Distribution law in Norway

Norwegian law on Agency Agreements is set out in the Agency Act (NO: agenturloven), which implements Council Directive 86/653/EEC (the Commercial Agents Directive).

The Agency Act applies exclusively to Agency Agreements concerning the purchase and sale of goods. According to the preparatory works of the Act, “goods” are defined as movable property, excluding items such as securities or real estate.

Agency Agreements concerning services, therefore, generally fall outside the direct scope of the Act. For such agreements, there is no statutory legislation under Norwegian law, allowing the parties greater flexibility to negotiate terms without being bound by the specific regulations imposed by the Agency Act. However, the preparatory works indicate that certain provisions of the Act may be applied analogously to agreements concerning services when deemed appropriate. The precise circumstances under which this may occur, and which provisions might apply, have not yet been clearly established through jurisprudence.

Under Norwegian law, Agency Agreements are not subject to formal requirements, meaning they can be made either in writing or verbally.

However, either party may demand that the agreement be documented in writing and that they receive a signed copy of the agreement, along with any subsequent amendments. This right cannot be waived by agreement.  

Norwegian statutory law does not impose specific information obligations regarding Agency Agreements.

However, Norwegian law recognises a principle of loyalty in contractual relationships, requiring each party to consider the other’s interests before, during, and, to some extent, after the contractual period. The principle of loyalty includes an obligation to disclose relevant information where silence would be considered dishonest. The Supreme Court has held that a breach of the principle of loyalty may constitute grounds for invalidating the contract.

Additionally, Section 33 of the Agreements Act (NO: avtaleloven) may apply if one party has withheld significant information that could have influenced the other party’s decision to enter into the agreement. If this withholding of information is deemed disloyal or unreasonable, the agreement may be invalid under Section 33.

Several provisions of the Agency Act are made mandatory and cannot be deviated from through an agreement between the Principal and the Commercial Agent. Furthermore, the Act’s mandatory provisions cannot be set aside to the detriment of the Commercial Agent through an agreement that the agency relationship shall be regulated by foreign law, if, in the absence of such an agreement, the relationship would be subject to Norwegian law.

In addition to regulating the relationship between the Principal and the Commercial Agent, the Agency Act also governs the relationship between the Commercial Agent/Principal and third parties. “Third parties” refer to the agency’s customers. While the provisions regarding third parties are, in principle, non-mandatory, there is a general limitation that prevents the parties from waiving third-party rights provided by law. Therefore, where the Act establishes rights for third parties, an agreement between the Principal and the Commercial Agent will not automatically alter the legal position of third parties.  

Under Section 36 of the Agreements Act (NO: avtaleloven), an agreement may be set aside or modified, in whole or in part, if enforcing it would be contrary to fair business practices. Although the provision is primarily intended for consumer relationships, it may also apply to agreements between commercial parties, particularly where there is a significant power imbalance between them. The provision applies to both individually negotiated agreements and standard terms.

Yes, the Principal and Commercial Agent are free to define the scope of the Commercial Agency.

Obligations of the Commercial Agent:

In carrying out the assignment, the Commercial Agent is required to loyally and honestly protect the interests of the Principal. Specifically, the Agent shall:

• Make reasonable efforts to secure orders and, if the assignment includes it, enter into agreements.
• Inform the principal of:
  • Orders obtained,
  • Agreements concluded, and
  • Any other relevant matters known to the Agent that pertain to the assignment.
• Follow reasonable instructions provided by the Principal.

These obligations are mandatory and cannot be derogated from by agreement between the parties.

The Commercial Agent also has certain additional duties under the Agency Act, which the parties may agree to waive:

• Take proper care of goods and other property belonging to the Principal in the Agent’s possession,
• Maintain insurance as is customary for such circumstances,
• Keep the Principal’s goods separate from other goods and hold received payments for sold goods separate from other funds,
• Provide an account to the Principal for all amounts received. 

Obligations of the Principal

The Principal has a duty to act loyally and fairly towards the Commercial Agent. Specifically, the Principal should:

• Supply the Agent with samples, descriptions, price lists, and any other materials necessary for the goods covered by the assignment.
• Provide the Agent with the information needed to carry out the assignment effectively.
• Without undue delay, inform the Agent about:
  • Orders that have been rejected.
  • Orders that have been accepted.
  • Any agreements facilitated by the Agent that will not be fulfilled.

Additionally, if the Principal foresees that the business volume will be significantly less than what the Agent could reasonably expect, the Principal must inform the Agent of this without undue delay.

