{"id":1373,"date":"2016-11-21T10:50:38","date_gmt":"2016-11-21T09:50:38","guid":{"rendered":"https:\/\/www.legalmondo.com\/?p=1373"},"modified":"2020-01-05T21:30:14","modified_gmt":"2020-01-05T20:30:14","slug":"german-distributor-indemnity-avoid","status":"publish","type":"post","link":"https:\/\/www.legalmondo.com\/fr\/2016\/11\/german-distributor-indemnity-avoid\/","title":{"rendered":"\u201cGerman\u201d Distributor Indemnity \u2013 How to avoid it"},"content":{"rendered":"

When entering new markets, there are different distribution strategies<\/strong> to choose from (I.)<\/strong>. In retail, car and wholesale trade, distributorship agreements<\/strong> are quite common (II.)<\/strong>. In international distributorship agreements, the parties may choose the applicable law (III.)<\/strong>. Whether chosen or not, the applicable law may contain unpleasant surprises<\/strong> like goodwill indemnity for distributors<\/strong> under German law (IV.)<\/strong>. Such surprises can be avoided<\/strong> \u2013 the post shows how, considering the latest 2016 decisions by the German Federal Court of Justice (V.)<\/strong>.<\/p>\n

I.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Entering new Markets<\/h3>\n

When entering new markets, different structures<\/strong> exist. Which one to choose depends on the strategy desired: from direct sales with own employees or sales agents to indirect distribution via distributors, franchisees, commission agents, the sale of white label products or licensing with the scope of manufacture and sale by third parties. For details on distribution in Germany see the Legalmondo post on \u201cDistribution agreements in Germany<\/a>\u201d.<\/p>\n

II.\u00a0\u00a0\u00a0\u00a0\u00a0 Distributorship Agreements<\/h3>\n

In retail (especially electronics, cosmetics, jewelery, and sometimes fashion), car and wholesale trade, distributorship systems are particularly common \u2013 regardless of whether the sales intermediary is referred to as a \u201cdistributor<\/em>\u201d, \u201ctrader<\/em>\u201d, \u201cdealer<\/em>\u201d, \u201cspecialist retailer<\/em>\u201d, \u201cconcessionary<\/em>\u201d or \u201cauthorized dealer<\/em>\u201d. Distributors are self-employed, independent contractors<\/strong> who constantly sell and promote the products in their own name and on their own account. They bear the sales risk, for which \u2013 vice versa \u2013manufacturers’ margins are rather low. Distributors are generally less protected than commercial agents (to whom within the European Union, the Directive on self-employed commercial agents of 1986<\/a> applies, as implemented in the national law of the respective EU Member State). Contrary to agreements with sales agents, distributorship agreements are restricted by antitrust law<\/strong>. Restrictions of competition are, in principal, prohibited, unless they do not appreciably restrict competition under Article\u00a0101 TFEU<\/a> (Treaty on the Functioning of the European Union). For details on distribution online see the Legalmondo post on \u201cRestrictions on Distributors in E-Commerce<\/a>\u201d.<\/p>\n

III.\u00a0\u00a0\u00a0\u00a0 Distribution international and Choice of law<\/h3>\n

When a manufacturer distributes its products or services internationally, the manufacturer\u2019s and the distributors\u2019 national laws \u00ab\u00a0collide\u00a0\u00bb. Frequently, the parties will choose the applicable law in order to solve such collision and create legal certainty. Typically, each party will try to take its \u00ab\u00a0own\u00a0\u00bb<\/strong>, and perhaps not more favourable, but at least well-known law abroad. Alternatively, the parties may agree on the law of a \u201cneutral\u201d, third country<\/strong> \u2013 e.g. Swiss law between an Italian manufacturer and a German distributor, which, by the way, also gives more freedom as regards standard form contracts. Even with a choice of law, there can nevertheless be unpleasant surprises in international trade<\/strong> \u2013 approximately as in the saying \u00ab\u00a0different countries, different customs<\/em>\u00ab\u00a0:<\/p>\n

