Distribution law in the Netherlands

Dutch law on Agency Agreements is set out in the Dutch Civil Code, particularly in  article 7:428 and the following articles, which implement the requirements of the EU law on Commercial Agents.

Under Dutch law, an Agency Agreement can be executed both verbally or in writing. There are no special formalities to take into account. Upon request of either party however, the other party has to cooperate in formalising the content of the agreement in writing.

There are no specific information obligations on concluding Agency Agreements. However, the Principal does have the obligation  to provide the necessary documentation about the goods and services and provide all information necessary for the performance of the agreement, as mentioned under the primary obligations below. However, these do not specifically concern the concluding of Agency Agreements.

Dutch law differentiates – also in b2b situations – between individually agreed agreements and standard terms and conditions. Regarding standard terms and conditions, a strict regime applies, as they could be deemed unreasonably burdensome by the court, based on the general principle of reasonableness and fairness, in which case the term is voidable. Furthermore, for the applicability of standard terms and condition, particularly when both parties have deviating standard terms and conditions, attention should be paid to the manner in which the terms are declared applicable to the agreement. When both parties sequentially reject each other's terms in communication, but declare their own terms applicable, the terms of one party apply when the other party begins to perform the contract without having again rejected application of the other's terms.. Regarding individually agreed contracts, generally, a vast freedom of contract exists. However, this freedom in the field of Agency Agreements is limited as many statutory rules are mandatory and cannot be deviated from contractually (neither in standard terms and conditions nor in individually agreed contracts), as outlined below. 

It is also advisable to be mindful of the competition law implications of the agreement. For instance, in case a commercial agent serves multiple principles, there is a risk of the agent passing on (competitively) sensitive information from the one principle to the other, thereby possibly constituting a violation of the ban on cartels. 

The Principal and the Commercial Agent are free to agree on the scope of the Commercial Agency. In particular, the parties may decide on instructing the Commercial Agent (1) worldwide or for a certain geographic region, (2) for all or only for certain products of the Principal, (3) for all or only certain customers of the Principal.

A del credere clause is only valid if parties agreed upon such mechanism in writing. The liability of the Commercial Agent will be limited to the agreed commission, unless the del credere clause is related to a specific contract or to contracts which the Commercial Agent has concluded in the name and for the account of the Principal.

Although generally Agency Agreements provide for a post contractual non-compete obligation, which according to the Dutch civil code can be agreed upon in writing for a maximum period of two years provided that the obligation is limited to the territory and to products competing with the products for which the Agency Agreement was executed, such a post contractual non-compete clause may under circumstances infringe competition law rules. In this context, the enforceability of a post contractual non-compete obligation can be called into question.

As a general principle, the Commercial Agent has the following primary obligations based on statutory law:

• A general obligation to safeguard the interests of the Principal is imposed on the Commercial Agent. Amongst other things, this entails that he must carry out an examination into the solvency of the third party with which he is doing business.
• The Commercial Agent is only obliged to refrain from activities that are competing to the undertaking of the Principal if this was expressly agreed upon.

As a general principle, the Principal has the following primary obligations based on statutory law:

• The Principal must reasonably enable the Commercial Agent to perform its work.
• The Principal must provide the agent with the necessary documentation about the goods and services with regard to which the Commercial Agent performs intermediary services and provide him with all information that is required for the performance of the Agency Agreement.
• The Principal has the duty to notify the agent immediately if he foresees that contracts with third parties will or may be concluded to a far less degree than the agent was allowed to expect.
• The Principal must inform the agent within a reasonable period of its acceptance or rejection or of the non-implementation (non-performance) of a contract which has been put forward by the agent.

We strongly recommend detailing in the Agency Agreement the obligations of the Commercial Agent and the Principal. Although statutory rules in this regard exist, it is important to avoid a legal situation which the parties did not desire.

Parties are free to negotiate the method of remuneration.

The Commercial Agent is entitled to commissions for all agreements concluded through its negotiation.

The Commercial Agent will also be entitled to a compensation for its services if it has duly executed its obligations, but the Principal does not follow up on its efforts by accepting the offers made to the Commercial Agent or as a consequence of its negotiating skills or does so to a significantly lesser amount than might be expected.

There are no statutory rules on the term of Agency Agreements. The parties are thus, as a general principle, 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 Agency Agreement, the Agency Agreement is considered to have been tacitly renewed for an indefinite term.

