Distribution law in Luxembourg

The law on commercial Agency Agreements of 3 June 1994

Are there any formal requirements upon concluding an Agency Agreement?

Under Luxembourg Law, the Agency Agreements shall be evidenced in writing and in duplicate, one copy shall be given to the Commercial Agent and one copy to the Principal.

The proof of contract’s existence and its content may be demonstrated by any means of proof, no matter what the value of the litigation.

Can the Commercial Agent bind the Principal?

The Agency Agreement can grant the Commercial Agent the power to negotiate and conclude agreements in the name and for the account of the Principal.

What are the primary duties of the Agent?

The Commercial Agent shall, by performing its activities, take care of the interests of the Principal and act faithfully and in good faith.

In particular, the Commercial Agent shall:

• take proper action in the negotiation and, where appropriate, in the conclusion of the deals for which the Commercial Agent is in charge of;
• communicate to the Principal any necessary information at its disposal;
• comply with the reasonable instructions given by the Principal.

The parties cannot derogate from these provisions.

What are the primary duties of the Principal?

The Principal shall, in its dealings with the Commercial Agent, act faithfully and in good faith.

The Principal shall in particular:

• make available the necessary documentation relating to the goods or services concerned to the Commercial Agent;
• provide the Commercial Agent with the information necessary for the performance of the Agency Agreement, including notifying the Commercial Agent within a reasonable time that it could be anticipated that the volume of commercial transactions will be significantly less than what the Commercial Agent could have normally expected;
• the Principal must, moreover, inform the Commercial Agent, within a reasonable time, of its acceptance, refusal or non-execution of a commercial transaction negotiated by the Commercial Agent.

The parties cannot derogate from these provisions.

How is the Commercial Agent paid?

The remuneration of the Commercial Agent consists either:

• of a fixed sum,
• or of commissions,
• or partly of a fixed sum and partly of commissions according to an agreement between the parties.

In the absence of such an agreement, the Commercial Agent is entitled to remuneration in accordance with commercial practices in this area.

In the absence of such practices, the Commercial Agent is entitled to a reasonable remuneration that takes into account all elements that relate to the transaction.

The Commercial Agent is entitled to the commission as soon as and to the extent that one of the following circumstances arises:

• the Principal has executed the transaction;
• the Principal should have executed the transaction under the agreement with a third party;
• the third party has executed the transaction.

The commission is acquired at the latest when the customer has executed its share of the transaction or should have executed it, if the Principal had executed its share of the transaction.

The commission is payable not later than the last day of the month following the quarter in which the Commercial Agent was entitled to the commission.

These parties cannot deviate from the provisions of the preceding paragraph to the detriment of the Commercial Agent.

During an Agency Agreement

For all commercial transactions concluded during the term of the Agency Agreement, the Commercial Agent is entitled to a commission as long as:

• the transaction has been concluded through its activity;
• the transaction has been concluded with a customer whom the Commercial Agent has previously acquired as a customer for transactions of the same kind;
• the transaction has been entered into with a customer belonging to a geographic area or group of customers for which the Commercial Agent is responsible unless it has been expressly agreed that the Commercial Agent would not benefit from an exclusivity for that particular sector or group of customers.

After termination

For all commercial transactions concluded after the termination of the Agency Agreement, the Commercial Agent is entitled to a commission as long as:

• the transaction is mainly due to the activity that the Commercial Agent has deployed during the Agency Agreement and as long as this transaction has been concluded within a reasonable period of time from the termination of the Agency Agreement, or
• in accordance with the above-mentioned conditions related to the payment of the Commercial Agent during the Agency Agreement, the customer's order has been received by the Principal or by the Commercial Agent before the termination of the Agency Agreement.

The Commercial Agent is not entitled to the commission related to its activities during the Agency Agreement, if the commission is due after termination (in accordance with the above conditions) to the previous Commercial Agent, unless it results from the circumstances that it is fair to share the commission between both Commercial Agents involved.

Can a del credere clause be inserted into the Agency Agreement?

In the absence of any contrary in the law, a del credere clause is normally valid.

Duration of the Agency Agreement

The Agency Agreement may be concluded for a fixed-term or for an indefinite period.

The parties are free to decide on the duration of the Agency Agreement. Agreements of a fixed term are converted to agreements for indefinite term if the parties continue to perform them after the fixed term has ended.

Termination of the Agency Agreement

Where an Agency Agreement is concluded for an indefinite term, for a fixed-term with the possibility of early termination or in case of an agreement being converted to agreement for indefinite term by law (see avbove), either party may terminate the Agency Agreement by notice.

Either party may, subject to any damages and interest, terminate the Agency Agreement without notice or before the expiry of the term, if (i) exceptional circumstances make definitively impossible any collaboration between the Principal and the Commercial Agent or  (ii) due to a serious breach of its obligations by the respective other party.

The party who invokes these reasons must prove their existence, to be subject to review by the adjudicated court.

Notice period

Notice period for the first year of the Agency Agreement is one month. After the first year, the notice period shall be increased by one month for every additional year, however, up to a maximum of six months. The parties cannot validly agree on shorter notice periods.

