While the distribution agreement offers an excellent vehicle for doing business, this form of contract has not been regulated under Dutch law.
What exactly is a distribution agreement?
In a distribution agreement, a supplier (e.g., a producer) and the distributor make agreements about the products or services of the supplier to be sold by the distributor, usually within a demarcated territory. In doing so, the distributor acts for its own risk and account and under its own name. The distributor is, in fact, an autonomous enterprise.
Distribution agreement, term and termination
When concluding a distribution agreement, consensus is generally reached on the term of the agreement, the exclusivity for a certain territory and a demarcation of the territory within which the distributor may offer the goods or services. Often, the parties agree on a fee that the distributor will receive on termination of the agreement. This has, contrary to the agency agreement, not been regulated by law.
Open-ended distribution agreement
A distribution agreement is a so-called continuing performance contract. The law does not provide any rules regarding the termination of open-ended distribution agreements. If no term is agreed in the agreement, then the agreement can, generally speaking, be terminated at any time. According to case law, however, termination must meet certain requirements. The reason for termination must involve a significant interest, whereby the interests of the other party are taken into account. The Dutch Supreme Court has ruled that an open-ended continuing performance agreement can always be terminated without grounds. The principles of reasonableness and fairness play a leading role in this, which means that it will have to be determined on a case-by-case basis whether the open-ended distribution agreement can, under the given circumstances, be terminated.
Fixed-term distribution agreement
If the distribution agreement specifically provides for termination, then a reasonable notice period will have to be observed. After all, the principles of reasonableness and fairness require that the distributor be given some time to adjusted to the new situation and limit its losses. The distributor must, according to the Dutch Supreme Court, therefore be permitted to place the customary orders during the notice period.
Various points of attention
As no special statutory regulations are provided for the distribution agreement, attention will have to be given to various matters such as exclusivity, competition clause, the territory, the notice period, guarantee obligations, price and possible product liability. Agreements can also be made about the costs of advertising, minimum turnover, etc. Special attention should be given to the fact that a distribution agreement is not identical to an agency agreement, a form of contract that is arranged by law.