    \n
  • First, because a choice of law<\/strong> may not be effective \u2013 as, for example, in some South American countries and in the Middle East.<\/li>\n
  • Second, because there may be internationally mandatory provisions<\/strong> (\u201coverriding mandatory provisions<\/em>\u201d, \u00ab\u00a0lois des police<\/em>\u00a0\u00bb or \u00ab\u00a0Eingriffsnormen<\/em>\u00ab\u00a0) which are so important for safeguarding a country\u2019s public interests that they practically \u00ab\u00a0override<\/em>\u00a0\u00bb the choice of law, i.e. apply despite the otherwise effective choice of law.<\/li>\n
  • Third, because the chosen law may contain unpleasant surprises<\/strong>, such as the German goodwill indemnity for distributors.<\/li>\n<\/ul>\n

    IV.\u00a0\u00a0\u00a0\u00a0 \u201cGerman\u201d Distributor Indemnity<\/h3>\n

    Also German law may provide surprises \u2013 in particular in form of the distributor\u2019s claim to goodwill indemnity at termination. Though there are no explicit rules on distributors under German law, there is extensive case law and various agency rules apply<\/strong> also to distributors if two conditions<\/strong> are given:<\/p>\n

    The distributor is<\/p>\n

      \n
    • integrated into the supplier\u2019s sales organisation; and<\/li>\n
    • obliged (due to agreement or factually) to forward customer data during or at termination of contract.<\/li>\n<\/ul>\n

      If given, the distributor is basically also entitled to claim goodwill indemnity at termination (under the same conditions as an agent). The calculation<\/strong> of such goodwill indemnity is, in general, based on the distributor\u2019s margin made in the last year with new customers brought by the distributor or with existing customers where the distributor has significantly increased the business. Details vary; different ways of calculation are accepted by German courts.<\/p>\n

      V.\u00a0\u00a0\u00a0\u00a0\u00a0 How to avoid \u201cGerman\u201d Goodwill Indemnity for Distributors<\/h3>\n

      For a long time, it was disputed whether the distributor\u2019s goodwill indemnity<\/strong> under German law, granted in analogue application of agency law (sec.\u00a089b German Commercial Code) could be excluded in advance<\/strong> (i.e. before termination of contract) when the distributor operates outside Germany, but in the European Economic Area (\u201cEEA<\/u>\u201d).<\/p>\n

      The question was now put to the test before the German Federal Court<\/strong> (decision of 25\/02\/2016, ref. no.\u00a0VII ZR 102\/15). The defendant, established in Germany, manufactured equipment for the electrical industry. The plaintiff was operating as a distributor in Sweden and other EEA States. The distributorship agreement provided for German law; any postcontractual compensation or remuneration was excluded. After termination by the defendant, the plaintiff claimed goodwill indemnity as distributor. The plaintiff did not succeed in the lower courts, but the German Federal Court now decided in the plaintiff\u2019s favour (as, by the way, in a similar matter did the Higher Regional Court of Frankfurt on 06\/02\/2016, ref. no.\u00a011 U 136\/14 [Kart]).<\/p>\n

      The decision focuses on the territorial scope<\/strong> of the provision on goodwill indemnity (sec.\u00a089b of the German Commercial Code). Pursuant to that provision, the agent\u2019s goodwill indemnity cannot be excluded in advance. In settled case law, this provision may apply analogously to distributors (see above). However, it was disputed whether the distributor\u2019s goodwill indemnity is also mandatory if the distributor operates outside Germany, but within the EU \/ EEA. The German Federal Court has now confirmed that \u2013 arguing especially with (i) the historic development of agency law and (ii) its objective to protect the agent respectively the distributor: also distributors operating in other EEA countries than Germany were to be protected as those operating in Germany; the relevant provision was intended to protect against unfavorable agreements resulting from economic dependence on manufacturers \/ suppliers. Finally, the Federal Court of Justice deemed it not necessary to refer this question to the Court of Justice of the EU because it did not fall within the scope of the Directive on self-employed commercial agents of 1986.<\/p>\n

      The new decision<\/strong> is consistent with existing case-law: it was quite likely that the German Federal Court would continue on its way of largely applying agency law to distributors by analogy.<\/p>\n

      Five practical tips<\/strong> for contractual practice and future contract drafting:<\/p>\n

