Exclusive distributor was not entitled to goodwill compensation
The 13 February 2014 the Supreme Court of Norway passed a judgement in a case concerning termination of an exclusive distributor agreement. The Norwegian exclusive distributor raised a claim for goodwill compensation with reference to the rules applicable to commercial agents. The parties’ agreement did not contain a compensation clause. Thus, the Supreme Court dismissed the claim of the distributor.
In 1957 a German manufacturer of heating comfort products for e.g. cars and boats entered into an agreement with a Norwegian distributor, who was to operate as the manufacturer’s exclusive distributor in Norway.
However, in the fall of 2010 the manufacturer terminated the exclusive distributor agreement. As a result the distributor filed for goodwill compensation. The distributor based the claim on the rules applicable to commercial agents. During the proceedings it appeared that 13-14 % of the distributor’s revenue derived from the sale of the manufacturer’s products.
Exclusive distributor or commercial agent?
In a legal perspective, an exclusive distributor is not the same as a commercial agent. A commercial agent is a self-employed person or a company authorized to buy or sell goods on behalf of another person; his principal. Contrary to an agent, an exclusive distributor acts in his own name and not on behalf of any principal.
When a commercial agent acts on behalf of his principal, e.g. a manufacturer, the commercial agent’s business is often highly dependent on the manufacturer. This is the reason that a commercial agent is subject to a high level of legislative protection. Additionally, a commercial agent often makes great efforts to expand the manufacturer’s customer base or to provide the manufacturer with other substantial benefits. Such “added value” is the basis of the Norwegian Commercial Agents Regulations containing specific rules protecting commercial agents; for example commercial agents are under certain circumstances entitled to goodwill compensation when the manufacturer terminates the contract. However, this is for example conditional on the commercial agent having provided the manufacturer with additional value of some kind – either in terms of expanding the customer base or otherwise – and that the provision of a goodwill compensation under the specific circumstances is found to be the most reasonable.
The views of the parties
In this case the main question was, whether the Norwegian exclusive distributor was entitled to the same protection as a commercial agent. The exclusive distributor argued that the considerations underlying the rules goodwill compensation was also applicable to this specific case. E.g., the exclusive distributor claimed to have been subject to a detailed reporting duty, a duty to hand over information about the customers and to be bound by the prices fixed by the manufacturer. Thus, the exclusive distributor found that the contract should be put on the same footing as an agency contract and therefore, that he was entitled to goodwill compensation in accordance with the rules applicable to commercial agents.
The manufacturer did not agree that the exclusive distributor had been bound by such onerous duties as alleged by the distributor. On the contrary, the manufacturer argued that the agreement between the parties classified as an ordinary exclusive distributor agreement. Additionally, it was pointed out that the parties had never agreed on any goodwill compensation. Therefore, the manufacturer disagreed that the distributor was entitled to any compensation due to the termination of the agreement.
The Supreme Court: Rejection of the claim for compensation
Initially, the Supreme Court emphasized that the exclusive distributor had in fact acted in his own name. In other words, the distributor did not legally qualify as a commercial agent. The Supreme Court did not per se reject that the rules of commercial agents in special circumstances might be applicable to exclusive distributorships. However, in order for an exclusive distributor to be entitled to goodwill compensation, it must be found to be highly unreasonable under the specific circumstances not to grant the distributor such compensation. In this case, the Supreme Court did not find the considerations of protection underlying the rules of goodwill compensation to be relevant to the distributor. Thus, the Supreme Court dismissed the distributor’s claim for goodwill compensation.
The rules applicable to commercial agents are based on EU / EEA regulations and thus are the same in most European counties – including Denmark. This ruling from the Norwegian Supreme Court is in line with Danish case law in this area. The legal position created by this case law is important for exclusive distributors to be aware of, because it clarifies that distributors are not automatically protected by legislation on the same level as commercial agents.
Thus, if a great part of a distributor’s revenue derives from the goods of a single manufacturer the distributor might consider whether he is sufficiently secured, if the manufacturer terminates the agreement. Such security requires an agreement between the manufacturer and the distributor. A distributor can secure his interests by various types of clauses e.g. by a long notice of termination or by an agreement on goodwill compensation.