of the website
The Regulation forbids businesses from applying different general conditions of access to goods or services according to a customer’s nationality or place of residence or place of establishment (as identified by their IP address in particular) in the following three cases:
- where the goods sold by the business are delivered in a different member state to which the business offers delivery (or where the goods are collected at a location jointly agreed upon by the business and the customer);
- where the business offers electronically supplied services such as cloud, data storage, hosting services etc. (but not services offering access to copyright-protected content such as streaming or online-gaming services);
- where the business supplies services received by the customer in a country in which the business also operates (such as car rental and hotel accommodation services or ticketing services for sporting or cultural events).
As regards the means of payment on the website
The Regulation forbids businesses from applying different conditions for payment transactions to accepted means of payment for reasons related to a customer’s nationality, place of residence or place of establishment, or to the location of the payment account or the place of establishment of the payment service provider (provided that authentication requirements are fulfilled and that payment transactions are made in a currency accepted by the business).
What are the impacts of this regulation on e-retailers?
Although formally excluded from the scope of the Regulation, relations between suppliers and distributors or wholesalers will still be impacted by it since provisions of agreements between businesses under which distributors undertake not to make passive sales (e.g., by blocking or restricting access to a website) for reasons related to a customer’s nationality, place of residence or place of establishment “shall be automatically void”.
The geoblocking regulation therefore impacts distributors twofold: first, directly in their relations with customers (end-user consumers or user-businesses), and second, indirectly in regard to their obligations under the exclusive distribution agreement.
The geoblocking regulation shall have to be coordinated with the existing competition law framework, especially the guidelines on vertical restraints which set up specific rules applying to on-line sales. On-line sales are likened to passive sales. The guidelines mention four examples of practices aiming to indirectly guarantee territorial protection which are prohibited when supplier and exclusive distributor agree:
- that the exclusive distributor shall prevent customers in another territory from visiting their website or shall automatically refer them to the supplier’s or other distributors’ websites,
- that the exclusive distributor shall terminate an online sale if the purchaser’s credit card data show that the purchaser is not from the exclusive distributor’s exclusive territory,
- to limit the share of sales made by the exclusive distributor through the internet (but the contract may provide for minimum offline targets in absolute terms and for online sales to remain coherent compared to offline sales).
- that the exclusive distributor shall pay a higher price for goods intended for sale on the internet than for goods intended for sale offline.
Manufacturers will have to decide whether they adopt a unique European gateway website or multiple local commercial offers, it being known that price differentiation is still possible per category of clients.
Indeed, the new Regulation does not oblige the e-retailers to harmonize their price policies, they must only allow EU consumers to access freely and easily to any version of their website. Likewise, this Regulation does not oblige e-retailers to ship products all over Europe, but just allow EU consumers to purchase goods from whichever website they want and to arrange the shipment themselves, if need be.
Finally on a more contractual level, it is not very clear yet how the new geoblocking rules could impact directly or indirectly the conflict of law rules applicable to consumer contracts, as per the Rome I regulation especially when the consumer will be allowed to handover the product purchased on a foreign website in the country of this website (which imply no specific delivery in the country where the consumer is established).
Therefore B2C general terms and conditions of websites would need to be reviewed and adapted on both marketing and legal sides.
Once convinced of the utility of mediation as a method of resolving conflicts between franchisor and franchisee and taken the decision to include a clause in the contracts that provides for it, the last step would be what elements should be taken into account when drafting it.
- The previous negotiation. It seems advisable that both parties grant themselves the possibility of trying to solve the problem with a previous formal negotiation. Mediation does not exclude the previous attempt made by the interested parties or their lawyers; however, it seems advisable to contractually provide a suitable end according to the circumstances. Experience shows that lengthening this phase too long may result in the conflict becoming more complicated and even more difficult to approach mediation.
- The clause may also provide for the place where the mediation will take place. Again at this point the parties are free. It is convenient that this is accurate indicating the concrete city.
- The language in which the mediation will be developed is the a faculty of the parties. There will be no difficulty in mediations in which both parties use the same language, but it is very convenient in contracts with parties that have different languages, or that belong to regions or countries with different co-official languages. The drafting or signing of the contract in a specific language does not presuppose that this must be the language of the mediation. It is an element to be taken into account also when requesting a mediator who can use that language in the chosen mediation institution.
- The procedure can also be decided by the parties. In particular, the number of sessions, the maximum expected duration, the participation of advisors, etc. Keep in mind that the greater or lesser regulation will allow to avoid future conflicts in this respect, although it will also imply a greater limit to the freedom of the parties that, nevertheless, will remain free to modify the agreement by mutual consent.
- The term of the mediation can also be contemplated. This would allow, for example, to prevent mediation from being extended only for purely procedural strategic purposes or to gather information from the other party before starting a procedure, etc. The professional mediators, however, are able to identify these manoeuvres, also having the power to put an end to mediation in those cases.