        \n
      1. Goodwill indemnity is a cost which arises only in the wake of a distributorship agreement, but should be considered beforehand<\/strong> \u2013 and also, if such cost can be avoided or stipulated differently beforehand<\/strong> (e.g. stipulate entry payments).<\/li>\n<\/ol>\n
          \n
        1. If the distributor operates out<\/u>side the EEA<\/strong>, the claim for goodwill indemnity can be excluded at any time, i.e. already in the distributorship agreement itself (sec.\u00a092c German Commercial Code; cf. Higher Regional Court of Munich, decision of 11\/01\/2002, ref.\u00a0no.\u00a023 U 4416\/01).<\/li>\n<\/ol>\n
            \n
          1. If the distributor operates in<\/u> the EEA<\/strong>, German law applies and the two above conditions are met, the distributor\u2019s claim to goodwill indemnity cannot be excluded before termination.<\/li>\n<\/ol>\n
              \n
            1. Distributor\u2019s German goodwill indemnity can be excluded beforehand<\/strong> especially if the parties<\/li>\n<\/ol>\n

              (i) exclude the transfer of the customer data; or<\/p>\n

              (ii) oblige the manufacturer to block, stop using and, if necessary, delete such customer data at termination (German Federal Court, decision of 05\/02\/2015, ref.\u00a0no.\u00a0VII ZR 315\/13); or<\/p>\n

              (iii) chose another law (and, consequently, another jurisdiction or arbitration).<\/p>\n

                \n
              1. Alternatively, the parties may cushion the claim for goodwill imdemnity<\/strong> by<\/strong> agreeing on \u201centry payments<\/em>\u201d<\/strong> (\u201cEinstandszahlungen<\/em>\u201d) \u2013 which could even be deferred until termination and then offset against the claim for goodwill indemnity. However, such entry payment should not be unreasonably high<\/strong> (Federal Court of Justice, decision of 24\/02\/1983, ref.\u00a0no.\u00a0I ZR 14\/81), respectively it should correspond to a value in return, e.g. a particularly high distributor discount or a very long contract term (Higher Regional Court of Munich, decision of 04\/12\/1996, ref.\u00a0no.\u00a07 U 3915\/96, Higher Regional Court of Saarbr\u00fccken, decision of 30\/08\/2013, ref.\u00a0no.\u00a01 U 161\/12). In short: the manufacturer must prove that the parties would not have agreed a higher commission<\/strong>, even without the entry payment (as just decided by the German Federal Court on 14\u00a0July\u00a02016, ref.\u00a0no.\u00a0VII ZR 297\/15).<\/li>\n<\/ol>\n","protected":false},"excerpt":{"rendered":"

                When entering new markets, there are different distribution strategies to choose from (I.). In retail, car and wholesale trade, distributorship agreements are quite common (II.). In international distributorship agreements, the parties may choose the applicable law (III.). Whether chosen or not, the applicable law may contain unpleasant surprises like goodwill indemnity for distributors under German […]<\/p>\n","protected":false},"author":6,"featured_media":6175,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[202,1],"tags":[220],"class_list":["post-1373","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-distribution-agreements","category-agency","tag-germany"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.legalmondo.com\/fr\/wp-json\/wp\/v2\/posts\/1373","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.legalmondo.com\/fr\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.legalmondo.com\/fr\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.legalmondo.com\/fr\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/www.legalmondo.com\/fr\/wp-json\/wp\/v2\/comments?post=1373"}],"version-history":[{"count":1,"href":"https:\/\/www.legalmondo.com\/fr\/wp-json\/wp\/v2\/posts\/1373\/revisions"}],"predecessor-version":[{"id":1374,"href":"https:\/\/www.legalmondo.com\/fr\/wp-json\/wp\/v2\/posts\/1373\/revisions\/1374"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.legalmondo.com\/fr\/wp-json\/wp\/v2\/media\/6175"}],"wp:attachment":[{"href":"https:\/\/www.legalmondo.com\/fr\/wp-json\/wp\/v2\/media?parent=1373"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.legalmondo.com\/fr\/wp-json\/wp\/v2\/categories?post=1373"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.legalmondo.com\/fr\/wp-json\/wp\/v2\/tags?post=1373"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}