Distribution agreements - sale of goods or supply of services in the absence of a written contract?

A recent case highlighted the perils of not having a written contract in the context of termination of a distribution arrangement and has provided some useful guidance on the legal treatment of distribution agreements.

In the case of Granarolo SpA v Ambrosi Emmi France SA (Case C-196-15), a French company (A) brought a claim against an Italian company (G) after G terminated, without notice, a long-standing cross-border distribution arrangement with A. A had been distributing food products made by G in France for 25 years but there was no written agreement between the parties.

One of the key arguments between the parties was in relation to jurisdiction. Under the rules determining jurisdiction, jurisdiction is determined:

  • in matters relating to tort, by reference to the place where the harmful event occurred or may occur; and
  • in matters relating to contract, by reference to the place of performance of the obligation in question.

A argued that abrupt termination of a contract related to tort and the dispute should be heard in France as this was the place where the harm occurred. G argued that the arrangement between A and G related to the sale of goods and the dispute should be heard in Italy as the goods were delivered by G to A in Bologna, Italy.

The two questions for the Court of Justice of the European Union (“CJEU”)
In determining the dispute the French court referred two questions to the CJEU:

  1. Whether abrupt termination of a long-standing business relationship was a matter relating to tort or a matter relating to contract.
  2. If the answer to the first question is that the claim relates to a contract, whether the cross-border distribution arrangement between A and G was classified as a contract for the sale of goods or a contract for the provision of services.

The CJEU’s response

  1. The CJEU held that abrupt termination of a long-standing business relationship is not a matter relating to tort if a tacit contractual relationship exists between the parties. For a contractual relationship to be established a contract in writing is not required; what is required is for a contractual obligation to be identifiable. Factors to take into consideration in deciding this include the long-standing nature of the relationship and good faith between the parties, the regularity and development of the transactions between the parties and any agreements as to prices charged and/ or discounts granted.
  2. In response to the second question, the CJEU held that where there are a series of agreements between the parties relating to the collection and delivery of goods over time, the arrangement is likely to be viewed as a contract for the sale of goods. To be considered a contract for the provision of services, performance of a positive act in return for remuneration is required. A positive act in the context of a distribution agreement may be a party’s involvement in the promotion of the spread of products concerned, in carrying out the distribution. The remuneration element is not restricted to payment of a sum of money. The CJEU held that the provision of assistance to distributors in relation to advertising, communication of know-how by means of training or payment facilities may, “represent an economic value for the distributors that may be regarded as constituting remuneration”.

Next steps and practical implications
It is now for the French court to determine, in light of the CJEU’s analysis, whether the cross-border distribution arrangement between A and G constitutes a contract for the provision of goods in Italy or a contract for the provision of services in France.

This case provides some useful guidance on the application of tort and contract law, and the distinction between contracts for the provision of goods and contracts for the provision of services. The main point to take away from this case is the benefit of having a written agreement in place to avoid uncertainty and the potential costs that can be incurred in a dispute seeking clarification on these issues.

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