The Supreme Court of Sweden rules that, normally and typically, (i) a notice period of six months will be reasonable and sufficient in long-standing distribution relationships, and (ii) a distributor will not be entitled to an indemnity by means of analogies from what applies to commercial agents
Following 22 years of cooperation the supplier terminated a verbal distribution contract with six months’ prior notice. The parties had not agreed on any notice period or on any compensation upon termination. The distributor, selling Massey Ferguson tractors, had been acting on an exclusive basis within a specific area of Sweden.
Referring to the principles set out in the Draft Common Frame of Reference (DCFR) - emphasizing the duration of the contractual relationship, the difficulties in finding reasonable alternatives and substantial investment costs for the construction of new facilities - the distributor argued that a 36 months’ notice period rightfully should have been observed. The distributor, claiming damages for loss of sales as well as indemnity, also asserted that the supplier had not complied with its contractual obligations during the notice period (e.g. by unilaterally and prematurely cutting off the exclusive right of the distributor). The supplier, on the other hand, argued – with reference to the maximum notice period provided for in relevant legislation within similar legal fields (including the Swedish Act on Commercial Agency) – that six months was reasonable and that any entitlement to indemnity was provided neither by law nor by contract.
The Supreme Court noted initially, that there is – in the absence of a national legislation on distributorships – a need for more detailed guidance concerning the length of a reasonable notice period in distribution relationships of typical nature, in which the distributor is the weaker party and therefore more manifestly in need of protection. Given the fact that legislation on neighbouring kinds of contractual relationships (such as commercial agency, commission agency and partnerships) provide for notice periods of six months, the Supreme Court concluded, while also glancing at consistent Danish court practice to this effect, that the starting-point for long-standing distribution agreements not containing any terms on notice periods should be that the distributor is entitled to a notice period of six months. The Supreme Court clarified that a shorter notice period may be sufficient in cases where the protective needs of the distributor are limited or where it is supported by trade practices, and that it cannot be ruled out that a longer notice period may be required in exceptional situations.
As regards the question of analogous application of the indemnity provisions of the Act on Commercial Agency or of the Act on Commission Agency, the Supreme Court pointed to the purpose behind those provisions, being to protect a trade representative who, typically speaking, is conceived to hold a position so inferior that mandatory protective measures are warranted. The Supreme Court further noted, that when the legislation on commercial agency was implemented, a similar protection for distributors was in fact contemplated but rejected. Such protection has not since been considered by the legislator. Looking also in this respect to Sweden’s neighbouring countries, the Supreme Court remarked that Danish and Norwegian courts had consistently rejected analogous application to the benefit of distributors where the circumstances were typical. The Supreme Court concluded, that analogies of this kind therefore should only be considered where the protective need of the distributor is particularly strong, for example in situations where his position has not been independent. The wording suggests a very restrictive approach to analogies from legislation explicitly aimed at commercial agents. The distributor’s claim for indemnity in the current case was rejected, while it had not been shown to exist any protective need on his part of the kind that could motivate a departure from the aforesaid ruling principle.
Magnus Nedström, IDI agency and distribution country expert for Sweden.