A recent Italian law, adopted in August 2022 and amended in January 2023, has introduced some mandatory rules applicable to contracts between car suppliers and their distributors, resulting in a special protection of the distributors outside the scope of EU rules on vertical restrictions.

The new provisions, as resulting from the amendment, have been in force since 18 January 2023. They apply to all vertical agreements, in whatever form (including commercial agency, concession or commission), concluded between a supplier and an importer or distributor of new car vehicles (i.e., non-registered, or registered for not more than 6 months).

The law was introduced short after the entry into force of EU Vertical Block Exemption Regulation 2022/720, apparently in order to grant distributors a better protection vis à vis the car industry.

One of the main rules concerns the stability of the contractual relation: fixed-term contracts must have a minimum duration of 5 years, withdrawal being subject to a notice period of 6 months before the expiry date; open-ended contracts, on the other hand, can be terminated with a notice of 24 months.

Another cornerstone, which is a novelty for Italian law, is the provision of a “fair compensation” for the car distributor in case of termination, except in case of breach of contract or distributor’s termination.

Compensation is calculated considering both the following values:

a) investments made in good faith by the distributor and not yet depreciated;

b) goodwill for the activities performed under the contract, based on turnover of the last five years of contract validity.

In addition, the law sets the minimum content of distribution contracts, i.e., sales modalities, limits of the mandate, reciprocal assumptions of responsibility and allocation of costs associated with the sale.

Before signing the contract, and before every subsequent modification, the supplier must provide the distributor in written form with all information in its possession which is necessary to evaluate the engagements and their economic sustainability, including an estimate of the expected marginal revenue.

Although the law does not specify its effects on existing contracts, there is little doubt that it applies to all events taking place after its entry into force: not only the conclusion of new contracts, but also modifications and termination of existing ones.

All the new provisions are expressly defined as “mandatory“. This means that, as long as Italian law is applicable to the distribution contract, they cannot be derogated by will of the parties. However, when it comes to contracts between Italian distributors and foreign suppliers which are not subject to Italian law, the overriding nature of domestic law must be checked by the courts according to EU Regulation 593/2008 (Rome I): and only provisions which are considered “crucial” for safeguarding the public interests of a country can prevail on the applicable law chosen by the parties.  

Some of the new provisions, especially the criteria related to fair compensation, will need to be better defined in their application by the courts.

In any case, all the rules are peculiar to the automotive industry and are not deemed to apply to other categories of contracts.