If no notice period has been agreed, the notice period is four months. An additional month is added for agreements exceeding three years. For contracts exceeding six years, the notice period is six months.

Parties can agree upon a different notice period. The following minima however apply:

• one month after a duration of a maximum of one year;
• two months for a duration between one and two years; and
• three months for the following years.

If longer periods are agreed, these may not be shorter for the Principal than for the Commercial Agent.

Notice is presumed to be given at the end of the month in which the notice was received.

Following termination of the agreement the Principal has to pay the Commercial Agent goodwill compensation of up to one year's commission based on the average commission over the last five years, or the entire duration if shorter than five years. The amount of compensation will be fixed by the Court and may vary from this maximum to nothing at all.

Compensation will only be awarded if the Commercial Agent has brought in new customers or significantly expanded the business with existing customers and has thereby substantially increased the value of the Principal's business.

There are exhaustive cases where no compensation is due, if:

• the agreement is terminated under circumstances that make the Commercial Agent liable for damages towards the Principal;
• the Commercial Agent terminates the agreement itself, unless this termination is justified by circumstances which can be attributed to the Principal or is justified by the age, invalidity or sickness of the Commercial Agent on basis of which he reasonably cannot be expected to continue its activities;
• the Commercial Agent has transferred, with approval of the Principal, its contractual position under the commercial Agency Agreement to a third party.

The rules on the Commercial Agent's indemnification claim are mandatory and may not be contractually excluded. However, there are certain ways to at least influence the risk of an indemnification claim and its quantum which makes it worth including provisions in this regard in the Agency Agreement.

The statute of limitation is one year after the agreement has ended for a claim regarding goodwill compensation. Furthermore, a right of action based on unlawful termination (compelling reason) or dissolution of the commercial Agency Agreement also expires one year after the occurrence of the fact that gave rise to the claim.

We notice that most of the court cases that have taken place during the last years relating to commercial agency, involve the question whether or not an agreement must be considered as an agency agreement.  This is not surprising since an agency agreement is regulated by provisions of mandatory law that protect the commercial agent to a greater extent vis-à-vis the principal. A distribution agreement, on the contrary, is not regulated by specific statutory provisions, so if the agreement qualifies as distribution the distributor is not is not granted any special protection.  An example is a case in which a Dutch Court of Appeal ruled that an agreement could not be classified as agency but as distribution agreement, because the distributor resold the products for its own account and risk. The fact that the supplier had asked to start selling more products on its behalf did not change that.

Another notable trend is the EU law-compliant interpretation of the Dutch legal regime regarding agency agreements. This is in line with the Agency Directive (Directive 86/653/EEC). For example, the Supreme Court of the Netherlands, following the lead of the Court of Justice of the European Union, has interpreted Article 17(2) of the Agency Directive to mean that the determination of the goodwill compensation proceeds in three stages, first quantifying the benefits to the principal, then assessing whether adjustment of the amount of benefits is necessary with a view to fairness, and finally considering the commissions foregone by the commercial agent.

Another example is the Court of Justice of the European Union stating that “negotiate” as meant in article 1, paragraph 2 of the agency directive, does not necessarily assume direct involvement of the agent in placing customer orders with the principal, or that a scenario of direct customer orders with the principal is excluded. In line with this, a Dutch lower court has ruled that an agreement in which mediation in contracts for the duration of two years was agreed upon qualified as agency, despite the fact that the commercial agent did not conclude the contracts himself.

A third example is a Dutch lower court ruling, in line with previous case law of the Court of Justice of the European Union, that a choice of law for law outside the EU cannot circumvent the mandatory provisions of the Agency Directive. The court ruled that, notwithstanding the fact that other laws apply to the contract, the court may give precedence to provisions of special mandatory national law which afford the commercial agent greater protection. In this case, the customer compensation was at stake.

Another trend in the case law is that a relatively high number of disputes involve the termination of agency agreements. An early termination of an agency agreement can only be done on the basis of changed circumstances or an urgent reason. The termination of an agency agreement of indefinite duration can only be done in observance of an appropriate notice period, as prescribed by law. However, in case the agreement is terminated in violation of these requirements and is thus void or voidable, the agreement has nevertheless come to an end, but the violation is compensated by payment of damages. >> Go to the top

The Distribution Agreement has not been specifically arranged in the Dutch Civil Code ("DCC"). Consequently, Distribution Agreements are assessed on the basis of the general rules of the DCC’s law of obligations.

