Thoughts on Distribution Law
Christian Alexander Meyer, Dr. iur. HSG, (ST. GALLEN), lic. eur. ULB (BRUSSELS), Attorney-at-law and Arbitrator
Distribution and agency-contracts place a distributor or agent in an intermediate position on a continuous basis. This position is regulated by various areas of law. Some thoughts on distribution law address selected questions of contract termination, Swiss cartel law and European competition law. Choice of law, rebates, online distribution and avoidance of corruption are mentioned. Consumer protection increases post contractual distribution efforts. Respecting all areas of the law applicable improves the desired distribution structure.
Foreign judgments and legal developments may jeopardize a chosen law or the agreed venue. Since the CJEU has rendered its INGMAR-decision, protection clauses in favor of self employed commercial agents for their indemnity for new or increased numbers of customers under Council Directive on self employed commercial agents are considered to be mandatory, thus the choice of law became limited. Since then the courts of the EU member states deny also the recognition of chosen places of jurisdiction, if the law chosen by the parties does not recognize an indemnity for new customers upon contract termination.
Termination of a distribution agreement may cause different problems. A distribution agreement is in general a long term agreement. Experienced distribution partners insert the termination modalities and the consequences thereof in the agreement in due respect of their interest. To conclude by analogy for an extraordinary termination of a distribution contract for cause, as known under employment law, is excluded for typical distribution agreements. Only in the fewest cases the distributor is a physical person acting as an individual. Therefore the situation is not tantamount to the one of an employee. As a consequence also for extreme cases of non performance the adherence to the agreement until ordinary termination is expected. The principle „pacta sunt servanda“ applies.
The supplier who receives upon termination of the agreement an advantage through the new or increased number of customers canvassed by the distributor, shall pay an appropriate indemnity or compensation. It is advisable to regulate the modalities thereof in detail.
To conclude by analogy for the indemnity for new or an increased number of customers from the agent to the sole-distributor became standard procedure. In Switzerland the opposite case, that also an agent may have an independent role, caused so far only little awareness. However this independence of an agent may become a danger point under cartel law. The role of the independent commercial agent and the related vertical agreement shall comply with cartel law, not only if one party is acting in the EU.
Cartel law may bear pitfalls for distribution agreements. Article 6 Federal Cartel Statue is the basement for the Swiss Cartel Commission’s notices. The mandate requires the Commission to define conditions under which agreements for reasons of efficiency are presumed justified in the meaning of Article 5 para. 2 Federal Cartel Statute. However, the Commission’s Number (“Ziffer”) 16 paragraph 3 Notice on Verticals (“VertBek”) and Article 16 paragraph 3 VertBek and Article 14 paragraph 2 Automotive Notice (“KFZ-Bek”) indicate now that commercial efficiency remains always to be assessed in the case at hand (“wirtschaftliche Effizienz sei immer im Einzelfall zu prüfen”). Desirable is, that a notice at least would define a few conditions under which an agreement shall be considered commercially efficient. The notice’s reservation that any case remains to be assessed individually provides not the under Article 6 Cartel Statute on notices promised trust to comply with cartel law, for the parties who wish to do so.
Distribution intermediaries in a surrounding jeopardized by corruption are to be most diligently chosen, instructed and observed based on a compliance program.
More thoughts you may find in the author’s article “Gedanken zum Vertriebsrecht” in German in Jusletter of May 2, 2016.