The Principal’s obligations are mandatory and cannot be derogated from by agreement between the parties.

The parties are free to agree on how the Commercial Agent will be compensated.

However, the Agency Act contains provisions regarding the Agent’s right to commission, which apply in the absence of any other agreement:

• The Commercial Agent is entitled to commission on agreements concluded during the contract period if:
  • The agreement was made with the Agent’s assistance,
  • The agreement was made without the Agent’s assistance but with a third party whom the Agent had previously secured as a customer for similar agreements, or
  • The Agent was assigned a specific territory or customer group, and the agreement was made without the Agent’s assistance with a third party within that territory or group.
• The Commercial Agent is entitled to commission on agreements concluded after the contract period has ended if:
  • The agreement fulfils the same conditions that would have entitled the Agent to commission during the contract period, and the third party's order was received before the contract ended, or
  • The agreement was primarily the result of the Agent’s efforts during the contract period and was concluded within a reasonable time after the contract ended. 
• A succeeding Commercial Agent is not entitled to commission on an agreement if the previous Agent is entitled to commission after the termination of the Agency Agreement, unless it would be reasonable under the circumstances to divide the commission between them. 

There are no statutory rules on the duration of an Agency Agreement.

If an Agency Agreement is concluded for a fixed period, it will automatically terminate at the end of that period. If the parties continue performing the Agency Agreement after the fixed period has expired, it will be considered converted into an indefinite-term Agency Agreement. The parties cannot derogate from this rule.

An Agency Agreement that is not entered into for a fixed term may be terminated by either party. The notice period is one month during the first year of the Agreement, and increased by one month for each additional year, up to a maximum of six months.

The parties cannot agree in advance to a shorter notice period than this. However, they may agree that the Commercial Agent can terminate the Agreement with three months' notice, even if the Agreement has lasted three years or longer.

The parties are free to agree on a longer notice period than required by law, but the Principal’s notice period cannot be shorter than the Commercial Agent’s.

The notice period is calculated from the end of the calendar month in which the termination is communicated, unless the parties agree on a different starting point. There are no formal requirements for how the termination is communicated.

Upon termination of the Agency Agreement, the Commercial Agent is entitled to compensation if, and to the extent that:

• The Agent has brought in new customers or significantly increased business with existing customers, and the Principal continues to derive substantial benefits from this; and
• The compensation is reasonable in light of all circumstances, including the Agent’s loss of missions from agreements with customers.

The compensation cannot exceed an amount equivalent to one year’s remuneration, calculated based on the Agent’s average remuneration over the past five years. If the Agreement has lasted less than fire years, the calculation is based on the average remuneration during the actual period of the Agreement.

The Commercial Agent is not entitled to compensation if:

• The Agent terminates the Agreement without cause attributable to the Principal,
• The Agent terminates the Agreement for reasons other than age, illness, or similar circumstances making it unreasonable to require the Agent to continue their business, or
• The Agent transfers the rights and obligations under the Agency Agreement to another party with the Principal’s consent.

The Commercial Agent forfeits the right to compensation if a claim is not submitted within one year from the date the Agreement is terminated.

The rules outlined in this section cannot be deviated from to the detriment of the Commercial Agent until after the Agency Agreement has been terminated

Termination of the Agreement imposes certain obligations on the Commercial Agent:

• Duty of Care: Until the Principal is able to safeguard their own interests, the Agent must take necessary steps to protect the Principal from potential losses. This obligation does not apply if the required actions would result in significant cost, inconvenience, or financial risk for the Agent. The Agent is entitled to remuneration for undertaking such measures.
• Duty of Return: The Commercial Agent must return to the Principal all goods, materials, and documents provided for the purpose of carrying out the assignment.

Under Norwegian law, there are no specific statutory rules regulating Distribution Agreements.

Formation of Distribution Agreement

Under Norwegian law, Distribution Agreements can be entered into both, verbally or in writing. There are no special formalities to be taken into account.

Norwegian statutory law does not impose specific information obligations concerning the conclusion of Distribution Agreements.

However, Norwegian law recognises a principle of loyalty in contractual relationships, requiring each party to consider the other’s interests before, during, and, to some extent, after the contractual period. The principle of loyalty includes an obligation to disclose relevant information where silence would be considered dishonest. The Supreme Court has held that a breach of the principle of loyalty may constitute grounds for invalidating the contract.

