Distribution law in Serbia

Agency Agreements

Serbian rules on commercial agency is set out in the Law on Contracts and Torts.

Formation of Agency Agreement

Are there any formal requirements on concluding Agency Agreements?

Under the Serbian law, an Agency Agreement needs to be executed in writing. Other than that, there are no specific requirements in terms of form.

Are there any specific information obligations on concluding Agency Agreements?

The Serbian law does not provide for any specific information obligations regarding the Agency Agreements.

Are there any specific pitfalls which need to be borne in mind when concluding Agency Agreements?

In general, there are no typical pitfalls, but the parties are advised to take into account the mandatory provisions of the Serbian law such as the ones included into foreign exchange, competition and customs regulation etc.

Scope of Commercial Agency

Are the parties free to agree on the scope of the Commercial Agency?

In general, the Principal and the Commercial Agent are free to agree on the scope of the Commercial Agency.

Exclusivity and non-compete clauses may be agreed upon subject to the fulfilment of conditions prescribed under the Serbian block exemption regulation for vertical agreements. Exclusivity clauses are covered by the block exemption if the market share of each of the parties is below 25%. Non-compete clauses are covered by the block exemption if the market shares of each of the parties is below 25% and the duration of the non-compete clause is limited to a period of 5 years. If the afore-mentioned conditions are not fulfilled, the exclusivity and/or non-compete clause is not block exempted and the parties are required to obtain a prior clearance (so called “individual exemption”) by the Serbian Commission for Protection of Competition.

What are the primary obligations of the Commercial Agent and the Principal?

As a general principle, the Commercial Agent has following primary duties:

  • to diligently safeguard the interest of the Principal;
  • to perform its obligation in compliance with the Principal’s instructions with due care of a prudent businessman;
  • not to disclose confidential information to third parties;
  • to provide the Principal with relevant information regarding the market, especially those affecting the specific commercial transaction;

As a general principle, the Principal has the following primary duties:

  • to give best efforts to enable the Commercial Agent to successfully perform its activities;
  • to inform the Commercial Agent immediately when it anticipates the volume of transactions will decrease considerably below the level the Commercial Agent could have reasonably expected;
  • to pay the agreed commission fee;
  • to provide the Agent with information and materials necessary for the performance of the Commercial Agency.

A specific del credere clause can be agreed upon, according to which the Commercial Agent is liable to the Principal for the fulfilment of the agreement the Commercial Agent has concluded or facilitated, but such clause must be agreed upon in writing. In that case, the Agent has the right to an additional remuneration (so called “del credere commission”).

How is the Commercial Agent paid?

In principle, the parties are free to negotiate the method of remuneration. The Agent is entitled to the agreed or customary commission on all transactions that it facilitated or concluded and, unless otherwise agreed in writing, on transactions concluded by the Principal without the Agent's involvement provided that the Agent has solicited the third person as a customer for business transactions of such kind.

If the parties did not expressly agree upon a remuneration or the remuneration for the services is not determined in the Agent’s tariffs, the court will set a reasonable sum.

Term and Termination of Agency Agreement

Term of the Agency Agreement

The parties are free to decide on the duration of the Agency Agreement.

If the parties to the Agency Agreement that is concluded for a fixed term, after the expiry of the fixed term, continue to perform the Agency Agreement, the Agency Agreement is deemed to have been tacitly renewed for an indefinite term.

Termination of the Agency Agreement

In principle, minimum notice periods must be respected. If the Agency Agreement is agreed for an indefinite term, it may be terminated at the end of each calendar quarter with a one-month notice. However, if the Agency Agreement lasted for more than three years, a two-month notice period has to be given to the other party.

Parties can agree on a different notice period regime in writing, provided that notice period lasts no less than a month.

The indemnification claim as main consequence of the Agency Agreement's termination

In general, a party, which terminates a contract without giving a reasonable notice period, is liable to compensate the (actual) damage thereby caused to the other party. Hence, the Agent is entitled to compensation for the lost commissions if its business activities were interrupted due to the Principal’s failure to observe a reasonable notice period.

Goodwill indemnity does not exist under the Serbian law. The Law on torts and obligation is not aligned with Directive 86/653 EEC, but the draft version of the new Serbian Civil Code envisages the Agent’s right to a goodwill indemnity in line with the Directive 86/653 EEC.

Other consequences of the Agency Agreement's termination

The statute of limitations for the Agent's recurrent claims (general and special commissions) is set at three years and for other claims at 10 years.

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Distribution Agreements

Formation of Distribution Agreement

Serbian law does not contain any specific rules on Distribution Agreements.

Are there any formal requirements on concluding Distribution Agreements?

Distribution Agreements are not explicitly regulated under the Serbian law despite that fact they are common in commercial practice. The parties may freely conclude a Distribution Agreement in accordance with the principle of parties’ autonomy, within the limits set out by the public policy requirements, mandatory rules and good faith.