- Choosing the mediator or the mediation institution is an important choice. The parties can agree on who will be their mediator, indicate in the contract the elements to choose it, or submit directly to a Mediation Institution so that it is the one who designates it according to its own rules. These decisions can be alternatives (that is, that the parties agree on the mediator and, in case of lack of agreement, submit to an institution that names it), or they can be unique. The designation of an Institution requires that it has a sufficient guarantee of stability (avoid designating short-term institutions or without much future guarantee), with a sufficient panel of mediators depending on the characteristics of the mediation (language, competence, experience) and that allows the necessary flexibility for its operation.
- Finally, it is convenient that the clause includes an alternative way in case the mediation does not succeed either because the parties do not reach an agreement, or because they withdraw from the mediation. It is important to recall that mediation does not close the doors to the conflict be resolved by recourse to ordinary jurisdiction or arbitration. And in terms of specialized arbitration in distribution contracts, the IDArb (https://www.idiproject.com/content/idarb-idi-arbitration-project) is an excellent option.
On the topic of the importance of Mediation in Distribution Agreements, you can check out the recording our webinar “Mediation in International Conflicts”
The Milestone EU-Mercosur Trade Deal
- Распространение
- Иностранные инвестиции
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Аргентина -
Бразилия -
Италия
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Уругвай
Germany – To which product category do Cannabidiol spray products belong?
- Распространение
- Фармацевтическое право
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Германия
Spain — The agent’s right to information after the conclusion of his contract
- Распространение
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Испания
France: Ambush marketing and the Paris 2024 Olympic Games
- Распространение
- Товарный знак и патенты
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Франция
Spain — The agent’s right to information after the conclusion of his contract
- Распространение
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Испания
Spain — Is it possible to advance payment of customer indemnity in agency contracts?
- Без категории
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Испания
International debt recovery: risk prevention and best practices
- Распространение
- Судебная практика
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Испания
The importance of Mediation in Distribution Contracts
- Альтернативное разрешение споров
- Распространение
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Испания
EU Regulation 2019/1150 | Online intermediation services and Mediation
- Альтернативное разрешение споров
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Европа
Scrivi a Irene
Resale Price Maintenance – Exception for short-term promotions?
12 августа 2018
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Германия
- Распространение
Arbitration is a well-known system for dispute resolutions, and works as an alternative to judicial procedures. Parties are free to choose this system and to submit their conflicts to specific arbitrators or institutions.
It is usually considered that arbitration is a good way to solve conflicts but preferable to those arisen between big corporations or involving important amounts of money. Although this assumption is generally accepted, there is an alternative for distribution disputes suitable for smaller companies and cases with lower amounts claimed.
And here is the essential question: why a manufacturer/franchisor or a distributor/agent/franchisee should choose a specialized arbitration for their agreements instead of a more general one or, even, a judicial procedure? The answer seems clear: an arbitrator with knowledge not only in procedural questions but in substantive matters will be able to better understand the conflict between the parties and, therefore, to grant a better award. Take into account that, for instance in my Country, Spain, a Judge of First instance can deal in the same day with a distribution contract, a construction case, a conflict between heirs, and a discussion in a community of owners. All of this requires the analysis of different facts and completely different legislations and it is true that specific commercial problems do not usually have judges experts in international trading. But, how to choose a good specialized arbitrator? And, how to choose the arbitral procedure and the institution in terms of organization, neutrality, costs and time?
The IDArb was created in 2016 by the International Distribution Institute (www.idiproject.com) in collaboration with the Chambre de Commerce d’Industries et de Services de Genève (CCIG www.ccig.ch) and the Swiss Chambers’ Arbitration Institution (SCAI www.swissarbitration.org) and offers to the distribution sector (distribution, agency, franchising, selective distribution) a specialized, expedited and affordable arbitration procedure, not only for big international corporations but also for smaller cases. In fact, the expedited procedure is particularly foreseen for amounts below one million CHF (approx. 880.000 €).
The objectives and main characteristics of IDArb which make it suitable for all the distribution disputes are:
- A list of specialized arbitrators experts in this particular field is available for ad hoc or institutional arbitration and IDArb is able to assist the parties to choose one of them.
Specialized arbitrators from different countries and legal cultures have been appointed by a Selecting Committee reviewing their experience in one or more fields of distribution law. Therefore, parties can trust that the arbitrator will have concrete skills in the business with an in-depth understanding of the disputed issues. This is not a general knowledge on commercial law, but a concrete one on distribution, expressly verified by the Committee. Parties can even examine some examples of cases in which every arbitrator has been involved in.
- In order to maintain its high quality, the IDArb organizes training seminars for its appointed arbitrators. In these seminars, they are able to discuss about the general management of the arbitration, the procedural aspects and how to solve possible incidents in collaboration with the Institutions and their Rules. This will make all the proceedings more manageable and the possible difficulties more easily solved. Last seminar took place in Geneva in November 8, 2018 and participants have discussed, amongst other subjects, on evidences, witnesses and document production.
- The expedited arbitration procedure permits the parties to have a tailored procedure managed by SCAI under the Swiss Rules of International Arbitration, specially adapted for small disputes in the field of distribution.
