Compensation for clientele: gross or net? unamortized investments?

Indemnification for clientele.

Certain precepts of the Agency Contract Law (ACL) apply analogically to distribution contracts. Among them is the indemnity for clientele in Article 28. In turn, Article 29, on indemnity for damages, is also applicable to these contracts.

• What is clientele compensation?

It applies to agents who have brought in new clients or increased business with existing ones. In the event of termination of their contract, they are entitled to compensation, provided that one condition is met: that their previous activity continues to benefit the employer and is equitably justified.

However, in this article we will focus on the aforementioned distribution contracts. Case law specifically allows the analogical application of this legal precept to these contracts, but not automatically. Certain requirements must be met, as established by the STS of January 15, 2008:

• • The real contribution of clientele must be proven.
  • This clientele must be potentially profitable for the grantor.

However, the fact that we have proven these points does not imply the automatic analogical application of this precept. It will be up to the court to assess the circumstances of the specific case in order to decide whether it is appropriate.

• Is it compensable or compensatory?

We are facing a question already resolved by both the doctrine and the Jurisprudence. Among other rulings, STS 206/2015 affirms the compensatory nature of Article 28. LCA. To make such statement, it refers both to the very nature and the dynamics of the agency contract; the law seeks to compensate the agent (distributor) for the advantages that, once the contract is terminated, the entrepreneur will continue to enjoy. In other words, the “raison d’être” of this compensation for clientele derives from the contract itself, not from its breach.

Why is this differentiation between a possible compensatory or indemnifying nature important?

a) It is compatible with compensation for damages (art. 29. LCA, or 1.101. CC).

Article 29. LCA. establishes this compatibility. In order for the indemnity for clientele to be applicable, it is not necessary that a damage has occurred; there must only be an effective contribution of clientele, and its possible use by the principal, an objectively compensable fact. Compensation for damages, on the other hand, does have a clear compensatory nature. This enables the compatibility of the indemnity for clientele and the indemnity for damages. This compatibility is included in STS 977/2005, of December 19, 2005, among others.

b) It can be claimed regardless of how the termination of the contract occurred.

As we have said, its compensatory nature derives from the contract itself. Therefore, it is not necessary that there has been an abrupt termination of the contract for it to be applicable. If the objective requirement set out above is met, there will be compensation for clientele.

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The compensation for clients is not exclusive to the agency contract. The analogical application of the LCA is applicable to distribution contracts

• How is the distributor’s clientele compensated?

Article 28. LCA, in its paragraph 3, establishes a limit to the amount to be claimed by this compensatory method. It refers to the average annual amount of remuneration obtained by the agent during the previous five years. In the case of a shorter term contract, the actual duration of the contract must be taken into account.

Again, we have to transfer this statement to the scope of the distribution contract. It highlights STS 708/2017, of March 1, which establishes the following statements:

1. In the distribution contract, the remuneration is the difference between the purchase price and the resale price.
2. However, recent case law, an option chosen by the Supreme Court, establishes other extremes: the key criterion is the net profits received by the distributor. In other words, the profits remaining after deducting expenses and taxes.

Unamortized investments.

We have already seen when compensation for goodwill is due. We have also mentioned art. 29. LCA, relating to compensation for goodwill. We must now analyze it more exhaustively; unamortized investments, because they present certain specificities, cannot be compensated by means of art. 1.101. CC.

This provision stipulates that the principal must indemnify the agent when the early termination of the contract prevents the agent from amortizing the expenses. These expenses, additionally, must have been incurred by instruction or imposition of the employer, in compliance with the contract previously in force. This is confirmed, among others, by STS 256/2016, of 30 May. This has a consequence of clear relevance: This compensation does not apply when these distributor expenses derive from an contract freely agreed by the contracting parties. These expenses must always be imposed or asked by the principal.

• What are the depreciable investments that can be indemnified?

Jurisprudence and doctrine give a unanimous answer to this question. As establishes in the aforementioned STS 256/2016, these refer to fixed assets and expenses in distributable fiscal years. This STS also leaves us with certain relevant data:

1. This indemnity is for consequential damages, not for lost profits. That is to say, it refers to the losses suffered, and not to the loss of profit.
2. Only specific investments are affected. This term refers to those investments that lose their value once the contract is terminated. This leaves out, for example, expenses related to sales.

• How are they compensated?

In this aspect, the most accurate answer is given by the doctrine. It establishes the amount to be paid as the difference between the net market value and the unamortized value paid.

Conclusion.

The indemnity for clientele, of a compensatory nature, and the indemnity for damages, of a indemnifying  nature, are compatible. In the first, it is a matter of compensating the use by the principal of the clientele actually provided by the distributor. The second compensates the losses suffered by the investments that lose their value due to the early termination of the contract. Therefore, the affected distributor may request both, according to the rules of quantitative determination established by law, jurisprudence and doctrine.

If this article has been of interest, we also suggest you to read the following article published on our website: Is it possible to waive the compensation for clients in the agency contract?