When hiring transportation services, it is convenient to bear in mind if the carrier who has been hired (“hired carrier”) is the one who actually carries and delivers the goods to the recipient, or if the hired carrier has outsourced the provision of such transportation services to another carrier (“final carrier”).

In case of outsourcing, if the hired carrier does not pay the final carrier, the latter can choose between claiming the payment from the hired carrier or directly from the company who hired the transportation services in the first place. This second possibility is the so-called “direct action”, incorporated to the Spanish legal system in 2013.

Position of the Supreme Court

In this judgement, the Supreme Court has clarified certain matters regarding the direct action, which have generated controversy among the Spanish Courts.

In particular, the Court stated that the company hiring the transportation services in the first place is a real “joint and several guarantor” to the final carrier.

To such effect, if the hiring company receives a claim for payment from the final carrier, such company must pay in full the amount agreed between the hired carrier and the final one, even when the company has adequately and promptly complied with all its obligations vis-à-vis the hired carrier. According to the Court, this is without prejudice of the hiring company’s right -who was forced to pay the final carrier by virtue of the direct action- to claim the corresponding amounts from the hired carrier.

Protection against the direct action

As we can see, the direct action implies a risk for the company hiring the transportation services, in the sense that it might be obliged to pay some amounts to the final carrier whose services it never hired.

It may be the case that the company hiring the transportation services might even have to pay twice for the same service: first pay the hired carrier and then the final carrier who exercises the direct action.

To protect the interests of the hiring company against this risk, certain restrictions can be included in the services agreement entered between such company and the hired carrier, such as a prohibition to subcontract.

Another option would be to establish in the agreement that the hiring company does not have to pay any amount to the hired carrier until it proves that the final carrier has received the corresponding price.

La entrada Companies hiring transportation services from a carrier can receive claims directly from another carrier outsourced by the former aparece primero en Faus Moliner.

Supplier payment plans

Supplier payment plans were created so that companies could receive payment on invoices issued to the Autonomous Communities and Local Authorities. In exchange for immediate payment of the principal debt, all suppliers joining this extraordinary financing mechanism agreed to waive their right to receive interest for late payment and compensation for recovery costs owed by the aforementioned Administrations for having failed to meet payment deadlines. In terms of interests, said waiver involved renouncing the right to receive payment of interest, calculated at the Euribor rate plus 8%, on the principal.

“Freely agreed to” waiver

The CJEU analyses whether the creditor’s waiver of the right to interest for late payment and recovery costs contradicts Directive 2011/7/EU. Said Directive establishes that any agreements excluding the right to receive payment for such concepts are clearly abusive. The Court concludes that said waiver is not contrary to Community law, provided that the creditor has agreed to it freely.

The CJEU believes that in order to assess whether consent has been granted freely or not, it is necessary to ensure that the creditor was in fact able to rely on any effective legal remedy to seek payment of the debt in full, had he wished to, (including interest for late payment and recovery costs). According to the CJEU, the Spanish courts are competent to decide on this aspect. Therefore, we will have to wait and see how the Spanish courts rule in terms of whether the creditor was in fact able to rely on any effective legal remedy to seek payment of the debt in full..

La entrada Waiver to the interests for late payment by signing up to the supplier payment plan may or may not be valid aparece primero en Faus Moliner.

In 1990, two Spanish companies verbally entered into a just in time supply agreement, under which the manufacturer was bound to continuously deliver, in very short turnaround times, product orders placed by its client. Twenty-five years later, the client unilaterally terminated the agreement. The manufacturer brought suit, asking for the client to be held liable for paying for the stock that the manufacturer had purchased to fulfil the just in time orders and that was no longer usable, in addition to the storage and maintenance costs of said stock.

Judicial Reasoning

The Court of First Instance ruled that, given that the agreement involved a just in time manufacturing system, the inherent nature of the agreement implied that the supplier needed to maintain certain stock levels to fulfil the orders of its client. Therefore, although the agreement was verbal and there was no express obligation in that respect, it ruled that the client should pay for the surplus stock upon termination of the agreement. On the other hand, the Court rejected the manufacturer’s claim for the client to also cover storage and maintenance costs for said stock. The client appealed before the Court of Appeal, which confirmed the Court’s judgment, and thereafter also appealed to the Supreme Court.