- Time is also an essential element: the award in the expedited procedure will be issued in a maximum term of six months (only exceptional circumstances permit the Court to extend such time-limit), and, if parties agree, it can be decided only on documentary evidence.
- Costs are reasonable and known in advance.
- And, as final but important remark, IDArb has also adopted some recommendations where, upon request of the parties, mediation is favoured, the arbitrator my consider giving a preliminary non-binding and provisional assessment of the dispute and should have a pro-active position in order to facilitate an amicable settlement.
To have further information about the clause to use in the contracts, the list of specialized arbitrators, their skills, experience and complete CV, and the recommendations for expedited arbitration, you can follow the link: https://www.idiproject.com/content/idarb-idi-arbitration-project
Civil and Commercial Code of Argentina (“Code”) do not contain specific provisions for distribution contracts. Rather, a distribution contract is considered a so-called “innominate contract”, which combines, among other things, elements of purchase and sales contracts, commercial agency and mandate agreements. Article 1511 establishes that the rules of Chapter 18 (Concession Contracts) shall be applied to distribution agreements when applicable. Therefore, if the distribution agreement does not regulate a specific issue, the solution should sought by analogy referring to the statutory provisions related to these three types of contracts as default rules to the extent suitable in a given case.
Form and Formalities
Argentine Law requires no particular form or formalities for this type of agreements. However, written contracts are the most common form of agreements.
Important Provisions
For all parties:
- a) Force Majeure: Considering that Argentina tends to be an unstable environment for business due to political reasons, parties may be interested in considering the possibility of including acts of law/change in law and government acts within the scope of force majeure of the agreements.
- b) Insurance of products. It is important to have the products covered by an insurance, so that in the event of an accident, losses can be limited.
- c) Product registration.
For the supplier:
- a) Payment (if international, without taxes, provisions to receive full amount with no deduction or withholding).
- b) Currency (due to unstable of Argentine Pesos, it’s important to establish it and price increase if necessary).
- c) Product Recall.
- d) Lead Time.
- e) Delays.
- f) Stock conditions.
For the distributor:
- a) Returns.
- b) Clientele compensation.
- c) Defective product.
- d) Product samples.
Incoterms
In national distribution agreements, Incoterms are not commonly used. However, in international distribution agreements, the most common Incoterms used are the following:
For air transport: FCA (Free Carrier); for ship transport: FOB (Free On Board)
Product Liability
According to Argentine Consumers Law No. 24,240, the term for a consumer to bring an action against the distributor and/or supplier would elapse after three years, the term for other players in the commercialization chain who have a direct contractual relationship with the distributor and/or the supplier (e.g. retailers who have acquired the goods from the distributor and/or the distributor’s subcontractor) would expire only after ten years. In any event, the contractors may be interested in considering the possibility of counting the three-year term from the date of expiration of the products instead of considering the date of termination of the agreement (e.g. the product might be stored and not sold for a while and the mentioned 3-year expiration shall be therefore delayed).
Intellectual Property
Supplier shall obtain and renew registration of the products’ trademarks in Argentina. Besides, supplier should include a clause in the agreement stating that the trademarks are of its own property and that distributor only can use them to the extent granted by supplier in the agreement while it’s still in force. Moreover, distributor should protect supplier’s trademarks.
Termination
La parties may agree freely how to terminate the agreement. In case you agree a non cause resolution clause, such should have a reasonable prior notice so that the other party may have time to get another distribuitor or face the lose of the client, depending how exercise such option.
Applicable Law and Jurisdiction
The parties may agree the law wich they consider more convenient to solve any issue of the agreement. Moreover, the parties also are free to choose a court or an arbitral tribunal within the country or foreign.
The author of this post is Tomás García Navarro.
President Erdogan made a presidential decree that mandatorily requires use of Turkish lira for transactions concluded between parties resident in Turkey. The Decree amending the Decree on Protecting the value of Turkish Lira, (The Decree) is published in the Official Gazette and came into force on 13th September 2018.
The Decree orders use of Turkish Lira for purchase and sale of all kinds of goods, commodities, services and real estate. All kinds of lease and rental of vehicles and all kinds of goods and real estate must also be made by using Turkish Liras. The decree also stipulates that no reference to currency exchange tying a contract payment or value to foreign currency can be made and the all contracts between Turkish residents even if foreign owned must be based on Turkish Liras.
Let’s see the changes introduced by the regulation point by point.
No Use of Foreign Currency in domestic Contracts
New currency policy states that all payments related to contracts between local parties i.e. Turkish Residents whether legal persons or real persons must be made in Turkish liras.
Accordingly all real estate transactions must be made in Turkish liras and no reference can be made to foreign currencies.
All Contracts Must be Amended within 30 days
The Decree establishes also that all contracts between Turkish residents made before 13th September 2018 must be amended and the payments must be converted into Turkish liras from any foreign currency within 30 days from the publish date of The Decree (13th September 2018): this shall mean that all contracts based on foreign currencies must be amended within 14th October 2018.
