Termination Distribution Agreement

It is possible to regulate a non-competitive obligation after the termination of the contract. Such an obligation is common in agency relationships. It is important to explicitly define the extent of the territory, products or services and the duration of the non-competition obligation. The duration of non-competitive competition may exceed one year for the distributor and two years for the representative. On 3 January 2018, the Swiss Supreme Court issued a new judgment on the termination of an exclusive distribution contract (4A_27/2018 judgment). The decision focuses on evidence of injury related to the early termination of a distribution contract. In addition, evidence of the annual net salary associated with a goodwill claim under Article 418 does not apply to Swiss bond law (“CO”) is examined. The new decision is of considerable interest, especially since the Swiss Supreme Court`s distribution decisions are quite rare. In these circumstances, a distributor may be entitled to goodwill compensation, provided that: 1) the distributor`s activity has significantly expanded the customer base; 2) the supplier benefits from the acquired customer base, even after the termination of the distribution report; 3) if such goodwill compensation is not unjustified. Estimate of injury in the event of early termination of a distribution contract With respect to the estimate of injury, the distributor submitted that between 1997 and 1999, 86.72% of the annual budget agreed with the supplier had been met. The distributor concluded that it would have continued to collect the estimated gross revenue revenue calculated on the basis of this percentage if the agreement had not been terminated prematurely.

The trader also submitted that the supply and distribution costs saved represented on average 78% of gross product. These savings were calculated for all of the distributor`s activities, i.e. also for products other than the supplier`s contractual products. As a result, the trader argued that its profit averaged 22%. For accounting purposes, the distributor divided these profits into a fixed share of 16.5% and a net profit of 5.5%. However, fixed costs remained stable despite the early termination of the contract, so the supplier should be forced to replace all gains due to transactions with the supplier. In its November 2017 decision, the Zurich Cantonal Court of Appeal stressed that a right to goodwill compensation in the event that the conditions described above were met is mandatory and cannot be excluded by contract beforehand. According to the Court of Appeal, these rules also apply to existing exclusive distribution agreements. This latest statement by the Court of Appeal of the canton of Zurich is of general interest, as suppliers regularly try to exclude goodwill compensation claims from their distribution contracts. However, where a similar application of section 418 non-co to distribution agreements is warranted, the provisions under which no compensation is due are lowered. In 1996, a Spanish supplier entered into an exclusive distribution agreement (the “agreement”) with a Polish distributor. The agreement concerned the distribution of suckers and mint mines.

The distributor was required not to market any lollipops other than contract products. However, the distributor was free to market products from other manufacturers, and it did so. Distribution agreements, like other commercial relationships, should not be unlimited.

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