Compensation for Acquired Customers: Effects of the Legal Qualification of the Contractual Relationship

30 November 2023 - Michael Fries

The relevance of the legal qualification of a contractual relationship was demonstrated in a recent distribution matter decided by the Spanish Supreme Court. The legal dispute arose from a contract on the distribution of software licences.

Michael Fries Abogado & Rechtsanwalt +34 91 319 96 86

The contracting parties had referred to the contract as a “Memorandum of Understanding”, a legally somewhat imprecise term, with one party being designated as the “Distributor” and the other as the “Licensor”. The remuneration of the Distributor, the “commission”, consisted of a discount equivalent to the amount of the gross sales margin of the licences purchased for resale. The contract was terminated due to disagreements between the contracting parties and the Distributor claimed compensation for the customers he had acquired on the basis of the gross margin granted as a discount.

The court of first instance fully dismissed the claim. Based on the content of the contract it considered the contractual relationship to be a mix between a commercial agency and a distribution agreement. It also held that the plaintiff had failed to prove the amount of the compensation claimed, since the basis for his calculation had been the gross margin and not the net commission after deduction of costs.

The provincial court of appeal reversed the judgment of the court of first instance and upheld the claim for compensation for the amount claimed (gross margin). The court of appeal considered the legal qualification of the contractual relationship to be irrelevant for the claim for compensation, as both the commercial agent and the distributor were entitled to compensation either directly or by analogy in accordance with article 28 of the Law on Agency Contracts.

The Supreme Court disagreed and partially overturned the appeal judgment. It held that the provincial court of appeal should have determined the legal nature of the contractual relationship in order to quantify the compensation claimed. Due to the differences in remuneration between commercial agents (commission) and distributors (margin) and the mixed nature of the contractual relationship, the court of appeal should have examined which contractual elements have the greater weight.

In the matter at hand, the Supreme Court considered the contractual relationship to be a distribution contract, since the plaintiff’s contractual obligations went beyond mere commercial intermediation. Therefore, the compensation claimed should have been calculated on the basis of the net margin – the difference between the purchase price and the selling price after deduction of costs and taxes –, as established by the settled case law of the Supreme Court, and not on the gross margin, as assumed by the Provincial Court.