There is no reference to a currency exchange rate when amending contracts into Turkish Liras. The parties are free to agree on any currency rate when amending however this cannot be stipulated in the contract but only for negotiation purposed when drafting the amendment.
The governmental projects which have been signed earlier should be coordinated with the related authority and adaption should be made in line with the new currency regime.
Import and Export of Goods and Services
The new decree does not impact an export or import relation, as long as one of the parties is not Turkish resident. However one must note that The Decree may have an impact on Turkish based subsidiaries of multinational companies trading with foreign currency.
There is no limitation in bringing foreign currency into country.
Sanctions
New foreign currency policy does not address any criminal or administrative sanctions. New regulations should be expected to implement the practice of The Decree. Needless to say, if one of the parties of an existing contract based on foreign currency will be eager to take the matter to the civil courts if no amendment is made within 30 days and easily obtain a court decision for amendment.
Conclusion
This move is considered as one of the steps of measure step to support the ailing local currency.
Slipping Turkish Liras has been an on-going concern for Turkey in last 6 months. The sudden drop of Turkish Liras exchange rate urged the government to find a quick cure to increase the value of Turkish liras or at least to maintain the status.
Those days, some rough policies have been adopted by governments to safeguard the fragile Turkish Lira. The measures taken indeed prevented Turkish economy to accelerate and take off. With the new liberal look after 1983 elections many of these hard measures were lifted and the law on Protection of Turkish Liras was eased. The era before 1980s when there were hard policies applied to protect Turkish Lira was in a different world than today.
The latest measure may or may not address an improvement but it is a fact that many foreign investors or local investors funded by foreign institutions will have to struggle due to the new regulations pushing them to amend their contracts into Turkish Liras from foreign currencies.
Not what you would expect
When can you terminate, how should you terminate, and how much are you exposed?!
The outcomes of termination of a business relationship with an Israeli counterpart in Israel arise again and again as a question in many disputes between International corporations and Israeli counterparts, such as distributors or franchisees.
This is mainly because Israeli law does not include specific laws regulating or regarding distribution or franchising or other kinds of business ventures (except a relatively new agency law – referring in a limited manner to specific kinds of agency only) – and thus disputes in said regards are determined based on the general principles of contract law, the contractual and factual bases – obviously resulting in considerable uncertainty as to specific matters.
However, substantial case law, such as in the matter of Johnson & Johnson International that ended up paying compensation in the equivalent to over 1.5 Million US$, indicates the basics and threshold of what can be expected in such disputes, and, if implemented wisely, may assist in planning the disengagement or termination of a business relationship, in a manner that would be the least costly for the terminating party and minimize its exposure to a lawsuit.
In many cases, domestic parties invest many years and/or fortunes, in order to penetrate the domestic market with the foreign service or products, and to promote sales in the subject region, for the benefit of both the international corporation and the domestic party.
Nevertheless, often the international corporation decides for various reasons (such as establishing an «in-house» operation» in the target location or substituting the distributor/franchisee) to terminate the oral or written contractual relationship.
What are the legal foundations involved in such termination as per due notice of termination and corresponding compensation — if at all?
Generally, this issue arises in cases in which the contract does not specify a period of the business relationship, and, as a principle of law, contracts may be terminated by reasonable notice and subject to the fundamental good faith principle.
Contracts are not perceived as binding upon the parties indefinitely. The question is always what is the reasonable time for termination notice, and is the termination done in good faith (which is always a tricky and vague issue). Compensation is commonly awarded in accordance with what the courts find as the due notice period that may also entail compensation for damages related to said breach.
As always, there are exceptions, such as breach of trust toward the manufacturer/franchisor, that may have great impact on any due notice obligations, as far as justification for immediate termination that can be deemed immune to breach of due notice or good faith obligations.
The truth is the reasonability of the due notice varies from case to case!
However, Israeli case law is extremely sensitive to the actual reasoning of termination and how genuine it is, as opposed to asserting a tactical breach argument in an attempt to «justify» avoiding a due notice period or adequate compensation.
In this respect, in many cases simple «non-satisfaction» was denied as a legitimate argument for breach of contract, while safeguarding the freedom of contracts and the right to terminate an ongoing contract with due notice and good faith.
There are various common parameters referred to in the case law, to determine the adequate time of due notice, including, for instance, the magnitude of investment; the time required for rearrangement of business towards the new situation (including time required to find an alternative supplier product which can be marketed); the magnitude of the product/service out of the entire distributor’s business, etc.
Time and again, although not as binding rule, the due notice period seems to be in the range of around 12 months, as a balance between the right of termination and the reasonable time for rearranging the business in light of the termination. There were, however, cases in which due notice for termination was deemed as short as three months and as long as two years — but these are rather exceptional.
Another guiding point in the case law is the factor of exclusivity or non-exclusivity, as well as the concept that the longer the business relationship, the less the distributor/franchisee may expect compensation/reimbursement for investment – based on the concept that he has enjoyed the fruits of the investment.