If the Parties agree on longer notice periods, the notice period to be observed by the Principal shall not be shorter than the one to be observed by the Commercial Agent.

Unless otherwise agreed by the Parties, the end of the notice period shall coincide with the end of the month.

Goodwill or other compensation

After the termination of the Agency Agreement, the Commercial Agent is entitled to an indemnification claim if and to the extent that:

• the Commercial Agent has brought new customers to the Principal or has significantly expanded the operations with existing customers and the Principal still has substantial benefits resulting from the transactions with these customers and
• the payment of this indemnity is equitable, taking into account all the circumstances, in particular the commissions which the Commercial Agent loses and which result from the transactions with these customers, as well as the restriction of its professional activities due to the existence of a non-compete clause.

The amount of the indemnity shall not exceed an amount equivalent to an annual indemnity calculated on the basis of the annual average of the remuneration received by the Commercial Agent during the last five years of its activities under the Agency Agreement. If the Agency Agreement is less than five years old, the annual indemnity is calculated on the average of the actual term of the Agency Agreement.

In addition to the right to this indemnity, the Commercial Agent may be entitled to claim for damages.

The right to indemnity referred to above also arises when the termination of the Agency Agreement occurs following the death of the Commercial Agent.

The indemnification claim is not due:

• where the Principal has terminated the Agency Agreement for a serious breach attributable to the Commercial Agent justifying a termination of the contract without delay;
• where the Commercial Agent has terminated the Agency Agreement, unless the termination is justified by circumstances attributable to the Principal or by the age, infirmity or illness of the Commercial Agent as a result of which the pursuit of his/her activities cannot reasonably be expected of him/her;
• where, by agreement with the Principal, the Commercial Agent assigns to a third party the rights and obligations which it holds under the Agency Agreement.

The agent loses the right to indemnification if it has not notified the Principal of its claim within one year after the termination of the Agency Agreement.

The parties cannot derogate from these provisions before the end of the Agency Agreement.

Is a post contractual non-compete obligation enforceable against the Commercial Agent?

The written non-compete clause must:

• relate to a specific professional sector and activities similar to those exercised under the Agency Agreement;
• be directed to the geographic area or group of customers and geographic area entrusted to the Commercial Agent and to the kind of goods covered by its agency under the Agency Agreement.

The non-compete clause can only provide a maximum period of 12 months from the day the Agency Agreement expires.

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Are there any formal requirements upon concluding Distribution Agreements?

Under Luxembourg law, a Distribution Agreement can be executed either verbally or in writing. There are no special formal requirements to take into account.

However, the Principal must provide to the Distributor within a reasonable time before the signature and the execution of the Distribution Agreement all relevant information enabling the Distributor to commit oneself with full knowledge of the facts.

Is a contractual non-compete clause enforceable?

Non-compete clauses are valid subject to EU Competition law. If the market shares of both parties are below 30%, non-complete clauses are valid provided that they do not exceed five years and are geographically limited and proportional to the rights and interests of the Principal (and thus limited to competing products or services).

Is a post contractual non-compete obligation enforceable?

A post contractual non-compete obligation is valid but limited to a maximum period of one year after termination of the Distribution Agreement, such clause having to meet the following conditions:

• the obligation relates to competing goods or services;
• the obligation is limited to the premises and territory from which the buyer has operated during the Distribution Agreement;
• the obligation is indispensable to protect know-how transferred by the Principal to the Distributor.

What is the statute of limitation?

A statute of limitation of ten years applies to all claims regarding the performance of a Distribution Agreement.

Can exclusivities be granted?

Exclusivity can be granted, subject to the EU regulations on vertical restraints.

Can Distribution Agreements include Minimum Sales Quotas?

There are no mandatory rules under Luxembourg law relating to Minimum Sales Quotas. In general, agreements on Minimum Sales Quotas are valid.

Can the Principal influence resale price of the Distributor?

Suppliers cannot impose a minimum selling price or a fixed selling price.

The Distribution Agreement can only impose maximum prices or suggest (non-binding) recommended resale prices, although the parties must be able to prove that the maximum or recommended price will not operate as a disguised fixed price. This issues is important in all cases, however, it is most important where the Principal’s or Distributor’s market share is over 30%.

Is a notice period necessary?

Distribution Agreements providing for fixed term without the right of an early termination end upon the expiration of their respective fixed term, without prior notice, unless agreed otherwise in writing in the Distribution Agreement.

Distribution Agreements providing for an indefinite term, in which no notice period was agreed upon, may only be terminated with a reasonable and timely notice period. This notice period will have to take into account, in particular, the individual circumstances and details of the contractual relationship between the parties.

Are there any formalities to be observed?

There are no specific formal requirements. For the purposes of proof, it is generally preferable to terminate the Distribution Agreement in writing.

Is there any kind of compensation or goodwill indemnity to be paid?

There is no statutory right to goodwill or compensation/indemnification. However, the parties are free to agree on such compensation or/and goodwill in the Distribution Agreement.

Is bankruptcy a reason for termination?

There is no automatic termination in the case of a bankruptcy. A contractual provision allowing termination in the case of bankruptcy is valid.

May parties choose litigation or arbitration?

The parties are free to choose jurisdiction as well as opt for arbitration.

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