Distribution agreement under Dutch law.

The distribution agreement under Dutch law as opposed to the agency agreement, is not regulated in the Dutch Civil Code. In essence, the distribution agreement is the agreement pursuant to which the distributor agrees to distribute, sell and market goods of the supplier within a certain territory. A distributor typically acts in its own name and for its own account whereas an agent acts in name and for the account of the supplier or principal. Since the distribution agreement under Dutch law is not regulated, general basic principles on contract law as laid down in the Dutch Civil Code apply. This means for example that Dutch law does not prescribe that the distribution agreement has to be in written form. A verbal agreement can also constitute a distribution agreement under Dutch law. Correspondence and conduct of parties can also constitute a distribution agreement. One should however always  bear in mind that depending on facts and circumstances an agreement carrying the title ‘Distribution Agreement’ or a verbal distribution agreement can in fact constitute an agency agreement under Dutch law having as consequence that the parties are bound by the compulsory requirements of the agency agreement under Dutch law.

Typical subjects of the distribution agreement are: the territory of the distribution, the exclusivity of the distributor, certain performance or turnover targets that the distributor has to meet, marketing and intellectual property (license) rights and obligations, pricing stipulations, payment terms, shipping terms and risk, term and termination of the distribution agreement, applicable law.

In absence of any compulsory requirements, parties to the distribution agreement are to great extent free to agree on any rights and obligations as regards the distribution. The contractual freedom is however limited by general (Dutch) principles of contract law, such as the important principle of reasonableness and fairness. Moreover, the distribution agreement should adhere to the respective (EU) competition rules and directives.

The termination of a distribution agreement by the principal is the common cause for litigation. Since the Dutch Civil Code does not provide rules for termination, these rules are based on case law. In general, a unilateral termination of a distribution agreement under Dutch law entered into for a definite period is not possible unless agreed upon. A distribution agreement entered into for an indefinite term can be unilaterally terminated by taking into account a reasonable notice period for termination. The reasonableness of the notice period depends on the actual facts and circumstances of the case. Matters influencing the length of the notice period are: the duration of the agreement, investments made by the distributor, number of employees hired by the distributor which he may need to fire, the dependency of the distributor on the principal’s business, the cause for termination, justified reliance on the continuance of the agreement, etc. Notice periods can vary from a few months up to (although exceptional) a year. One should bear in mind that even if certain notice periods have been agreed upon, these notice periods can be set aside when ruled that these notice periods under the exceptional circumstances are not reasonable and fair and that a longer notice period should have been granted. It is also important to note that the distributor can claim compensation for damages resulting from investments made in order to continue the distribution agreement.

As the distribution agreement is not regulated by Dutch law and is predominantly based on case law as regards for instance aspects of termination and damage compensation, it is recommendable to obtain lawyer’s advice first before entering into a distribution agreement under Dutch law or before commencing litigation. Should you in this respect have any questions or comments or have any other questions on Dutch corporate or commercial law, please feel free to contact Peter Keegstra.