Distribution agreement

So-called agency agreements frequently bear resemblance in actual practice, to (certain aspects of) distribution agreements. Hence, so-called ‘agency agreements’ are in actual fact not infrequently mixed type agreements, consisting of an agent and a distribution element.

In general, a distributor buys goods from a principal in his own name and for his own account and resells these goods to third parties in his own name and for his own account.

Distribution agreements are not defined in any Netherlands Antilles statute and are not subject to any specific Netherlands Antilles legislation. The distribution agreement is an agreement sui generis, subject to the general law on contracts.

In accordance with the general law on contracts, parties are in principle free to agree on whatever they wish. However, certain restrictions are imposed by the general principle of Netherlands Antilles law that agreements must be concluded in good faith (redelijkheid en billijkheid). The parties are free, in principle, to agree on a notice period for termination, provided that such a period is reasonable. When no notice period is agreed on, either party may terminate the agreement while observing a reasonable period of notice. The determination of whether a certain notice period is reasonable may depend on a variety of factors.

From a Netherlands Antilles case on negotiations that were broken off regarding the continuation of a license agreement (franchising) (Antillean Family Foods NV vs Mc Donald’s Corporation, Supreme Court, February 26, 1993, NJ 1993, 289) it may be concluded that under certain circumstances termination of an agreement may constitute an obligation (to negotiate a renewal of contract or) to pay damages / compensation. Possible circumstances are: the contents of the agreement and the circumstances under which the agreement was entered into; the amount invested by the franchisee and to what the extent the investment was recouped; the (economic) situation of the franchisee in relation to that of the franchisor; the reason for terminating the agreement; the interest of the whole franchise and the policy of the franchisor with regard to (other) franchisees within the organization of the franchisor; and the question of whether the franchisor made a reasonable offer (that was subsequently not accepted by the franchisee) with respect to the conditions under which the agreement could be renewed.

Unlike agency agreements there is no statutory rule entitling a distributor to goodwill compensation. In certain case law it has been determined that a principal who terminated a distribution agreement should pay damages to the distributor who had made substantial investments that could not be recouped in the remaining period, despite the principal observing a reasonable notice period.

Karel Frielink / Ursus van Bemmelen
Netherlands Caribbean Attorneys / Lawyers


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