Distribution Agreements in the Netherlands

Juridical qualification of distribution agreements under Netherlands law

The distribution agreement is one of the most common and important legal instruments in building an international sales network. In such agreement, a distributor agrees to commercialize a supplier’s products in a determined territory and under certain terms. Dutch law does not regulate distribution agreements and thus the general rules on contracts apply. Contracts can exist in verbal and written form, or can be derived from an exchange of correspondence.

Law applicable to distribution agreements

The question which law is applicable to a distribution contract is governed by the Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I).

In a lot of cases the distribution contract shall be governed by the law chosen by the parties. Art. 4 1.(f) of the Rome I Regulation provides that in the absence of choice the distribution contract shall be governed by the law of the country where the distributor has his habitual residence.

Termination of a (log term) distribution contract

Under Dutch law, in the absence of any legal or contractual provision, the revocable
character of the contract of indefinite duration is uncertain, as is the question of whether it suffices observe reasonable notice period. Generally, termination must comply with standards of reasonableness and equity. In deciding whether one party can bring an end to the contract, all circumstances of the matter, including the interests of the other contracting party, will have to be taken into account.

Generally speaking, the majority of contracts can be terminated for cause. In an exceptional case, the court may not allow termination of the contract at all, as in hte Louis Latour case described hereunder.

Grounds for termination

The general rule is that termination is possible if a sufficiently compelling reason exists. An important case in this regard is the decision rendered by the Dutch Supreme Court on 3 December 1999 in the case Maison Louis Latour/De Bruijn. In this particular case the termination by the French winehouse Louis Latour of the distribution agreement with their Dutch importer was found to be not in accordance with the rules of reasonableness and fairness. It should be noted that this was an exceptional case while de relationship between parties lasted for over 100 years. After this decision of the Dutch Supreme Court, however, distributors always tend to claim that it is not possible to terminate any ordinary distribution agreement. Lower courts hardly ever rule that termination is impossible, but the possibility exists.

Reasonable notice period

Not unlike in other jurisdictions Dutch law requires that reasonable notice is given for termination of a distribution agreement.
Although determining the period of reasonable notice is said to be more art than science, it is possible to give some guidance, based on case law of the lower courts. Criteria that may, and probably will, be taken into account by the court are:

  • the nature and duration of the agreement

  • whether the distributor has had a chance to earn back long-term and other investments

  • whether the distributor will have to dismiss employees

  • the extent to which the distributor’s business depends on the products purchased from the supplier in question

  • the possibility for the distributor to continue its business by finding new leads
  • the reason for the termination

  • justified reliance on continuation of the agreement

  • sales figures

Notice periods considered fair and reasonable can vary from one or two months to a lot more. Obtaining Lawyer’s advice is recommendable.

Compensation

In the decision of the Dutch Supreme Court of 21 June 1991 (Mattel/Borka) it was held that recent investments made by the distributor for the purpose of the continuation of the agreement should be compensated by the terminating party. 


The services of our firm

Some frequently used services of our firm relating to agency contracts are:

  • advice on the conclusion of distribution contracts
  • drafting of distribution contracts
  • negotiation with supplier or distributor
  • advice regarding disputes and termination
  • litigation in conflicts between suppliers and distributors

If you have any questions regarding the drafting or termination of distribution contracts, please feel free to contact our Transport and International Trade contact person for assistance.

Share
Print This Page Print This Page

Dutch Bar Association Official partner of Erasmus School of Law