Distributor or commercial agent?

A/FOI A. PITENIS AVEE v. Chrikar Trading Company Ltd, Action No. 4326/2017, District Court of Nicosia, judgment dated 14 May 2024

Distributor or commercial agent? — Proof of debt on a running trading account — Pleading an account stated — The critical importance of cross-examination and the consequences of its omission

The facts

The Plaintiff, a Greek company engaged in the standardisation, packaging and export of foodstuffs, claimed from the Defendant, a Cypriot wholesale food company, the sum of €30,589.46 as the debit balance of a trading account arising from sales of products on credit. The parties' collaboration, based on an oral agreement, lasted fourteen years (2003–2017): the Plaintiff sold its products to the Defendant, which resold them on the Cypriot market to its own clientele, freely determining its own prices and profit margin.

The collaboration came to an end in August 2017, when the Defendant informed the Plaintiff, after the relevant agreement had already been signed, that it was selling its commercial operations to Argosy Trading Company Ltd, a member of a major Cypriot group. The Plaintiff, having travelled to Cyprus twice to assess the new state of affairs, decided not to work with the new entity. The Defendant denied the debt, contending that nothing was owed at the time the collaboration ended, and counterclaimed: it alleged that it had been the Plaintiff's exclusive commercial agent, that the Plaintiff had terminated the collaboration in bad faith, and that, by reason of the Plaintiff's refusal to work with Argosy, the group had "deducted" €70,000 from the consideration payable for the sale of its business, which sum it claimed as damages.

The legal issues

1. Proof of debt on a running trading account. The Court accepted as unchallenged the Plaintiff's evidence as to the existence and operation of the trading account, which was consistently updated with sales invoices and payments, the Defendant never having objected to any entry or balance. The statement of account, combined with the unpaid invoices and the corresponding delivery notes, established the claim in full.
2. Account stated and pleading requirements. Of particular interest is the Court's observation that a claim on an account stated constitutes a self-standing cause of action which must be expressly pleaded and with particulars (J.K. Vavlites (Hotels & Leisure) Ltd v. Management Committee of the Hourly Paid Government Personnel Provident Fund, Civil Appeal No. 31/2013, judgment dated 30.1.2019). That situation is to be distinguished from cases where the statement of account is used merely as evidence in support of another cause of action, in which case no special pleading is required, as here, where the claim was fully proven on the basis of the sales and the invoices.
3. The critical importance of cross-examination. The judgment consistently applies the rule that positions not put to a witness in cross-examination cannot be advanced at the stage of closing addresses (Frederickou Schools Co Ltd v. Acuac Inc. (2002) 1 C.L.R. 1527, Adidas v. Jonitexo Ltd (1987) 1 C.L.R. 383). Arguments raised by the Defendant, such as that the brought-forward balance of the account had not been proven, were rejected precisely because they had never been put to the witness so as to afford him the opportunity to respond.
4. Distributor or commercial agent? The central legal issue in the counterclaim was the characterisation of the parties' relationship. The Court, by reference to sections 142, 146 and 147 of the Contract Law, Cap. 149, held that no relationship of agency had been established, whether express or to be inferred from the circumstances: the Defendant purchased the products in its own name, resold them to its own clientele at its own prices and profit, and had no authority whatsoever to bind the Plaintiff vis-à-vis third parties. The mere fact that the Plaintiff did not work with any other company in Cyprus is not sufficient to transform a distributor into an agent. Consequently, the provisions of sections 165 and 166 of Cap. 149 concerning compensation for untimely revocation of authority and reasonable notice had no application.
5. Freedom of commercial choice and good faith. The Court held that no breach of contract or bad faith arose from the Plaintiff's refusal to collaborate with Argosy. It was the Defendant which, without prior consultation, had sold its business to a third party; in the absence of an express contractual provision, the Plaintiff was under no obligation to "follow" its counterparty into the new venture. On the contrary, the assessment of the facts which preceded its decision was found to demonstrate professionalism and good faith.
6. Proof of loss. The counterclaim for €70,000 also collapsed on the question of damage: its principal evidential foundation was a document authored by a third party who did not testify, which was held to be inadmissible hearsay with no explanation offered for the failure to call its maker (section 27(2) of Cap. 9), while the Defendant's witness was unable to explain how the amount had been calculated. The Court noted that, even had a breach been established, only nominal damages would have been awarded.

The outcome

The claim succeeded in its entirety: judgment was entered in favour of the Plaintiff for €30,589.46 plus statutory interest from the filing of the action, while the counterclaim was dismissed, with the costs of both claim and counterclaim awarded in favour of the Plaintiff. The successful Plaintiff was represented by our firm.

Significance of the judgment

The judgment is of substantial practical value for cross-border commercial collaborations, particularly informal and long-standing ones.

First, it clearly delineates the distinction between a distributor and a commercial agent under Cyprus law. The test is not exclusivity or the duration of the collaboration, but on whose behalf the party acts: a party which buys in its own name and resells at its own risk, to its own clientele and at its own margin, is a distributor, and does not enjoy the protection of sections 165 – 166 of Cap. 149 upon termination of the relationship. This distinction is decisive for suppliers and importers who operate for decades without a written agreement.

Secondly, it confirms that a long-standing commercial collaboration does not, absent an express contractual provision, give rise to any obligation on the supplier to continue the relationship with the successor or purchaser of its counterparty's business. The choice of contracting partner remains a free commercial decision.

Thirdly, it stands as a model of the evidential weight of a properly maintained trading account, supported by invoices and delivery notes, as against general and unsubstantiated denials, and, conversely, of the consequences of procedural missteps: allegations not clearly pleaded, positions not put in cross-examination, and losses resting on unexplained hearsay cannot succeed.

This article is for informational purposes only and does not constitute legal advice. For specialised guidance on similar matters, please contact our firm.