The outcome of not providing such adequate due notice might result in actual compensation reflecting the loss of profit of the business in the last year before the termination, or for the whole term the court finds a due notice was in place, or, in cases of bad faith, even a longer period reflecting the damages.
In conclusion, given the legal regime in Israel, such exposure might be extremely considerable for any international or foreign business. It would, therefore, be vital and as a consequence of real value to plan the strategy of disengagement/termination of the business with the domestic counterpart in Israel, in advance and prior to executing it, and there are, indeed, adequate and wise strategies that may be implemented for the best result.
It is often the case – in practice – that an ongoing commercial relationship builds slowly over time through a series of sales agreements, without the parties ever signing an actual distribution agreement to set down their respective rights and responsibilities.
At first blush this might appear to be a good thing: one can sidestep being bound, especially long-term, to the other party. But on closer scrutiny the solution becomes problematic, especially for anyone operating internationally.
One of the key issues that arises when an international contractual arrangement is not in writing, is identifying the court with jurisdiction over any dispute arising therefrom. In the European Union, the issue is resolved by the provisions of Regulation 1215/2012 (“Brussels I recast”). Pursuant to Article 7 of the Regulation, as an alternative to the defendant’s courts, jurisdiction in a contractual dispute may lie with the court in the place of performance of the obligation in question. Next to this general rule are two criteria to identify the “place of performance”, differentiated according to the type of contract at issue. For a contract for goods, it is the place of delivery for the goods; in a contract for services, it is the place where the services are provided.
Thus, to identify the court with jurisdiction, it is crucial that a contract fall under one of these categories: goods or services.
No doubt this distinction is quite simple in many circumstances. In the case of a distribution agreement, or of a commercial concession agreement, the issue may become thorny.
The European Court of Justice has analysed this issue on a number of occasions, most recently in their judgement of 8 March 2018 (Case no. C-64/17) following the request for a preliminary ruling from a Portuguese Court of Appeal. The parties to the action were a Portuguese distributor, a company called Lusavouga, and a Belgian company called Saey Home & Garden, that produced articles for the home and garden, including a line of products branded “Barbecook”.
Following Saey’s decision to break off the commercial relationship – notice of which was sent in an email dated 17 July 2014 – Lusavouga brought action in Portugal seeking compensation for the unexpected termination of the agreement, and goodwill indemnity. Saey raised a plea of lack of jurisdiction of the Portuguese court, citing their general conditions of sale (mentioned in their invoices) which required that a Court in Belgium be competent for dispute resolution.
The facts thus presented two issues to be resolved in light of the Brussels I recast Regulation: deciding whether a jurisdiction clause in a vendor’s general terms and conditions pursuant to Art. 25 of the Regulation shall apply, and, if not, choosing the court with jurisdiction under Art. 7 of the Regulation.
Shall a jurisdiction clause contained within a vendor’s general terms and conditions apply to a distribution relationship?
The supplier company apparently considered their course of dealing with the Portuguese retailer nothing more than a concatenation of individual sales of goods, governed by their general terms and conditions. Consequently, they argued that any dispute arising from the relationship should be subject to the jurisdiction clause identifying Belgium as the court with jurisdiction under those terms and conditions.
Thus, a determination was needed on whether, under these facts, there was a valid prorogation of jurisdiction under Article 25, paragraph 1 of Regulation 1215/2012.
The Court of Justice has long opined that if the jurisdiction clause is included in the general contract conditions drafted by one of the parties, the contract signed by the other party must contain an express reference to those general conditions in order to ensure the real consent thereto by the parties (judgement of 14 December 1976, Estasis Salotti di Colzani, case no. 24/76; judgement of 16 March 1999, Castelletti, case no. C-159/97; judgement of 7 July 2016, Höszig, case no. C-225/15). Moreover, to be valid, the clause must involve a particular legal relationship (judgement of 20 April 2016, Profit Investment SIM, case no. C-366/13).
In the instant case, the referring court found it self-evident that the legal relationship at bar was a commercial concession agreement entered into for the purpose of distributing Saey products in Spain, a contract that was not evidenced in writing.
From this perspective, it is clear that the general conditions contained in the Saey invoices could have no bearing on the commercial concession agreement: assuming Lusavouga’s consent had been proven, the selection of Belgium as the forum would have applied if anything to the individual sales agreements, but not to those duties arising from the separate distribution agreement.
What, then, would be the court with jurisdiction for the duties arising from the commercial concession agreement?
Absent any jurisdiction clause, the issue would be decided under Art. 7, point 1 of Regulation 1215/2012, under which it becomes imperative to establish whether a contract is for goods or for services.
The “provision of services” has been defined by the Court of Justice as an activity, not mere omissions, undertaken in return for remuneration (judgement of 23 April 2009, Falco, case no. C-533/07).