Under Dutch law, a Distribution Agreement can be executed both verbally as in writing. There are no special formalities to take into account. For evidentiary purposes, we recommend setting out the Distribution Agreement in writing.

Statutory law does not provide for any specific information obligations regarding Distribution Agreements.

Assessing Distribution Agreements in the Netherlands takes place explicitly on the basis of the principles of reasonableness and fairness. It should be noted that parties can determine the "rules" applicable to their agreement themselves by entering into a written agreement. However, if parties entered into a written agreement the principles of reasonableness and fairness are still applicable. It is possible that provisions agreed to in writing are deemed to be contrary to the principles of reasonableness and fairness.

This issue is primarily expressed in the notice periods with respect to terminating a Distribution Agreement and questions regarding the compensation due in such a case.

For example, if a very short notice period has been included in the agreement, a judge can determine that such a notice period is contrary to the principles of reasonableness and fairness and order (for instance) the denouncing party to pay a certain amount for compensation to the Distributor.

It is also advisable to be mindful of the competition law implications of the agreement, in case a distributor has multiple suppliers, there is a risk of the distributor passing on (competitively) sensitive information.

The principle of freedom of contract forms the basis of Dutch commercial law. This means that, in principle, contract parties are only bound by the rules agreed between themselves.

However, there are statutory limits to the Distributor's freedom to agree on the scope of the Distribution Agreement (mainly based on EU Competition law).In particular when it comes to limiting the geographic region in which the Distributor may (or may not) sell the products and the customers to which it may (or may not) sell them, the EU regulation on vertical restraints (Commission Regulation No2022/720) plays a significant role: such limitations are admissible only under specific requirements which need to be assessed in the individual case.

Furthermore, also agreements with respect to the amounts of products the Distributor must source from the Supplier is subject to EU Competition law: contractual provisions which require the Distributor to source 80% or more of its demand in products solely from the Suppliermay only be agreed for five years.

A post contractual non-compete obligation can be agreed upon in writing, provided that the obligation (1) is indispensable to protect know-how transferred by the Supplier to the buyer (2) is limited to the point of sale from which the buyer has operated during the contract period and (3) is limited to a maximum period of one year.

Minimum Sales Quotas can be imposed on the Distributor. A quota may, of course, be high enough to constitute a de facto non-compete if it can be shown that in the Distributor's circumstances it would not buy competing products above the quota level.

The Supplier is generally not allowed to influence the Distributor's resale price of the products. The contract can only impose maximum prices or suggest recommended resale prices. Although the parties must be confident that the maximum or recommended price will not operate as a disguised fixed price. This point is important in all cases, but above all where the Supplier's or Distributor's market share exceeds 30%.

As a general principle, it is assumed that the Distributor has the following primary obligations:

• to distribute the products;
• to provide the Supplier with relevant information regarding the market, (potential) customers and requirements concerning the products;
• to diligently safeguard the interests of the Supplier in all business respects; and
• to maintain confidentiality.

As a general principle, it is assumed that the Supplier has the following primary obligations:

• to apply reasonable efforts to deliver all products ordered by Distributor;
• to support the Distributor with respect to the Supplier's business (for example in providing brochures, etc.); and
• to grant the agreed rebate to the Distributor (see below).

We strongly recommend setting out in the Distribution Agreement the obligations of the Distributor and the Supplier. As no specific statutory law on Distributors exists, this is important to avoid disadvantages. When setting out the obligations in the Distribution Agreement, the vast amount of case law should be taken into account in order to avoid the risk of setting  out invalid contractual provisions.

As a general principle, the Distributor is not entitled to a specific remuneration for its distribution activities. The remuneration of the Distributor consists in the profit it generates in purchasing the Supplier's product with a rebate and selling them to its customers at a higher price. The parties may, however, following the principle of freedom of contract, agree on additional remunerations such as minimum monthly payments. 

There are no statutory rules on the term of Distribution Agreements. The parties are thus, as a general principle, 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.

Distribution Agreements of a fixed term without the possibility of an early termination end upon the expiry of their term, without prior notice, unless this leads to a result that is conflicting with the principle of reasonableness and fairness.

Distribution Agreements of indefinite term where no notice period was agreed upon may only be terminated with a reasonable notice period. This notice period is to be considered as a compensation in time for the Distributor to prepare itself for the situation the Distribution Agreement ends. A reasonable notice period takes into account all circumstances of the specific case such as investments made, underlying reason for the termination, results of Supplier and Distributor, dependency of Distributor upon product of the Supplier, et cetera.