In its judgment, the Supreme Court reasserted that just in time manufacturing agreements are not subject to specific legislation and are defined by being functionally linked to the product manufacturing and to marketing system, in such a way that the manufacturer assumes the obligation of delivering products in a short period of time, as established in the agreement, or as deemed reasonable according to trade usages in the sector. The Court recognised that, although not agreed in writing, an essential obligation under this type of agreement is that the manufacturer ensures the availability of stock and bears the resulting costs. Whether the client is obliged to purchase the remaining stock at the end of the agreement is a different matter, according to the Court. This is not an essential obligation and, therefore, as no express covenant was in place to this end, an analysis would have to be performed as to whether on the grounds of contractual good faith, this burden should be nevertheless enforced on the client.

As part of its analysis, the Court highlighted the long standing relationship between the parties based on mutual trust and that the client had not communicated its decision to terminate the agreement with reasonable notice. It also took into consideration the manufacturer’s dependency on the agreement, as the relationship with the client represented its main source of income. On the basis of the particular circumstances of the case, the Court concluded that it was reasonable for the client to assume responsibility for purchasing the surplus stock.

Based on this judgment, we believe that in order to avoid the risk of having to purchase surplus stock at the end of a just in time manufacturing agreement, specific provisions must be set out therein.

La entrada How to avoid the obligation of having to purchase surplus stock under just in time manufacturing agreements aparece primero en Faus Moliner.

GP Acustics, a German company dedicated to the production of speakers, notified Ear, S.A., its exclusive distributor in Spain, of its unilateral decision to end the 30-year distribution relationship between the parties with just two months’ notice.

Said decision was not based on any breach committed by Ear, rather the wish of GP Acustics to recover the distribution rights for its products in Spain. The contract was entered into for an indefinite term and did not contain any clause regulating the notice that should be given in the event that either party decided to terminate it.

In its belief that providing just two months’ notice of the termination was untimely and contrary to the principle of good faith, Ear filed a lawsuit against GP claiming damages caused by said situation.

Right to terminate a contract and notice

The courts handling the case confirmed the criteria, well established in our case law, that the right to terminate a contract may be exercised at any time; however, they added that the exercise of this right must comply with the principle of good faith that must prevail in all contractual relationships.

On that basis, the courts ruled that terminating a 30-year relationship with just two months’ notice was in breach of the defendant’s duty to maintain a diligent, non-abusive and reasonable conduct. Therefore, the courts, analogously applying the regulations governing Agency Agreements, ruled that one year’s notice would have been reasonable. According to the Agency Agreement Law, the notice that must be given in the absence of a clause in the agreement is one month for each year in which the agreement remained in force, up to a maximum of 6 months.

Severance amount

In this case, the distributor’s right to receive compensation was recognised both in terms of consequential damages and loss of profits. Concerning consequential damages, the Supreme Court deemed that these included structural staff and social security costs that had been incurred by the distributor legitimately believing that the termination of the agreement would never be sudden and that such damages would not have been incurred had one year’s notice been provided.

In terms of loss of profits, the Supreme Court did not analogously apply the concept of compensation for customers established in the Agency Agreement Law and only recognised the distributor’s right to compensation calculated on the basis of the profits that it would have obtained during the year considered as the reasonable notice period, deducting those corresponding to the two months that were effectively granted.

La entrada Compensation for the sudden termination of an indefinite term exclusive distribution contract aparece primero en Faus Moliner.

In 1996, a beverages manufacturer and a distribution company entered into an exclusive distribution agreement for Spain and Andorra. The conditions of exclusivity applied to both parties, in such a way that the distributor committed to exclusively purchase certain product from the manufacturer for distribution within the referred countries and the manufacturer committed to refrain from selling such product to any third party that operated in those countries. The agreement set out a series of conditions, such as a list of prices, and a marketing plan for the product that had to be paid equally between the parties. Furthermore, the agreement was set to be in effect for an indefinite period, unless early terminated due to a party failing to comply with its obligations.

In 2006, the parties signed an addendum to the agreement, introducing certain new conditions, such as new prices and a limit to the manufacturer’s contribution towards product marketing. A couple of years later, the manufacturer served a notice on the distributor communicating the termination of the agreement.