With the judgements in Corman Collins of 19 December 2013 (case no. C-9/12), and Granarolo of 14 July 2016 (case no. C-196/15), the Court held that in a typical distribution agreement, the dealer renders a service, in that they are involved in increasing the distribution of supplier’s product, and receives in consideration therefor a competitive advantage, access to advertising platforms, know-how, or payment facilities. In light of such elements, the contract relationship should be deemed one for services. If on the other hand the commercial relationship is limited to a concatenation of agreements, each for the purpose of a delivery and pickup of merchandise, then what we have is not a typical distribution agreement, and the contractual relationship shall be construed as one for the sale of goods.
Once the contract has been categorised as one for services, one must then determine “the place where, under the contract, the services are provided”. The Court specifies that such location shall be understood as the member state of the place of the main provision of services, as it follows from the provisions of the contract or – as in the case at issue – the actual performance of the same. Only where it is impossible to identify such location shall the domicile of the party rendering the service be used.
From the referring court’s description of the contractual relationship, and from the Court of Justice’s understanding of the distributor’s performance of services, it would be logical to find that the principal location for performance of services was Spain, where Lusavouga “was involved in increasing the distribution of products” of Saey.
It is clear that neither the manufacturer nor the distributor would ever have intended such a result, and they might have avoided it being chosen for them by reducing their agreement in writing, including a jurisdiction clause therein.
By the same token, viewed from the outside, the Portuguese judges’ apparent conviction that the situation was one of an actual dealership contract would leave ample room for debate. After all, a number of elements would lead to the opposite conclusion. However, even in terms of that aspect, the absence of a written contract left room for interpretation that might lead to unforeseen – and perhaps rather risky – consequences.
In conclusion, the wisdom of setting down the terms and conditions of a sales distribution agreement in writing appears clear. This is not only because one can avoid those ambiguities we have described above, but also because it specifies other important clauses stipulated by the parties that should not be left to chance: exclusivity of area, if any, or with respect to specific sales channels, the contract period and termination notice, any duties to promote the product, control over end-user personal data, and the possibility of, and methods for, any online sales of products.
Agreements restricting competition are prohibited as anticompetitive agreements by Article 101 TFEU unless the agreement’s impact on trade or competition is not appreciable (cf. the EU Court of Justice in the Expedia case, C-226/11, judgment of 13 December 2012). Whether an agreement constitutes an appreciable restriction of competition or is in the «safe harbour» can be assessed according to the European Commission’s De Minimis Notice. Accordingly, an agreement is particularly appreciable if its object is to restrict competition. This applies in particular to so-called hardcore restrictions, such as vertical price maintenance (or resale price maintenance = “RPM”).
Regarding a special offer for dietary products, the German Higher Regional Court of Celle surprisingly took a different view and decided that even resale price maintenance could be considered non-appreciable and thus falling outside the ban of anticompetitive business practices under Article 101 TFEU (judgment of 07.04.2016, Case 13 U 124/15 [Kart]). In this case, the manufacturer made a special offer to a group of its customers (pharmacies) with a special purchase discount: once, for a limited period and limited to a maximum quantity. In return, the customers should commit themselves to «present the product clearly… and not fall below a resale price of EUR 15.95«.
The Hanover Regional Court had instead seen the agreement as an unlawful resale price maintenance (judgment of 25 August 2015, Case 18 O 91/15) – and now the German Federal Court confirmed the same: the minimum prices specified here within the advertising campaign appreciably restrict competition and are thus banned as anticompetitive business practice under Article 101 TFEU (judgment of 17 October 2017, Case KZR 59/16). This corresponds to the case law of the EU Court of Justice in the Expedia case (see above) and the German Federal Court with regard to the sales requirement «one bar extra « (i.e. without extra charge compared to the usual package size) of the Italian confectionery manufacturer Ferrero (judgment of 08.04.2003, Case KZR 3/02) – because the latter explicitly concerns «the scope for price increases resulting from the increased contents of the package» – not, however, the retailer’s decision to set prices freely downwards.
Practical tips
Vertical price fixing is generally prohibited, whereas providing a manufacturer’s suggested retail price (MSRP, also “recommended retail price”) and maximum selling prices are allowed – this is briefly the principle of German and European antitrust law on pricing frameworks. Furthermore, recommended retail prices and maximum selling prices (“MSP”) are subject to the restriction that they » they do not amount to a fixed or minimum sale price as a result of pressure from, or incentives offered by, any of the parties” (Article 4 lit. a Vertical Block Exemptions Regulation). That means:
- the manufacturer or supplier may provide guidance,
- however, the reseller may set his sales prices freely.
Exceptions may apply – in addition to the RPM on the price of books or in the case of specialisation agreements – by way of the efficiency defence under Article 101 (3) TFEU in individual cases, e.g.
- in the introductory period when launching new products on the market, or
- in the case of short-term special offers if accompanied by a corresponding increase in efficiency, for example by investing the higher margin into better customer advice, which benefits all customers and Resale Price Maintenance prevents retailers who do not offer the customer advice from free riding (cf. EU Guidelines on Vertical Restraints, para. 225).
Such actions, however, require excellent preparation because manufacturers can only set resale prices for very short periods if they can convincingly demonstrate efficiency gains such as preventing free-riders.
