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Multibrand distributorship lawsuit ruling

Tuesday, October 18, 2022

Multibrand distributorship lawsuit ruling

Lawsuit/claims: Following the termination of their distribution & repair agreement with the same Greek supplier/importer of a specific car brand, two ex-dealers of the supplier’s motor vehicles national sales network filed separate lawsuits against the supplier. They argued they had entered into a de facto exclusive distributorship agreement with the supplier and claimed goodwill compensation, as well as compensation for loss of profits, reimbursement for unsold stock and moral damages.

Greece extends the benefits afforded to commercial agents under Dir.86/653 to exclusive distributors and other downstream intermediaries who are integrated in the supplier’s sales organization. Thus, the ex-dealers attempted to take advantage of the extended protection/compensation regime (on agents), arguing de facto exclusivity and similarity in function/operation to commercial agents.

Basic substantive law: Key features in a distributorship relationship that indicate satisfaction of the above integration requirement and tilt the balance in favor of agency protection/goodwill compensation are the distributor undertaking a non-competition obligation, supplier’s access to agent’s/distributor’s clientele, distributor maintaining business confidentiality, exclusive marketing of supplier’s products within the area of responsibility and advertising the products with own funding.

However, according to Greek case law, if the distributor’s relationship with supplier is a multibrand distributorship (aka, no non-compete clause, also called a “simple” distribution), then the claim will fail. A right to compete indicates absence of “integration”, indeed regardless of whether the distributor actually takes advantage of the opportunity to trade in other products or not.

The act of termination by a supplier, even if it held to be unlawfully exercised, including exercised in breach of contract, always produces its intended legal effect of terminating the relationship and thus it does not give rise to a right either to reinstate the distributor to its previous position or to claim loss of profits beyond any contractual or statutory notice period that was not abided by.

Also, where the termination is made for stated network reorganization purposes and the language of termination used does not hint at/attributes any negative conduct by distributor, there cannot be any harm in the commercial fame/reputation/reliability/faith of the distributor.

Court ruling: The court rejected both lawsuits as unlawful/not founded in law without entering into the substance/merits of the cases. The court ruled that the relationship of the dealers with the supplier was one of a “simple” distribution (allowing competition/ multibrand), and that there was no territorial exclusivity namely the network was selective in nature, allowing the ex-dealers to sell not only within their respective main area of responsibility but in all EEA countries.

In addition, in response to the argued “de facto” exclusivity element by the plaintiff, the court ruled that this was not dictated by/there was no respective contractual obligation. In other words, de facto exclusivity (i.e. by distributor’s choice) cannot amount to/turn into a “de facto” contractual exclusivity situation, where there is no such clause in the distributorship contract (de facto exclusivity as exclusivity by choice and not based on a contractual clause).

In the court’s own words: “[…] if the supplier does not prohibit the distributor from marketing competitive products, the choice of the distributor […] to place on the market only products of the supplier, cannot […] be considered as an element in favor of applying agency protection to a distributor”.

Therefore, at the end of the day, the operation as a “de facto” distributor is only/simply a choice by the distributor, and not a recognized legal relationship which could create obligations of compensation to the supplier upon termination.

Ballas, Pelecanos & Associates LPC Senior Associate Panayiotes Yiannakis argued for Defendant company in the one case and Associate Constantine Beikos-Paschalis argued for Respondent in the other case.

For more information please contact Gregory Pelecanos, Senior Partner and Head of Competition, Distribution and Procurements at [email protected]