Practical Guide to International Distribution Agreements in Austria

No legal definition of a distribution agreement

There is no legal definition of a distribution agreement in Austria. However, distribution agreements are well established in commercial practice and Austrian case law. According to Austrian law, distribution agreements may be best described as framework agreements that govern the business relationship between a distributor and a supplier of goods, and under which the distributor undertakes to sell goods and render services. The distributor may be integrated into the sales organization of a supplier, producer, or principal of goods in various degrees, but will always act as an independent entrepreneur or entity in its own name and on its own account.

The distinctive element of a distribution agreement is that the distributor purchases goods and products at a discounted rate from the supplier and/or the producer of goods, and sells the goods in its own name and its own account on a regular basis to its customers, adding a certain margin to cover its own costs and make a profit. The supplier may be a manufacturer or a reseller of the products. The distribution agreement may also define a respective territory and certain exclusivity.

Relevant legal provisions in Austria

Distribution agreements are not subject to any particular statutory provisions in Austria. Austrian law on distribution agreements consists of a combination of distinct rules of law that are contained in various federal acts and/or EU law. Subject to certain requirements, and depending on the nature of the contractual arrangement and the content of the distribution agreement, the following legal sources may or may not be applicable:

• Austrian Commercial Code (Unternehmensgesetzbuch, UGB);
• Austrian Civil Code (Allgemeines bürgerliches Gesetzbuch, ABGB);
• Austrian Commercial Agents Act (Handelsvertretergesetz, HVertG);
• Austrian Code of Civil Procedure (Zivilprozessordnung, ZPO);
• Austrian Court Jurisdiction Act (Jurisdiktionsnorm);
• Austrian Cartel Act 2005 (Kartellgesetz 2005, KartG 2005);
• Article 101 of the Treaty on the Functioning of the European Union (TFEU) and the Commission Regulation No 330/2010 on vertical agreements and concerted practices.

Since there are no specific regulations on distribution agreements, the provisions of the Austrian Commercial Agents Act (HVertG) may be applicable by analogy to distribution agreements, provided that the distributor is integrated into the sales organization of the supplier and/or the producer of goods. In addition, the general legal provisions on the sale of goods, as contained in the Austrian Civil Code (ABGB) and the Austrian Commercial Code (UGB), are applicable on purchase and sale transactions between the parties of the distribution agreement.

In this context, and due to the lack of particular statutory provisions to regulate distribution agreements in Austria, in order to ensure an effective and efficient contractual relationship, a distribution agreement should be comprehensive, and must be drafted accurately based the specific facts and circumstances of each individual case.

Conclusion of a distribution agreement

There are no specific legal provisions under Austrian law that govern the appointment of a distributor and/or on the establishment of a distributor relationship. The general principles of Austrian civil law shall apply.

The contracting parties of a distribution agreement may be natural persons or legal persons (e.g. partnerships, corporations). Where a party to the agreement is a partnership, a limited liability company, or any other corporation, the conclusion and signing of the distribution agreement shall be executed by the managing director with the respective power of representation on behalf of the company.

Distribution agreements are not subject to any formal requirements under Austrian law, and may be concluded orally or in writing. The conclusion of the contract may be carried out expressly or implicitly. Furthermore, no attestation, notarization, or registration procedures are necessary to validly conclude a distribution agreement in Austria. However, for evidentiary purposes, it is strongly recommended to sign a written and comprehensive distribution agreement.

Obligations of the parties of a distribution agreement

Generally, similar to any other commercial agreement, it is imperative and reasonable that a distribution agreement clearly outlines the responsibilities of each party in detail. The distributor and the supplier (principal) must have clarity regarding the respective duties to be performed under the terms and conditions of the distribution agreement. It is, inter alia, recommended to agree explicitly on the products and territory, the obligation of the parties, the terms and provisions of purchase and sale, the exclusivity provisions, the termination, and the dispute resolution.

Typically, it is assumed that the distributor has the obligation to distribute the products, provide the supplier with relevant information regarding the market and the customers, diligently safeguard the interests of the supplier in all business aspects, and treat relevant information as confidential.

The supplier has the general obligation to apply reasonable efforts to deliver the products and complete the orders of the distributor, support the distributor with respect to product information and marketing material, and grant the agreed discount on the products.