In the case of fixed prices, the competition authorities quickly become sensitive. For example, fines for vertical price maintenance have recently been imposed again in Germany. In this respect, special care must be taken particularly in distribution and sales agreements.
- Correspondingly, each company’s sales team should continue following the previous case law on recommended retail prices, maximum selling prices and discount campaigns. Guidance for the practice is provided by
- the Federal Cartel Office’s paper of July 2017 on the prohibition of fixed prices in stationary food retailing,
- the European Commission’s De Minimis Notice, the Guidelines on Vertical Restraints (para. 48 et seq., 223 et seq.) and the „Guidance on restrictions of competition «by object» for the purpose of defining which agreements may benefit from the De Minimis Notice“ – all three, however, must always be assessed in the light of current case law because the understanding of the EU Commission contained in these documents does not bind neither the courts nor the national antitrust authorities.
Geoblocking is a discriminatory practice preventing customers (mainly on-line customers) from accessing and/or purchasing products or services from a website located in another member State, because of the nationality of the customer or his place of residence or establishment.
The EU Regulation no. 2018/302 of 28 February 2018 on addressing unjustified geoblocking and other forms of discrimination based on customers’ nationality, place of residence or place of establishment within the internal market will enter into force on 2 December 2018.
The current situation
The EU Commission carried out a «mystery shopping» survey on over 10 000 e-commerce websites in the EU. The geoblocking figures are quite high! 63% of the websites do not let shoppers to buy from another EU country (even 86% for electric household appliances and 79% for electronics and computer hardware).
The survey shows also that 92% of on-line retailers require customers to register on their website and to provide them with e-mail address, physical address and telephone number. The registration is denied most of the time because of a foreign delivery address for 27% of the websites. Almost half of the websites give no information about the place of delivery while shopping on the website although this information on delivery restrictions has to be provided in due time during the shopping process. At the end, according to this EC survey, only 37% of the websites truly allow e-shoppers to freely buy on-line from another EU country (without restriction as regards place of establishment, place of delivery and mean of payment).
On the other side, only 50% of European customers buy products from on-line shops based in another EU member State while the value and the volume of e-commerce, globally speaking increase thoroughly year after year, but only on a domestic scope not throughout Europe.
On 23 June 2017, the European Council asked for a real implementation of the Digital Single Market strategy in all its elements including cross border partial delivery, consumer protection and prohibition of undue geoblocking.
The lack of the current legal frameworks
The service directive (n°2006/123/CE) and article 101 of the TFUE address already the discrimination practices based on nationality or place or residence or establishment.
According to article 20 (2) of the service directive, the EU member States must ensure that professionals do not treat customers differently based on their place of residence or establishment or nationality (unless objective exception). On the other side, EU competition law on vertical restraints (article 101 TFUE and the block exemption regulation and its guidelines) considers restrictions on passive sales as hard core restrictions violating EU competition rules. However, both set of rules (service directive and competition law framework) appear not to be fully effective in practice.
With this respect, the recent report of the European commission about the competition enquiry in the e-commerce sector shows, among others, that geoblocking was used at a large scale within the European e-commerce sector.
The aim of the geoblocking regulation
The goal of the geoblocking regulation is to prevent professionals from implementing direct or indirect discrimination based on the nationality, the place of residence or the place of establishment of their customers when dealing with cross border e-commerce transactions.
The scope of the geoblocking regulations
The new Regulation will only apply to online sales between businesses and end-user consumers or businesses.
The new Regulation will apply to websites operated within the European Union or to websites operated outside the European Union but proposing goods or services to customers established throughout in the European Union.
What are the new rules of management of an e-commerce website?
As regards the access to the website
Under the Regulation, a business may neither block nor restrict, through the use of technological measures, access to their online interfaces for reasons related to nationality, place of residence or place of establishment of an internet user. However, businesses are authorized to redirect customers to a different website than the one they were trying to access provided the customer expressly agrees thereto and can still easily visit the website version they originally tried to access.
As regards the terms and conditions of sales of the website
The Regulation forbids businesses from applying different general conditions of access to goods or services according to a customer’s nationality or place of residence or place of establishment (as identified by their IP address in particular) in the following three cases:
- where the goods sold by the business are delivered in a different member state to which the business offers delivery (or where the goods are collected at a location jointly agreed upon by the business and the customer);
- where the business offers electronically supplied services such as cloud, data storage, hosting services etc. (but not services offering access to copyright-protected content such as streaming or online-gaming services);
- where the business supplies services received by the customer in a country in which the business also operates (such as car rental and hotel accommodation services or ticketing services for sporting or cultural events).
As regards the means of payment on the website
The Regulation forbids businesses from applying different conditions for payment transactions to accepted means of payment for reasons related to a customer’s nationality, place of residence or place of establishment, or to the location of the payment account or the place of establishment of the payment service provider (provided that authentication requirements are fulfilled and that payment transactions are made in a currency accepted by the business).
What are the impacts of this regulation on e-retailers?
