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Which court has jurisdiction in case of termination of an orally agreed distributor agreement?

Which court has jurisdiction in case of termination of an orally agreed distributor agreement?

A French party has been distributing Italian foodstuffs in France for an Italian supplier for more than 25 years. The parties never documented their agreements in a (written) distributor agreement, nor did they ever agree on exclusivity (agreement that the distributor may exclusively sell the supplier’s products in a specific area). The Italian supplier cancels the distributor agreement quite suddenly. It wants to start working with a different French distributor. The current French distributor obviously takes issue with this and claims that this constitutes abrupt termination of an established commercial relationship, without due observance of a minimum notice period. For this reason, the French distributor files a claim for damage compensation with the French court. But on what should the French distributor base its claim for damage compensation? On grounds of an agreement that was never laid down in writing or on grounds of unlawful act?

Is the basis important in this case?

The basis of the claim in this case determines which court (the Italian or the French) has jurisdiction to decide on this claim. In this case, the French distributor went to the French court, which declared that it had jurisdiction in this case. The Italian party appealed this, however, and contested the jurisdiction of the French court. Since it is a dispute between an Italian party and a French party, European Union law applies. The question of which court has jurisdiction must be answered with reference to article 5 of the Brussels I Regulation. The French court required an interpretation of this article in this case and sent two questions to the Court of Justice for a preliminary ruling. The questions specifically concerned article 5, subparagraphs 1 and 3, of the Brussels I Regulation. Subparagraphs 1 and 3 read as follows:
‘A person domiciled in a Member State may, in another Member State, be sued:

1 a in matters relating to a contract, in the courts for the place of performance of the obligation in question;
  b for the purpose of this provision and unless otherwise agreed, the place of performance of the obligation in question shall be: – in the case of the purchase and sale of goods, the place in a Member State where, under the contract, the goods were delivered or should have been delivered; – in the case of the provision of services, the place in a Member State where, under the contract, the services were provided or should have been provided;
  c if subparagraph (b) does not apply then subparagraph (a) applies;
3 in matters relating to tort, delict or quasi-delict, in the courts for the place where the harmful event occurred or may occur.’

The first question submitted for a preliminary ruling

The first question the French court sent to the Court of Justice is whether article 5, subparagraph 3 of the Brussels I Regulation should be interpreted such that the French distributor’s damage claim (which is based on abrupt termination of a commercial relationship that had lasted for years) must be qualified as a claim based on wrongful act (referred to as ‘tort’ in the English version of the Brussels I Regulation). The French distributor believes this is the case, as does the French court. According to the French commercial code, a right to damage compensation arises if an established commercial relationship is abruptly terminated without due observance of a notice period that takes the duration of the commercial relationship into account. On grounds of article 5, subparagraph 3 of the Brussels I Regulation, the French judge would in that case have jurisdiction, since the harmful event occurred in France.

The Italian supplier, on the other hand, took the position that there was an agreement or distributor agreement between the parties, as a result of which the French distributor’s claim must be regarded as based on a contract. Consequently, on grounds of article 5, subparagraph 1, part b of the Brussels I Regulation, the Italian judge would have jurisdiction, since Bologna (Italy) is the place where the goods were delivered or should have been delivered according to the contract.

How to determine whether there is a contract?

According to the Court of Justice, article 5, subparagraph 1 only applies if there is a contractual obligation. This kind of obligation does not necessarily have to be laid down in writing. It can also be tacit. The Court of Justice therefore considered that it was up to the national court (in this case the French court) to investigate whether, in the specific circumstances of the case, the long-standing commercial relationship between the parties was characterised by tacitly agreed obligations. This kind of tacit (contractual) relationship does need to be demonstrated by means of a number of related factors, which could include commercial relations over the course of many years, good faith between the parties, the regularity of transactions and their development over time in terms of quantity and value, the possible agreements on the prices charged and/or discounts granted and the correspondence conducted.

The second question submitted for a preliminary ruling

In this case, the French court wondered how the long-standing commercial relationship between the parties should be interpreted, if the answer to the first question submitted for a preliminary ruling were that a contract was involved. Should this be interpreted as a contract for ‘the purchase and sale of goods’ as referred to in article 5, subparagraph 1, part b, first bullet point, or as a contract for ‘the provision of services’ as referred to in article 5, subparagraph 1, part b, second bullet point?

If the characteristic obligation of the particular agreement is the supply of a physical product, a contract for the purchase and sale of goods is involved, according to the Court of Justice. An example of this would be a long-standing commercial relationship between two entrepreneurs whose relationship goes no further than the establishment of successive contracts focused on the supply and purchase of goods.

If the obligation involves performance of a service, it can be considered a contract for the provision of services. In this context, the Court of Justice noted that the term ‘services’ entails at the very least that the party that provides the services performs a particular activity in exchange for compensation. A traditional distributor agreement (framework agreement focused on a supply and purchase obligation that two entrepreneurs enter into for the future) could qualify as such a contract, according to the Court of Justice.

For the rest, it was up to the referring (national) court to judge whether the obligation was to provide a service. In this case, the Court of Justice said that the French court must assess all circumstances and aspects that were characteristic of the activities performed by the French distributor in France in order to sell the Italian party’s products on the market of this Member State.

Conclusion

If the parties are in a tacitly agreed contractual relationship with each other, a claim for damage compensation based on abrupt termination of a long-standing commercial relationship can be regarded as based on a contractual obligation in the sense of article 5, subparagraph 1 of the Brussels I Regulation and not (therefore) as an obligation based on wrongful act in the sense of article 5, subparagraph 3. Whether there is a tacit contractual relationship is up to the referring (national) court to decide. In the case in question, the Court of Justice said it was up to the French court to judge whether there was a tacit contractual relationship or not.

Normally, two parties located in two different Member States lay down in an agreement which court has jurisdiction if there is a dispute. If no such provision has been drawn up, the court will look at whether there even is a written contract. If there is none, the court will have to assess with reference to the factors mentioned above from the judgement discussed whether – despite the absence of a written contract – there is nonetheless a situation of a contractual relationship. If the existence of a contractual relationship is to the advantage of a certain party, for instance because a court in a particular Member State would therefore have jurisdiction pursuant to the Brussels I Regulation, it is (therefore) advisable to set this down in writing.

If a long-standing commercial relationship between the parties can be qualified as a contract, it is then also up to the referring court to assess how this trade relationship between the parties must be interpreted. As a rule, a traditional distributor agreement is regarded as a contract for services.

By Joanne Houwers

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