Amendment or termination

The distributor filed a lawsuit against the manufacturer claiming, amongst other things, that it had been “intimidated” by the manufacturer in order to accept an addendum to the agreement that was clearly detrimental to its interests. Pursuant to the Spanish Civil Code, intimidation is deemed to exist when one of the contracting parties is made to feel a rational, well-founded fear of suffering an imminent and serious threat to its person or assets. In this judgment, the Supreme Court also offers a reminder that, based on its own case law, the requirements for intimidation to be considered as having occurred are (i) that one of the contracting parties has consented under conditions of rational and well-founded fear; (ii) that this fear derives from the threat of a demonstrated adverse event; (iii) that there is a causal link between said consent and the threat, (iv) that the threat is harmful or reckless, and is unfair, and (v) that it is caused by the other contracting party or a third party.

The Court highlighted that the fact that the manufacturer informed the distributor that it wanted to revise the agreed conditions and warned that, if they were unable to reach an agreement, the distribution of the products would be awarded to a third party with whom manufacturer could agree to better conditions, could not be deemed as intimidation. To rule out the existence of intimidation, the Court considered two issues: the situation of the parties and the indefinite term of the agreement. Concerning the first issue, the Judge asserted that the agreement had been entered into by two companies of significant economic potential, meaning that there was no situation of economic subordination or inequality between the distributor and the manufacturer. With regard to the indefinite duration of the agreement, the Court deemed that the manufacturer was not obliged to maintain the same conditions indefinitely, and that the distributor, as a company involved in trade, could assess the suitability, acceptance or rejection of the terms of addendum. Additionally, if the manufacturer was not permitted to change the distributor of its products, we could be before a situation that may compromise the principles of free competition and freedom of enterprise.

La entrada An indefinite term distribution agreement may be terminated if the distributor refuses to revise its conditions aparece primero en Faus Moliner.

The judgment in question concerns a claim brought by the purchasers of the shares of a company called Aerlyper, on the basis they understood that the sellers had failed to comply with a non-competition commitment established in the purchase agreement concerning said shares. Specifically, the purchasers claimed that the sellers failed to comply with said commitment when purchasing shares of Alfa Bravo Servicios Aeronáuticos, S.L., a company that had carried out activities that were competitive with those undertaken by Aerlyper.

In turn, the sellers defended themselves by claiming, amongst other arguments, that the purchase agreement concerning the shares set out that the non-competition obligation on one of the sellers, Mr. Simón, would only come into effect when he stopped working for Aerlyper, which was not the case when Alfa Bravo Servicios Aeronáuticos, S.L. undertook the activities that competed with those carried out by Aerlyper. Therefore, in the opinion of the sellers, when Alfa Bravo Servicios Aeronáuticos, S.L. performed its activities, there was no non-competition obligation binding Mr. Simón.

Enforceability of non-competition commitments

Considering the foregoing, the Supreme Court concluded that, despite the fact that the purchase agreement concerning the shares of Aerlyper did not expressly contemplate that the non-competition obligations imposed on Mr. Simón were in force when Alfa Bravo ServiciosAeronáuticos, S.L. performed its activities, the involvement of Mr. Simón in said company represented a breach of a non-competition obligation that should be considered as having been implicitly assumed by Mr. Simón.

The reasoning used by the Court to reach this conclusion was that, both in the acquisition of a company and in agreements involving the transfer of clientèle or know-how, it may be considered that implicit non-competition obligations apply to the sellers, where appropriate in order to prevent sellers from frustrating the legitimate expectations of the purchasers.

In addition to noting the reasoning used by the Supreme Court on the possibility of implicit non-competition commitments applying to certain types of agreement, various practical conclusions can be drawn from the forgoing. For example, it is worth noting that the reasoning used by the Supreme Court may be applied to several types of agreements common to the pharmaceutical industry, including to agreements regarding the transfer of dossiers for medicinal products. Additionally, we can also conclude that, in the acquisition of companies, clientèle or know-how, insofar as no agreement has been reached regarding sellers assuming a non-competition commitment, it is advisable for the agreement to stipulate that said commitment does not exist.

