Distribution agreements in Italy: a short guide to find your way
In principle, distribution contracts in Italy are not specifically regulated and are subject to the general rules of contract law. For this reason, the drafting of comprehensive contracts is extremely important in order to prevent and solve the issues which may arise between principals and dealers.
The automotive sector represents and exception: a recent law of 2022 has regulated contracts with car distributors (including agents and other intermediaries), introducing some protective measures (minimum duration of the contract, termination compensation). Outside the car industry, rules of contract law apply, including general principles, like good faith in negotiations and in the performance of the contract. For this reason, it is extremely important to draft clear and complete clauses for all relevant aspects.
According to general rules, a contract of duration can be terminated without cause only with an appropriate notice, depending on the duration of the contractual relation and on other circumstances (e.g. investments required to the dealer). There is no fixed rule, although in many cases six months will be considered appropriate. It is important to consider, however, that in the event of a conflict a court could judge that a notice is not appropriate and grant damages to the dealer.
Distributors in Italy are considered independent entrepreneurs which assume the business risk and, as a rule, do not have right to an indemnity upon termination.
However, the termination process can be reviewed by courts and dealers can claim damages (including loss of profits) for abusive termination or for violation of the general obligation of good faith, especially when the dealer is economically dependent from the principal, or when the contractual relation is strongly unbalanced in favour of the principal.
There are no legal rules related to post-termination duties: therefore, it is important to adequately stipulate in the contract all obligations related to the end of the contractual relation, including the possible repurchase of stock or the use of the principal’s trade marks or signs.
It is not uncommon that two parties start a continuous supplier/customer relation, which after some time evolves in a de facto distribution agreement (e.g. including exclusivity or sale promotion awards): in such cases it is advisable to stipulate as soon as possible a comprehensive contract and to avoid ambiguities.
Parties should know that mediation is now mandatory in Italy as a pre-condition for judicial claims concerning franchising contracts and continous supply (so called somministrazione), which is rather close to distribution.
Choosing a competent court for dispute resolution is of umost importance. Italian courts are not renowned for their speed, but the average quality of the decisions of many courts is very good. If the parties consider arbitration, advantages (like rapidity and confidentiality) and disadvantages (higher costs and a limited access to appeal) must be carefully evaluated in each case, and it is advisable to choose regulated arbitration (i.e. with an Arbitration Chamber) which grants a more controlled and predictable process.