No registration of a distribution agreement

It is not mandatory in Austria to register a distribution agreement with an official authority. However, the distributor is required to notify and register its trade and business with the competent Austrian authorities. Corporations must be registered with the Austrian companies register.

In case of exclusive distribution, the supplier undertakes vis-à-vis the distributor to sell the goods only to the distributor for the purpose of resale, and not to any other distributors. Thus, an exclusive appointment may mean that the distributor is the sole distributor of the products. However, the distributor may also be exclusively confined to a specific area such as a state, country, or region. In this context, the supplier will also reasonably undertake to protect the distributor from the threat of a distributor from another territory being active in his territory. Without this arrangement, the contractual obligation not to supply another distributor in the distinctive territory is of little value.

In light of the foregoing and subject to the rules of competition law, the parties are free to agree on an exclusive or non-exclusive contractual relationship. Whether a distribution relationship contains elements that restrict competition must be determined in each individual case.

In this context, distribution agreements shall be drafted in accordance with Austrian and European competition and antitrust law regulations. The antitrust law applicable to distribution agreements is set out in Sections 1 and 2 of the Austrian Cartel Act 2005 (KartG 2005), which reflect Article 101 para 1 and 3 respectively of the Treaty on the Functioning of the European Union (TFEU).

Generally, it can be presumed that there is no restriction of competition contrary to EU law, when both the supplier's and the distributor's share of the relevant market does not exceed 30%. With a market share of 15% or less, European competition law is no longer applies (de minimis), except in cases of serious infringement (e.g. price fixing). In case the market is characterized by the existence of a large number of similar contracts (network), the entire network shall serve as the basis for the calculation of the market shares.

The Austrian Cartel Act 2005 (KartG 2005) provides for the general prohibition of agreements between undertakings, concerted practices and decisions by associations of undertakings whose object or effect is the prevention, restriction, or distortion of competition. However, the Austrian Cartel Act (KartG 2005) also contains a de minimis exception that provides safe harbour for undertakings whose market share does not exceed certain thresholds, provided that the vertical restraints do not amount to a hard-core restriction. In general, agreements between competing undertakings that have a combined share not exceeding 10% on the relevant market, and agreements between non-competing undertakings each of which has a share of not more than 15% on the respective relevant market are exempt from the general prohibition of the Austrian Cartel Act (KartG 2005), provided that in both cases the agreements are not used for the objective of fixing of selling prices, limitation of production or sales, or sharing of markets.

Distribution agreements containing the following provisions are prohibited in their entirety (hard-core restrictions):

• restrictions on the distributor's ability to set its own selling price,
• restrictions of the sales area or customers at the expense of the distributor,
• restrictions on active and passive sales to end users in selective distribution systems,
• restriction of cross-deliveries within selective distribution systems,
• restrictions that prohibit, or impose restrictions on, the end-users, independent repairers, and service providers from purchasing spare parts directly from the manufacturer.

In light of the above, the restriction of active sales by the supplier in the exclusive territory of the distributor is feasible according to Austrian law. However, passive sales, particularly fulfilling unsolicited orders, should always be possible. Finally, it should be noted that clauses that violate competition laws are null, void and unenforceable.

In general, the parties to a distribution agreement are free to agree upon minimum turnover clauses. The distributor may commit itself in the respective clauses to purchase a certain quantity of product from the supplier, or to realize a certain turnover with those products during a specified time period. The parties to a distribution agreement typically agree on a regular basis on the clauses regarding the minimum turnover in the context of granting exclusivity to the distributor for a specific territory. In case the distributor is not able to meet or exceed the minimum turnover, the distributor may lose the exclusivity for the distinct territory or for specific products. It is also possible in the aforementioned case for the provisions of a distribution agreement to stipulate that the contract shall be automatically terminated, or that the supplier has the right to terminate the distribution agreement with immediate effect.

Fixed or indefinite term

The Austrian law does not provide for statutory rules on the term of a distribution agreement. As a general rule, distribution agreements may be concluded for a fixed or an indefinite period of time.

