The Danish Maritime and Commercial Court recently rendered judgment on the effectiveness of a termination notice that did not comply with the contractual requirements for termination of an exclusive distribution agreement.
In 1988, a Danish supplier of vacuum cleaners entered into an exclusive distribution agreement with a Moroccan distributor for the distribution of certain products in Morocco. The exclusive distribution agreement was governed by Danish law and the Danish Maritime and Commercial Court was appointed exclusive venue for disputes arising from the agreement.
The exclusive distribution agreement stipulated that a notice period for convenience should be at least 6 months.
It was also stipulated that “Notice of termination must be given by registered letter”.
From 2013 to 2016, the distributor’s purchases from the supplier decreased by more than 50%, and the supplier had expressed concerns about this and the distributor’s unwillingness to invest in an adequate stock.
On 24 June 2016, the supplier informed the distributor, by email, that the supplier no longer wanted to have an exclusive distribution agreement with the distributor, but that the supplier was willing to offer the distributor a non-exclusive distribution agreement, which was attached to the email for signature. The supplier’s general manager also stated that if the distributor was not willing to sign the non-exclusive distribution agreement, “… I hereby announce that I terminate the [exclusive distribution agreement] with effect 31 December 2016 (observing the 6 months termination period in the [exclusive distribution agreement])”.
The distributor replied the same day, also by email, that the distributor would not sign the non-exclusive distribution agreement.
The parties continued their cooperation until 31 December 2016, but after said date the supplier did not accept further orders from the distributor.
Representatives of the parties met in February 2017, and in March 2017 the parties again corresponded by email. In accordance with its previous position, the supplier informed the distributor that “The conclusion, however, remains that [the supplier] wishes to terminate [the distributor’s] exclusivity.
Referring to my email back in June 2016, I maintain that [the supplier] wishes to terminate the exclusivity element of the existing contract. We have respected the applicable and mutually agreed notice period, which now allows us to pursue sales via other channels…”.
Following the above events, the distributor initiated legal proceedings against the supplier before the Danish Maritime and Commercial Court and claimed damages for reason of the supplier not observing a notice period and refusing to accept orders. The distributor argued that the exclusive distribution agreement had not been terminated as per 31 December 2016, as the supplier’s notice of 24 June 2016 had been sent by email and not by registered mail as was required in the exclusive distribution agreement. The distributor also argued that the correspondence in March 2017, including the supplier’s use of the phrase “…whishes to terminate…” demonstrated that the exclusive distribution agreement had not been terminated by email in June 2016.
The court agreed that the supplier’s notice on 24 June 2016 was sent by email and not by registered letter as required under the exclusive distribution agreement. However, the court considered the termination to be effective, in spite of the correspondence that was exchanged in March 2017, in view of the following:
- It was clear from the supplier’s notice that the exclusive distribution agreement was terminated (as the distributor did not want to sign the new non-exclusive distribution agreement)
- The distributor clearly received the notice and replied to it the same day
- The parties frequently communicated via email
- There appeared to be no valid reason why a notice, that was received and read, should not be deemed to have been delivered
- The exclusive distribution agreement did not specify any consequences of not sending a termination notice by registered mail
- There was nothing in the exclusive distribution agreement that suggested that not sending a termination notice by registered mail should make the notice invalid
As follows from the above, Danish courts attach little importance to formal termination requirements. Even so, it is highly recommended to always follow the agreed arrangements for the provision of termination notices under a contract. Also, caution must be observed when communicating following a termination so that the terminated party does not have reason to believe that a termination has not taken place or has been withdrawn.
Peter E.P. Gregersen, IDI agency & distribution country expert for Denmark
