Distribution and agency

Distribution
A distribution agreement dictates the relationship between the supplier and its distributor and the conditions under which the sales agreements will be concluded. Usually, exclusivity is agreed upon.

The Dutch Civil Code does not contain a section of specific articles regarding distribution agreements. 

The unilateral termination of distribution agreements is governed by reasonableness and fairness. This can be an abuse of rights. Judgments from the courts in first instance show that this is assumed rather quickly, for example when the distributor has made considerable investments on the basis of his trust in the sustainable character of the agreement (and/or at the request of the supplier), whereas those investments have not been earned back yet. This may also be the case if there is no proper basis or ground for termination. In legal literature, the view is taken that there is a minimum notice term of 3 months and that, in the event of a contract for a period of over 2 years, this should be stretched to 6 months, increasing to a notice term of 1-3 years for an agreement that has been in force for over 10 years.

One may assume that, next to observance of a notice term, the distributor may also be entitled to compensation of damages.

Agency
The agency agreement is the agreement under which the trade agent introduces new clients on behalf of his principal or expands agreements with existing clients. Most disputes between the agent and the principal arise at the termination of the agency agreement.

In the event of termination, the trade agent is usually entitled to a sum per client that he has introduced to the principal (or the agreements with existing clients that were expanded considerably). In order to be eligible for said compensation, the agreements with these clients should benefit the principal substantially.

The amount of compensation, also known as goodwill to be paid by the principal to the agent should be fair, taking into account all circumstances (in specific the provision from these agreements that will be forgone for the agent). The amount may not exceed one year’s pay, calculated on the basis of the average over the last 5 years, or, in the event that the agreement had a shorter term, the average of the duration thereof.

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