Ordinary termination of a fixed-term contract

When terminating a distribution agreement, one must first examine whether termination is legally possible. In case the distribution agreement has been concluded for a fixed-term, both parties to the distribution agreement are bound by this fixed-term. In fixed term distribution agreements, a termination notice can only be given if the agreement expressly grants the parties a right to early termination prior to expiry of the fixed-term. This means that, unless otherwise explicitly agreed upon and stated in the distribution agreement, no ordinary termination is possible in case of a fixed-term distribution agreement. Accordingly, as a general rule, a distribution agreement for a fixed period of time terminates upon the expiry of the time period for which it was concluded, without the need for the parties to serve a termination notice.

Ordinary termination of an indefinite contract

A large number of distribution agreements are concluded for an indefinite period of time. In order to avoid disputes, these agreements should contain specific provisions on the notice period for termination. Unless otherwise agreed by the parties, giving a notice of termination is not subject to any formal requirement. Thus, a distribution agreement may be terminated by a formal termination letter, an e-mail, or an oral notice. However, in order to be able to prove that the notice of termination has been duly given, it is advisable to submit a notice of termination in writing. Furthermore, for evidentiary purposes, it is recommended to obtain proof of service of the termination notice, and to keep the respective delivery receipt.

Extraordinary termination

Distribution agreements may be terminated with immediate effect for good cause.

The right to terminate a distribution agreement for good cause cannot be excluded by the parties in the agreement. This right is available to both parties. However, for the avoidance of doubt, the parties should expressly define and list the circumstances that constitute “good cause” in the distribution agreement.

Austrian case law on extraordinary termination of long-term agreements provides that such extraordinary termination shall be valid and permissible if a breach of contract by a contracting party is of such nature that the continuation of the agreement until the end of the term (end date of the distribution agreement) is not reasonable or possible for the terminating party. The overall behaviour of the contracting party always plays a role in the test of reasonableness. An examination and respective check of the specific circumstances in each individual case is necessary.

Both the distributor and supplier or producer must declare the extraordinary termination immediately upon becoming aware of the existence of good cause. In this context, an objectively unjustifiable waiting period may be interpreted as meaning that the party entitled to terminate the distribution agreement is - in the specific case and despite the given reason for termination - willing to continue the distribution agreement.

According to Austrian jurisprudence, a distributor is entitled to a goodwill indemnity or compensation similar to the provisions of Section 24 of the Austrian Commercial Agents Act (HVertG), provided that the distributor is integrated in the supplier's sales organization similar to an agent.

Accordingly, the goodwill indemnity depends on whether and to what extent the contractual relationship between the distributor and the supplier is comparable with the relationship between agent and principal under an agency agreement. In any case, two requirements must be met cumulatively:

• the distributor must be incorporated into the sales organization of the principal (supplier of goods) in a way that is comparable to an agent, and
• the distributor must be obliged to surrender its established customers to the principal (supplier of goods).

The decisive criteria for the incorporation of the distributor into the sales organization of the principal is as follows:

• the distributor's obligation to purchase goods and to promote sales;
• the efficient sales and client services organization of the distributor;
• the adequate (replacement) stock of the distributor;
• the distributor's obligation to cooperate with respect to the marketing of new products;
• the distributor's reporting duties;
• the non-competition clause;
• the distributor's obligation to follow orders of the principle;
• the distributor's obligation to turn over data on customers to the principal upon termination of the distribution agreement;
• the principal's power to give instructions;
• the principal's permission to permanent access to the commercial establishments of the distributor, and
• the principal's right to inspect the account books of the distributor.

The obligation to surrender the established customers to the principal as the second requirement is met as soon as the principal is effectively enabled to make continuous use of the customers established by the distributor, after the termination of the distribution agreement.

Generally, the amount of the goodwill indemnity is determined by the extent to which the distributor has brought new customers to the principal, or has significantly expanded existing business relations. All circumstances have to be taken into account for the calculation, particularly the commission lost by the distributor from transactions with the customers concerned. In the absence of an agreement more favourable to the distributor, the indemnity shall not exceed one year's remuneration calculated on the average of the last five years. If the contractual relationship has lasted less than five years, the average of the entire contractual period shall be considered.

The distributor loses the right to indemnity if he fails to inform the principal, within one year of the termination of the distribution contract, that he is exercising his rights.

The parties of the distribution agreement shall waive and/or agree on the use of the supplier's or distributor's general terms and conditions. Further, the parties shall fulfil all provisions and regulations in relation to data protection.

