Draft Distribution Agreements Act: Impact on Franchising - International Law Office

Key Features
Scope and Purpose
Lack of Regulations
Comment

On March 9 2007 a draft green paper by the Commission on Industry, Tourism and Commerce was published in the Official Journal of the Spanish Parliament. The green paper states that Parliament will review the draft Distribution Agreements Act, which will regulate the relationships between agents involved in the distribution sector (ie, suppliers and distributors).

Key Features

The green paper proposes to:

• regulate the various types of distribution agreement and the contractual relationships between the parties involved in this sector (eg, suppliers, manufacturers and distributors, and among them the franchising chains);
  
  
• address the lack of regulations;
  
  
• avoid dominant positions;
  
  
• promote legal certainty between the parties (especially in the case of small and medium-sized companies), as the existing unbalanced situation leads to uncertainty and unnecessary conflicts;
  
  
• encourage free enterprise and independence;
  
  
• balance the parties' interests in order to create a strong distribution sector;
  
  
• promote active distribution focused on end consumers; and
  
  
• unify legal criteria in order to evaluate the goodwill of companies.

Scope and Purpose

Even though the act is mainly the result of the automobile industry's lobbying, it will not apply only to this industry. The act will apply to and protect any party involved in the commercial distribution sector (especially small and medium-sized companies) and will regulate all types of distribution agreement, including franchising.

The draft act is divided into three parts. The first part outlines the scope of the law. The second refers to the negotiations between the parties to a distribution agreement and the general content of such agreements; for example, any investment required by a supplier cannot affect the autonomy of its distributors, and the products and services provided by the supplier must be at fair market value. The third part regulates the causes of and consequences arising from the termination of an agreement (eg, breach of contract and unilateral termination), as well as damages indemnities and compensation to customers. In case of termination of an indefinite contract, the distributor need not be given prior notice if it obtains compensation for the goodwill generated.

Lack of Regulations

Those that called for the passage of the act have criticized the lack of specific regulations on distribution. This lack of regulation also exists in EU law, which regulates only competition matters and allows member states to legislate on contracts between suppliers and distributors. In Spain, the only regulation is the Draft on Distribution Agreements published in February 2006 by the Ministry of Justice, which offers no solution to the current problem.

In addition, the Agency Act 1992 now applies by analogy to distribution agreements of the automobile industry and distribution agreements that are not covered by specific regulations. Therefore, courts interpret the law on a case-by-case basis and most decisions on the same matter are contradictory.

Comment

The Parliament's Commission on Industry, Tourism and Commerce approved the proposal unanimously on March 20 2007. The final provisions will not be known until final approval and the entry into force of the act.

For further information on this topic please contact Carmen Esteban García-Bernalt at Gómez-Acebo & Pombo Abogados by telephone (+34 91 582 9100) or by fax (+34 91 582 9114) or by email (cesteban@gomezacebo-pombo.com).