Additionally, Section 33 of the Agreements Act (NO: avtaleloven) may apply if one party has withheld significant information that could have influenced the other party’s decision to enter into the agreement. If this withholding of information is deemed disloyal or unreasonable, the agreement may be invalid under Section 33.

In principle, no, as there are no specific statutory rules governing Distribution Agreements under Norwegian law.

However, it is important to note that if the Agreement does not explicitly address a particular issue, it may be supplemented by background law. This may include unwritten general principles of contract law or other applicable legislation that allows for deviation by agreement. When the Distributor purchases goods from the Principal, the Sale of Goods Act (NO: kjøpsloven) applies as supplementary background law. The Act sets out requirements for the goods to be delivered and obligates the buyer to inspect the goods and notify the seller of any discovered defects. It also provides rules on remedies for breach of contract, including the right to compensation in cases of defects or delays.

Additionally, under Section 36 of the Agreements Act (NO: avtaleloven), an agreement may be set aside or modified, in whole or in part, if enforcing it would be contrary to fair business practices. Although the provision is primarily intended for consumer relationships, it may also apply to agreements between commercial parties, particularly where there is a significant power imbalance between them. The provision applies to both individually negotiated agreements and standard terms and conditions.

In principle, the Principal and the Distributor are free to agree on the scope of the Distribution Agreement.

However, competition law imposes restrictions on collaboration between businesses in vertical relations, especially for exclusivity agreements. The Norwegian competition law is based on the EU competition regulations in TFEU 101 and 102, and EU guidelines and EUCJ is therefore relevant.

Distribution agreements imposing minimum resale prices must be avoided, as this limits competition and is usually considered a restriction by object. Such clauses are hard, if not impossible, to justify.

Exclusivity agreements, or other forms of limiting clauses, where a supplier allocates a territory or a group of customers exclusively to one or a limited number of buyers, while restricting all its other buyers from actively selling into the exclusive territory or to the exclusive customer group, may constitute a breach of competition law.

If the supplier's and buyer's market share each do not exceed 30 % and are subject to a limitation in time of five years for the non-compete obligation, this will usually not be considered problematic.

However, exclusivity agreements above these thresholds, must be considered carefully, and might constitute a breach of the Norwegian competition law. Generally speaking, the larger the market shares, and the longer the contractual obligation, the more reason to tread carefully. Legal counsel should be contacted before entering into distribution agreements above these thresholds, and especially if there is some form of exclusivity, selective distribution, single branding or other forms of limitations to a competitive market.

Since there are no statutory rules governing Distribution Agreements, the duties of the Principal and the Distributor will depend on the terms of the Agreement. Typically, the Distributor’s primary obligation is to market and sell the products or services within the agreed area or market, while the Principal is responsible for delivering the products in accordance with the specified quality, standards and timelines set out in the Agreement.

The parties are free to agree on the terms of the Distributor's remuneration. Typically, the Distributor’s compensation is achieved by reselling the products at a higher price than the purchase price paid to the Principal.

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 by agreeing on a fixed term or an indefinite term.

However, please be aware that longer terms may increase the risks of anti-competitive effects, as described above.

The parties are free to agree on termination conditions of the Distribution Agreement.

The parties are free to agree on any consequences of the termination of the Distribution Agreement.

Regarding the right to compensation upon termination of the Agreement termination, the Supreme Court has held that the provisions on compensation claim under the Agency Act generally do not apply analogously to Principal/Distributor relationships.  However, the Court did not rule out the possibility of a claim for compensation arising under general principles of tort law. As this legal position may lead to some uncertainty upon the termination of Distribution Agreements, we recommend including specific contractual provisions to address this matter.

There appear to be relatively few disputes involving Distribution and Agency Agreement, particularly with regard to Distribution Agreements, where case law is notably sparse.

The existing case law primarily addresses issues such as the right to and calculation of compensation upon the termination of such agreements, as well as the right to commission.

Additionally, a number of cases examine whether the provisions of the Agency Act can be applied analogously to other types of intermediary relationships, such as distribution arrangements. The trend in case law suggests that such analogical application is rarely accepted, with courts generally requiring that the intermediary relationship closely resembles a classic agency arrangement or that failing to apply the provisions analogously would result in a highly unreasonable outcome.

When it comes to Agency Agreements, courts place significant emphasis on ensuring that their rulings are consistent with EU law. This highlights the substantial influence of EU regulations on the interpretation and resolution of agency relationships in Norwegian legal practice.