According to the provisions of the Austrian Product Liability Act, only the producer and the importer into the EEA shall be liable for defects of the products. However, in case the producer or importer cannot be identified, the Austrian law provides for the liability of each entrepreneur (distributor) that introduced the respective product into the Austrian market, unless the distributor informs the injured party, within a reasonable period of time, of the producer or, in the case of imported products, the importer or the person who supplied him with the product.

The law applicable to an international distribution agreement is determined in accordance with Austrian conflict of laws rules (including Regulation [EC] No 593/2008 on the law applicable to contractual obligations [Rome I]).

The parties are free to choose the law by which the contract shall be governed. The choice can be made expressly or implicitly (Article 3 para 1 Rome I Regulation). If all relevant elements to the situation are located in a country other than the country whose law has been chosen, the parties’ choice is limited as the agreement cannot prejudice the application of mandatory provisions of the law of the other country.

Further, provisions regarded as crucial by a country for its public interests can supersede the law otherwise applicable to the agreement. An important example for a mandatory public-policy-provision is Section 24 of the Austrian Commercial Agents Act (HVertrG) on the entitlement of the agent to a goodwill indemnity or compensation.

In the absence of a choice of applicable law, the law of the country where the distributor has his habitual residence shall apply in relation to the respective distribution agreement (Article 4 para 1 lit f Rome I Regulation), except for cases in which it is clear from the circumstances that the contract is manifestly more closely connected with another country, in which case the law of that country is applicable (Art 4 para 3 Rome I Regulation).

Jurisdiction clause

The parties are generally free to agree on the prorogation of jurisdiction. Under the application of the recast Regulation (EU) 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Brussels Ibis Regulation), the agreement must be either written or evidenced in writing; in a form consistent with the practices that the parties have established between themselves; or in international commerce in a form that is consistent with a common usage in the particular trade or commerce concerned. Unless agreed otherwise, a jurisdiction agreement is exclusive under the provisions of the Brussels Ibis Regulation.

When the provisions of the Austrian Court Jurisdiction Act (Jurisdiktionsnorm) are applicable, the jurisdiction clause has to be proven by a written document to be valid.

For the sake of clarity, it is recommended to incorporate a jurisdiction or arbitration clause in the distribution agreement. In general, a contractual jurisdiction clause is valid, and the parties of a distribution agreement may establish the place of jurisdiction for all disputes arising out of, or in connection with, the distribution agreement.

In the absence of any jurisdiction clause, the applicable rules are primarily those set by the recast Regulation (EU) 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Brussels Ibis), and the revised Lugano Convention on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters. If both of these legal acts are not applicable, the jurisdiction is determined in accordance with the Austrian Court Jurisdiction Act (Jurisdiktionsnorm).

In general, persons domiciled in an EU Member State can, according to Article 4 para 1 Brussels Ibis Regulation, only be sued in the courts of that Member State. In addition to this general jurisdiction, Article 7 para 1 grants a plaintiff the possibility to sue in the courts for the place of performance of the obligation in question; that is the place where the goods were delivered or should have been delivered, or where the services were provided or should have been provided. In case of a distribution agreement, the place of the performance is the place where the distributor carries out the activity under the distribution agreement.

The precise competence of the local court is established by the Austrian Court Jurisdiction Act (Jurisdiktionsnorm). Place of general jurisdiction is the seat, domicile, or habitual residence of the defendant.

Arbitration clause

As a general rule, the parties of a distribution agreement may agree that all disputes or claims arising out of or in connection with the contract, including disputes relating to its validity, breach, termination, or nullity, shall be finally settled under the respective rules of arbitration. Under Austrian law, pecuniary claims are generally arbitrable. Non-pecuniary claims can be made the subject of an arbitration agreement insofar as the parties are capable of concluding a settlement upon the matter in dispute. However, the admissibility of arbitration is restricted in some fields, such as tenancy law and labour law.

The arbitration agreement or clause must be contained in a written document signed by the parties, or in letters, e-mails or any other form of message that furnishes proof of the agreement.

Austria has ratified and enacted the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention 1958). Therefore, Austria recognises and enforces foreign arbitral awards corresponding to the rules of the Convention.