Under the Serbian law, a Distribution Agreement can be executed both verbally and in writing without any specific formalities that should be taken into account. However, for evidentiary reasons, we recommend setting out the Distribution Agreement in writing. Are there any specific information obligations on concluding Distribution Agreements?

Statutory law does not provide for any specific information obligation regarding the conclusion of Distribution Agreements.

Are there any specific pitfalls which need to be borne in mind when concluding Distribution Agreements?

In general, there are no typical pitfalls, but the parties are advised to take into account the mandatory provisions of the Serbian law such as the ones included into foreign exchange regulations, competition policy, customs etc.

Scope of Distributor's instruction

Are the parties free to agree on the scope of the Distribution Agreement?

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

However, certain limitations regarding vertical restrictions are set out in the Serbian block exemption regulation for vertical agreements:

  • Exclusivity arrangements such as exclusive supply, exclusive distribution and exclusive purchasing, as well as selective distribution, are covered by the block exemption if the market share of each of the parties is below 25%.
  • Non-compete obligations are covered by the block exemption If the market shares of each of the parties is below 25% and the duration of non-compete clause is limited to a period of 5 years.
  • The post-contractual non-compete obligations are block exempted provided that the market shares of each of the parties is below 25%, the post-contractual non-compete obligations do not exceed one year, are limited to the premises and land from which the Distributor has operated during the contract period and are indispensable for protecting the know-how transferred by the Principal to the Distributor.

If the afore-mentioned conditions are not fulfilled, the said vertical restraints are not block exempted and the parties are required to obtain a prior clearance (so called “individual exemption”) by the Serbian Commission for Protection of Competition.

In addition, the Serbian block exemption regulation for vertical agreements provides a list of hard-core restrictions such as resale price maintenance or restriction of territories into which or customers to whom a Distributor may resell the goods supplied by the Principal that fall outside of the block exemption (even if market shares of the parties are below 25%). However, the Principal may impose maximum resale prices or suggest recommended resale prices provided that they do not amount to a fixed or minimum resale price as a result of pressure from, or incentives offered by the Principal.

Minimum Sales Quotas can be imposed on the Distributor. However, if the Minimum Sales Quotas amount to a non-compete obligation, the rules applicable to non-compete obligations have to be observed. This would be the case if the Minimum Sales Quotas lead to the Distributor covering all or at least 80% of its total requirements for products belonging to the same product market with the Principal’s products, since the Distributor may have to abstain from purchasing competing products in order to meet the Minimum Sales Quota obligation.

What are the primary obligations of the Distributor and the Principal?

Although there are no statutory provisions that regulate rights or obligations of the Principals or the Distributors under a Distribution Agreement the Distributor has typically following duties:

  • to make reasonable efforts to promote the sales of the products;
  • to provide the Principal with relevant information regarding the market, any claims brought or threatened by third parties in relation to the Principal’s intellectual property rights, any infringements by third parties of the Principal’s intellectual property rights, etc.
  • to safeguard the interest of the Principal;
  • not to disclose confidential information to third parties.

On the other hand, the Principal generally has the following primary obligations:

  • to apply reasonable efforts to deliver all products ordered by the Distributor;
  • to support the Distributor with respect to the Principal's business (for example in providing advertising material, etc.).
How is the Distributor paid?

The parties are free to negotiate the method of remuneration (e.g. rebates, rebates plus monthly payments, etc.).

Term and Termination of Distribution Agreement

Term of the Distribution Agreement

The Parties may freely in agreeing on a fixed term or an indefinite term of the Distribution Agreement.

The Distribution Agreements of fixed term are not automatically converted to agreements for indefinite term if the parties continue to perform the Distribution Agreement after the expiry of the fixed term. However, the parties may agree on a tacit renewal for an indefinite term but this is recommended to be done in written.

Termination of the Distribution Agreement

A Distribution Agreement entered into for a fixed term is deemed terminated upon the expiry of the set term. The parties cannot unilaterally terminate the Distribution Agreement concluded for a definite term before the expiry of the set term, unless otherwise agreed by the parties.

Either party to a Distribution Agreement concluded for an indefinite term may unilaterally terminate the Distribution Agreement with a notice of reasonable length, provided that the notice is not given at an inappropriate time. In case of unlawful termination, the aggrieved party has the right to claim damages.

Although there are no specific formalities, for evidentiary reasons, a written notice to the other party is recommended.

The indemnification claim as main consequence of the Distribution Agreement's termination

There are no statutory rules entitling a Distributor to goodwill compensation. The prevailing doctrine is that the Distributor is not entitled to goodwill indemnification.

As the new Serbian Civil Code is expected to enter into force in the near future and the rules on the Distribution Agreements will be incorporated, the above-mentioned legal setting may change.

Other consequences of the Distribution Agreement's termination

The statute of limitations for the Distributor's recurrent claims (general and special commissions) is set at three years and for other claims at 10 years.

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Raško Radovanović