La entrada In the acquisition of companies, clientèle or know-how, non-competition obligations may apply even though they are not expressly agreed aparece primero en Faus Moliner.

Accy Phone, S.L. and Motorola Mobility España, S.A. entered into an exclusive distribution agreement, under which Motorola supplied Accy with mobile phones that were then resold by the latter.

After Motorola committed several breaches of contract, Accy filed a law suit requesting to terminate the Agreement and to order Motorola to settle an outstanding debt and to pay compensation for damages. Accy’s quantification of these damages included the losses it had suffered as a result of having to sell the mobile phones below cost. Accy claimed that, although this compensation was not specified in the contract, Motorola had always paid that difference while the agreement was in force.

Stoppel

The doctrine of stoppel precludes a person from acting contrary to his/her own past actions, as this would constitute a breach of trust and good faith.

In this judgment, the Court recalls that, in order to prevent someone from exercising a right on the grounds that this would be contrary to his/her past actions, said actions must be unequivocal and, furthermore, they must have created, defined, modified or extinguished a specific legal situation. Therefore, this doctrine may only be invoked if there is a contradiction or incompatibility between past and present conducts, if conduct in the past was unequivocal, and if said conduct was able to change the legal position of the acting party.

On the other hand, the Court pointed out that this doctrine does not apply to ambiguous cases or where the change in attitude is a response to new facts or actions. Thus, the fact that Motorola agreed to compensate Accy for its losses on several occasions during the contract term did not constitute an unequivocal obligation to compensate Accy for the losses it suffered upon liquidating its stock after the agreement was terminated.

The Court’s distinction between the situation that existed while the agreement was in force and the situation following its termination is especially significant, as good faith expectations could vary in one case or the other. In this respect, the Court noted that “the fact that the conduct of one of the parties in the period after the contract was terminated differed from that exhibited during the performance of said contract cannot be considered contrary to good faith”.

In conclusion, contract termination, as an event that gives rise to a new situation, may entitle one of the parties to act or “react” differently, and this change in conduct is not contrary to good faith, nor does it infringe the doctrine of stoppel.

La entrada Strict conditions for limiting contractual rights by invoking the doctrine of stoppel aparece primero en Faus Moliner.

In 2008 two pharmaceutical companies signed a license and supply agreementfor medicinal products, according to which the licensee assumed the obligation to purchase the product exclusively from the licensor for a period of 5 years. Furthermore, a penalty clause was included, according to which in case the licensee purchased the medicinal product from other suppliers the licensor would be entitled to request a compensation representing 100% of the value of the product notacquired from licensor.

Two years later, the licensee placed several orders for medicinal products from a third party and informed the licensor of its intention to terminate the contract. The licensor brought a lawsuit against the licensee requesting the corresponding compensation. The Court of First Instance ruled that the licensee had breached the contract and sentenced it to pay a fine of 1 million €, calculated according to the referred penalty clause, decision that was later confirmed by the Provincial Court.

Principle of relativity of contracts

The licensee claimed that it was entitled to freely terminate the contract arguing that when entering into the supply agreement the former shareholders of the licensee, who were engaged in the process of selling the company to a new owner, committed themselves to modifythe license and supply agreements signed by the licensee in order to obtain a right of unilateral withdrawal in favor of the licensee.The Provincial Court understood that the “principle of relativity” of contracts should be applied. According to this Principle, contracts are only effective between the parties. The Court said that according to this principle, the former shareholdersof the licensee cannot be asked to modify the terms of the license and supply agreement, as it isa different contract in which they were nota party. Moreover, the licensor was completely alien to this agreement between the shareholders sellers and the purchasers of shares from the licensee, and thereforesuch agreement could not possibly cause a prejudice to licensor.

Scope of the penalty clause

Alternatively, in case the freetermination right was not recognized by the Court, the licensee asked for a reduction of the penalty clause arguing that itwas disproportionate. However, the Provincial Court confirmed that violating the duration and exclusivity agreed between the parties are “total breaches” that prevent the penalty clause from being reduced. The Court also rejected the argument of non-proportionality of such clause, because it was freely and voluntarily agreed between the parties, two important companies in the industry under equal conditions.