Although formally excluded from the scope of the Regulation, relations between suppliers and distributors or wholesalers will still be impacted by it since provisions of agreements between businesses under which distributors undertake not to make passive sales (e.g., by blocking or restricting access to a website) for reasons related to a customer’s nationality, place of residence or place of establishment “shall be automatically void”.
The geoblocking regulation therefore impacts distributors twofold: first, directly in their relations with customers (end-user consumers or user-businesses), and second, indirectly in regard to their obligations under the exclusive distribution agreement.
The geoblocking regulation shall have to be coordinated with the existing competition law framework, especially the guidelines on vertical restraints which set up specific rules applying to on-line sales. On-line sales are likened to passive sales. The guidelines mention four examples of practices aiming to indirectly guarantee territorial protection which are prohibited when supplier and exclusive distributor agree:
- that the exclusive distributor shall prevent customers in another territory from visiting their website or shall automatically refer them to the supplier’s or other distributors’ websites,
- that the exclusive distributor shall terminate an online sale if the purchaser’s credit card data show that the purchaser is not from the exclusive distributor’s exclusive territory,
- to limit the share of sales made by the exclusive distributor through the internet (but the contract may provide for minimum offline targets in absolute terms and for online sales to remain coherent compared to offline sales).
- that the exclusive distributor shall pay a higher price for goods intended for sale on the internet than for goods intended for sale offline.
Manufacturers will have to decide whether they adopt a unique European gateway website or multiple local commercial offers, it being known that price differentiation is still possible per category of clients.
Indeed, the new Regulation does not oblige the e-retailers to harmonize their price policies, they must only allow EU consumers to access freely and easily to any version of their website. Likewise, this Regulation does not oblige e-retailers to ship products all over Europe, but just allow EU consumers to purchase goods from whichever website they want and to arrange the shipment themselves, if need be.
Finally on a more contractual level, it is not very clear yet how the new geoblocking rules could impact directly or indirectly the conflict of law rules applicable to consumer contracts, as per the Rome I regulation especially when the consumer will be allowed to handover the product purchased on a foreign website in the country of this website (which imply no specific delivery in the country where the consumer is established).
Therefore B2C general terms and conditions of websites would need to be reviewed and adapted on both marketing and legal sides.
Once convinced of the utility of mediation as a method of resolving conflicts between franchisor and franchisee and taken the decision to include a clause in the contracts that provides for it, the last step would be what elements should be taken into account when drafting it.
- The previous negotiation. It seems advisable that both parties grant themselves the possibility of trying to solve the problem with a previous formal negotiation. Mediation does not exclude the previous attempt made by the interested parties or their lawyers; however, it seems advisable to contractually provide a suitable end according to the circumstances. Experience shows that lengthening this phase too long may result in the conflict becoming more complicated and even more difficult to approach mediation.
- The clause may also provide for the place where the mediation will take place. Again at this point the parties are free. It is convenient that this is accurate indicating the concrete city.
- The language in which the mediation will be developed is the a faculty of the parties. There will be no difficulty in mediations in which both parties use the same language, but it is very convenient in contracts with parties that have different languages, or that belong to regions or countries with different co-official languages. The drafting or signing of the contract in a specific language does not presuppose that this must be the language of the mediation. It is an element to be taken into account also when requesting a mediator who can use that language in the chosen mediation institution.
- The procedure can also be decided by the parties. In particular, the number of sessions, the maximum expected duration, the participation of advisors, etc. Keep in mind that the greater or lesser regulation will allow to avoid future conflicts in this respect, although it will also imply a greater limit to the freedom of the parties that, nevertheless, will remain free to modify the agreement by mutual consent.
- The term of the mediation can also be contemplated. This would allow, for example, to prevent mediation from being extended only for purely procedural strategic purposes or to gather information from the other party before starting a procedure, etc. The professional mediators, however, are able to identify these manoeuvres, also having the power to put an end to mediation in those cases.
- Choosing the mediator or the mediation institution is an important choice. The parties can agree on who will be their mediator, indicate in the contract the elements to choose it, or submit directly to a Mediation Institution so that it is the one who designates it according to its own rules. These decisions can be alternatives (that is, that the parties agree on the mediator and, in case of lack of agreement, submit to an institution that names it), or they can be unique. The designation of an Institution requires that it has a sufficient guarantee of stability (avoid designating short-term institutions or without much future guarantee), with a sufficient panel of mediators depending on the characteristics of the mediation (language, competence, experience) and that allows the necessary flexibility for its operation.
- Finally, it is convenient that the clause includes an alternative way in case the mediation does not succeed either because the parties do not reach an agreement, or because they withdraw from the mediation. It is important to recall that mediation does not close the doors to the conflict be resolved by recourse to ordinary jurisdiction or arbitration. And in terms of specialized arbitration in distribution contracts, the IDArb (https://www.idiproject.com/content/idarb-idi-arbitration-project) is an excellent option.
On the topic of the importance of Mediation in Distribution Agreements, you can check out the recording our webinar “Mediation in International Conflicts”