If a notification period has been (contractually) agreed upon, this notification period will have to be taken into account. Nonetheless, the specific circumstances (such as, but not limited, the aforementioned circumstances) can be of influence for the actual notification period that is to be considered reasonable. For example, if a notification period of one month is contractually agreed upon while the Distribution Agreement is in effect for more than ten years, a notification period of one month will be deemed unreasonable if challenged.

In this respect, it should be noted that the unlawful termination of a Distribution Agreement will have no effect and will therefore result in the agreement still being in force. Compensation in case of termination comes into play only if the termination itself is legally valid.

Dutch statutory 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.

If the Supplier lawfully terminates the Distribution Agreement, the Distributor can nevertheless claim compensation on the basis of the principles of reasonableness and fairness (please note that this is also possible in case a reasonable notice period is taken into account). Such compensation is open to discussion. For example discussion is possible in case the Distributor made investments in the belief the Distribution Agreement would be continued (or upon explicit request of theSupplier), while those investments are not yet recovered at the moment the Distribution Agreement is terminated lawfully. Investments that in principle have to be compensated (if not yet recovered) are: building/rebuilding warehouses/office space, hiring of specialized personnel, advertising materials, linking the stock records, service facilities (as far as specifically related to the supplier business and also customary). General investments of the Distributor do not qualify for compensation.

A ground for compensating can also be found in (strong) dependency of the (business of the) Distributor on the Supplier. This could be the case if at least 80% or more of the turnover of the Distributor is the direct result from sales of products from the Supplieror if an important part of the clients of the Distributor are tapped by the Supplierafter termination.

In case law compensation regarding termination of a Distribution Agreement is linked to compensation of lost profits. Little can be said about the compensation amount exactly. Case law shows a much divided point of view, depending on the specific circumstances of the case. The loss related to termination could be eliminated by repurchasing the stock that is still at Distributor's disposal at the time the Distribution Agreement ends. In most cases and especially if the notice period is shortened, the lost gross profit (deducted by any cost savings made by Distributor as a result of not having to perform its Distribution duties anymore) is compensated during a certain period of time (for instance the time the Distributor needs to really adjust to the "new" situation, namely that no longer a Distribution Agreement between the parties is in force). A specific calculation of the loss over such a period occurs as well. However, it is often very difficult for the Distributor to show its actual loss, or at least to substantiate the link between the termination of the agreement and the (actual) loss. Therefore, compensation related to the average lost gross profit (deducting costs savings made) and during a period of time equal to a reasonable notice period is most common. In case law it is common to take into account the average profit over the last five years.

Apart from the foregoing, there is no statutory rule entitling a Distributor to goodwill compensation. The prevailing doctrine in the Netherlands is that goodwill compensation is not due.

Dutch statutory law does not provide specific post contractual clauses. Parties always have to be aware of EU Competition law in case of a post-contractual non-compete clauses.

Over the last years, a significant number of court cases involving distribution agreements can be observed in recent years. One trend in that case law regards the competition law perspective of distribution agreements. This includes a large body of case law and publications from the European Commission and the Netherlands Competition Authority, which demonstrates that when drafting distribution agreements, careful consideration must be given to whether the agreements do not violate obligations and prohibitions within competition law.

A trend within civil case law regarding distribution agreements is the large volume of cases dealing with the termination of distribution agreements. A significant number of cases involve distribution agreements of indefinite duration in which no notice period is agreed upon. The agreement is often terminated by the supplier who observes a notice period that is too short according to the distributor challenging the validity of the termination. The question of whether the notice period was long enough in a specific case is considered by the court in a very case-by-case manner, taking into account all the circumstances of the case.  Important criteria used by courts are the extent of the distributor's dependence on the supplier, the extent to which the distributor was entitled to expect a longer continuation of the agreement, the distributor's ability to adapt its business operations to a new situation, and the adverse effects of the termination. Noteworthy is a recent opinion to the Supreme Court of the Netherlands advising it to uphold a judgment awarding damages to the terminated distributor even though the termination was valid. So it appears that despite the supplier giving appropriate notice, a right to damages may still arise if the distributor is adversely affected by the termination. It is worth noting that this jurisprudence relates not only to distribution agreements but to ongoing agreements with an indefinite duration in general.

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