In short, the judgment is a wake-up call against the temptation to give in to the rush and pressure that usually precede the signing of any contract. Assuming obligations whose content and scopeare, sometimes, not entirely clear, could bring unnecessary risks.

La entrada Unilateral and unjustified termination of a license and supply agreement for medicinal products aparece primero en Faus Moliner.

After consulting with the tax authorities, it was concluded that the tax which should have been applied was the VAT instead of the Tax on Property Transfers. Therefore, the seller asked the buyers to pay the VAT in virtue of the agreement which established that the latter were bound to cover all taxes. For such purpose, the seller sent the buyers the relevant invoices, including VAT. The buyers challenged the passing on of the VAT and the courts ruled in their favour, considering that the seller had one year to pass the payment of the VAT on the buyers and such period was long exceeded.

The seller decided to file a civil claim requesting the buyers to reimburse the VAT that he had initially paid, in virtue of their agreement, reaching the Supreme Court who finally ruled in favour of the seller.

Binding power of the agreements

The Supreme Court considered that, although under VAT regulations the period to pass the payment of the VAT on had expired, that was not an obstacle for the seller topass on the payment of a tax borne by the seller himself and that, in accordance with the agreement, it had to be satisfied by the buyer. In particular, the Supreme Court stated the agreements are binding between the parties, and that they cannot be exempted from their undertaken obligations just because it was initially assumed that the purchase agreement was subject to the payment of the Tax on Property Transfers and it was only afterwards when it was determined that the applicable tax was VAT.

Regardless of which ends up to be the tax applicable, the fact is that the buyers explicitly and unconditionally undertook the obligation to bear the taxes resulting from the purchase of the houses. In short, the Supreme Court makes the provisions from the agreement prevail over any administrative incidence.

In the light of this ruling, it would always be convenient to pay particular attention when specifying in the agreements the obligations assumed by each party, even if they might seem auxiliary obligations, as for instance in this case who must cover the taxes.

La entrada The parties must abide by the fiscal terms as specified in the agreements, regardless of who the taxable person is aparece primero en Faus Moliner.

The owner of a computer store called “Aiguamolls” brought a claim against Meristation Magazine, S.L. for the degrading expressions published in the forums of its website that were addressed to both Aiguamolls and its owner. The plaintiff considered to have suffered a violation to his right to honour and requested that the files called “criticism to the way Aiguamolls works” and “Aiguamolls also wants to defraud me” be removed from such website. The defendant refused to do so claiming that he was only the owner of the website and that the users were responsible for their opinions published in the forums.

According to Directive 2000/31/EC, incorporated to our legal system through Law 34/2002, service providers who store information provided by the user of such services will not be responsible for the data stored as long as they are not “effectively aware” of its illegal nature. The law establishes that there is effective awareness “when a competent body has declared the unlawfulness of the data, ordering its removal…”. It also establishes that once the service provider becomes aware of this situation, he shall have to act promptly and diligently to remove such data.

Position of the Court

The local court of Rubí (Barcelona) ruled in favor of Aiguamolls, ordering Meristation to pay 30.000 Euros and to publish the judgment on its website.

The Provincial Court of Barcelona shared these considerations but it reduced the compensation to 12.000 Euros. It considered that the exemption of liability for lack of “effective awareness” did not apply since: (i) the comments on the forums had serious importance and could even lead to criminal liability; and (ii) Meristation could have been aware of the conversations of the users due to the long period in which they took place and to the number of answers. The Provincial Court concluded that setting up forums requires to increase the duty of control over the website content, through “moderators”.

The Supreme Court, after reminding that the right to honour is limited by the freedom of expression and information, fully agreed with the Provincial Court. The owner of the website did not comply with his duty of diligence as he did not detect and prevent certain contents since, although the information could not have been previously filtered, he should have identified the situation and expelled the user.

Although the law understands that “effective awareness” exists when the authorities declare the unlawfulness of the comments, the Supreme Court considered that in today’s world, characterized by the facility and speed of data dissemination, preventing the affected party to initiate proceedings until the moment when such unlawfulness is formally declared would multiply the damages caused to the extent of becoming irreparable by the time the answer to the legal proceedings is obtained.

La entrada Liability of the owner of a website for the comments published by users in its forums aparece primero en Faus Moliner.