Term of the Distribution Agreement
There are no statutory provisions under Romanian law on the term of Distribution Agreements. As a general principle, the parties are free to set out the parameters of the contractual term, for example in agreeing on a fixed term or an indefinite term or a combination.
If the parties agree on a fixed term and, after the expiry of the fixed term, continue to perform the Distribution Agreement, the Distribution Agreement is considered to have been tacitly renewed for an indefinite term.
Termination of the Distribution Agreement
If the Distribution Agreement has been entered into for a fixed term, as a general principle, the Distribution Agreement may only be terminated extraordinarily for good cause. During a fixed contractual term, no termination for convenience is admissible. Distribution Agreements exceeding five years must be thoroughly assessed in light of the competition law limitations referred to above, particularly when the Distribution Agreements includes non-compete obligations and exclusivity rights.
If the Distribution Agreement has been entered into for an indefinite term, it may be terminated extraordinarily for good cause and for convenience by complying with certain minimum notice periods. Romanian law does not provide for minimum notice periods applicable for termination of Distribution Agreements. However, in practice, the minimum notice periods provided by the law for Commercial Agents (which depend on the actual term of the Agency Agreement in question, see above, and range between one and six months) are applied as point of reference also for Distributors, unless in the individual case a longer notice period is required for equitable reasons (for example because the Distributor made substantial investments when entering into the Distribution Agreement).
Romanian law does not provide for a written form requirement with respect to the termination notice. For evidentiary purposes, we recommend setting out such requirement in the Distribution Agreement and in any case terminating the Distribution Agreement in writing with confirmation of receipt.
The indemnification claim as main consequence of the Distribution Agreement's termination
As opposed to the indemnification claim of the Commercial Agent (the main consequence of an Agency Agreement's termination), Romanian law does not provide for the same entitlement to an indemnification claim for Distributors. Moreover, statutory provisions applicable to Commercial Agents cannot be applied by analogy to Distributors.
The parties can and should regulate in detail in the Distribution Agreement the consequences (including indemnification claims) of the Distribution Agreement’s termination (e.g. limitation of liability clauses, penalty clauses, indemnification etc.). If no provision has been reflected in the Distribution Agreement to this effect, the Distributor may be entitled to indemnification in the event of termination of the Distribution Agreement based on general law provisions by way of a damages claim against the Principal and subject to the latter’s liability being substantiated by evidence. A damages claim may be based on a breach of contract or tort.
Pursuant to settled case law, under contractual liability rules, a party will be liable for the loss caused to the other party, as this was provided under the contract or may have been reasonably foreseen at the time of conclusion of the contract. In order to be awarded damages, the party claiming indemnification by way of damages needs to prove: (1) the Contract; (2) a default under the contract (i.e. a lack of performance or a delayed performance) by the defaulting party; (3) the extent of the loss; and (4) the causation link between the loss/damages claimed and the party’s default.
Similarly, under tort liability, the party claiming indemnification by way of damages needs to prove: (1) the extent of the loss incurred; (2) the illicit act which generated the loss; (3) intention, negligence or gross negligence of the party; (4) the causation link between the loss/damages claimed and the party’s illicit act.
Under Romanian law, liability is limited to the prejudice caused by the defaulting party. As a rule, damages may be awarded to allow for the full recovery of the prejudice suffered by the entitled person and include: (1) recovery of effective loss incurred by the harmed party; (2) recovery of unrealised gains or loss of profit or loss of opportunity (i.e. benefits that the harmed person would have been able to obtain if the other party’s default would not have prevented it); (2) expenses incurred by the harmed party for avoiding or limiting the loss.
Other consequences of the Distribution Agreement's termination
Romanian law does not provide for a post-contractual non-compete clause. Both national and EU Competition law, as a general principle, considers a post-contractual non-compete clause as invalid and only allows for such under certain exceptional circumstances. If a post-contractual non-compete clause has been validly agreed (complying with EU and national Competition law), the Distributor may be entitled to a reasonable financial compensation, provided this has been agreed between the Principal and the Distributor in the Distribution Agreement. We note that the statutory provisions applicable to Commercial Agents and non-compete obligations provided in an Agency Agreement cannot automatically be applied by analogy to Distributors. Pursuant to Romanian competition law, post-term non-compete obligations are acceptable for a maximum term of one year and in limited circumstances (as provided in the EU regulation on vertical restraints). Post-term non-compete obligations exceeding one-year need to be assessed on a case by case basis to determine whether they may restrict competition on the relevant market.
Considering that Romanian law does not specifically regulate Distribution Agreements, the parties enjoy wide freedom to negotiate their contractual obligations for the purpose of their distribution relationship. We recommend that the parties negotiate and agree detailed contractual terms and conditions to be reflected in the Distribution Agreement in order to address all matters relevant for the distribution relationship, in order to avoid undesired consequences that will be judged by a court of law according to general statutory rules and commercial practice.
Any claim arising from a Distribution Agreement – including the indemnification claim – is subject to a three-year limitation period, starting at the end of the year during which the claim arose and the creditor (e.g. the Distributor) gained knowledge (or did not gain knowledge due to its gross negligence) of the debtor and the circumstances creating the obligation.
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