In Norway there are no specific laws on distribution, and agreements are subject to the freedom of contract. However, the general underlying obligations of loyalty fair dealing (which in Norway are codified in Marketing Act art 25) must be taken into consideration when assessing your rights and obligations. We touched upon this subject in an article last year ( NORWAY: HOW CLOSE SHOULD YOU GET? Balancing transparency with protection – IDI) – describing a court case where the distributor copied products of the principal after terminating the distribution contract. The case below is upon another subject, namely how “active” a principal” can be in dismantling the business of the distributor with the intent to set up an alternative distribution arrangement. The case involves lawsuits from the (former) distributor against the principal as well as former members of its distribution network. As these disputes are still pending, we will revert to the actual dispute in a later article. However, the initial hearings illustrate the procedural complications that such claims can raise.
Facts
Until its bankruptcy in 2022, A-K Maskiner AS (hereinafter A-K) was one of Norway’s largest dealers of machinery and equipment to the agricultural and construction industry. One of their major dealerships was two long-standing agreements with the CNHI International SA (hereinafter CNHI) under which A-K had the exclusive right to distribute New Holland and Case IH tractors in Norway. From 2008, A-K was owned by Bertel O. Steen Agro AS (hereinafter BOS).
Under the agreements A-K had an obligation to ensure a nationwide network of dealers. A-K itself had around 25 self-owned departments. In addition, A-K had contracted 15 independent dealers/retailers
The distribution agreements between A-K and CNHI for contained identical jurisdiction clauses. Under which “any dispute arising under or in connection with the Agreement” were to be resolved under “the laws of England and Wales” and by English courts.
In 2021, a dispute arose between A-K on the one hand and the 15 dealers and CNHI on the other side. The background to the conflict was that from 2019, CNHI had initiated discussions with the independent dealers, in order to plan for a reorganization of its distribution in Norway. This was done without A-K’s knowledge. During a short period, all the independent dealers terminated their relationship with A-K, which went into bankruptcy. The bankruptcy estate assigned all claims to BOS.
The parties agreed that there was no breach of any explicit terms in the agreement. The main claims made by BOS were based on tortuous conduct outside the contract. (Marketing Act art 25)
In addition, BOS claimed the same amount as an (alternative claim) by virtue of being a shareholder of A-K. Further BOS raised “other claims” as a result of losses incurred by other parties.
CNHI requested that the case should be dismissed with reference to the jurisdiction clauses in the agreements, which the parties agreed should be interpreted in accordance with English Law. The parties then obtained opinions from two English law experts (barristers). According to the judge the English experts essentially agreed on legal framework – but disagreed on the conclusion.
The legal framework
Note that this is a court of first instance and thus the ruling has limited value as a precedence. However, the ruling is illustrative on of how jurisdiction clauses and legal doctrines can lead to a costly sideshow when a dispute arise between the principal and its distributor.
The background for the “venue dispute” is as follows.
– If there are alternative legal basis for a claim, the claimant (under Norwegian law) may choose on which basis to sue.
– As the claim raised before a Norwegian court had to interpret the venue clause in the agreements according to English law.
– Lastly there are specific regulations set forth in the international treaties (In this case the Lugano convention) that can influence the decision
All these issues were litigated in detail.
Issued not decided upon
Whether or not BOS could circumvent the law and venue provision in the agreements between its subsidiary (A_K) and CNHI (by making a direct claim as a shareholder) were, due to the result not discussed. The court nevertheless indicated skepticism about the validity of such “alternative claim”, to circumvent an agreed jurisdiction clause.
The court also noted that a pretension by BOS that since some (of the “other claims” ) raised obviously were subject to Norwegian law and venue, all matters should be subject to Norwegian law hardly was legally tenable.
As the court also noted, it was pretty clear that the specific regulations in the Lugano convention could not override the express venue and law clause.
Left was then the question if a tort action based on the principles of loyalty and fair dealing (as codified in the Marketing Act) fell under the law and venue provision of the agreements. Which as described above – were subject to English law.
The court’s assessment.
A Norwegian court has limited knowledge of English law. Therefor the parties presented expert opinions from English barristers. Based on the experts’ opinions the court concluded that (with reference to the Fiona Trust decision[1]) English law took a broad purposive approach, where presumption that the parties, as rational businesspeople, have a preference in favor of a one-stop adjudication”.
CNHI argued that the basis for BOS’ claim was based on a presumption that CNHI destroyed the relationship between A-K and the independent dealers, and thereby sabotaged A-K’s duty to ensure a nationwide private nationwide private dealer network. As this duty is stated in the agreement, CNHI argues that this must be seen as “implied” as it would mean that CNHI has contributed to preventing A-K from fulfilling the terms of the contract.
The experts agreed that under English law, caution should be exercised in interpreting terms that are not explicitly stated in the contract. The more thorough a contract, and essential a term – the greater caution should be exercised. However, the experts disagreed on whether this case there was sufficiently clear connection between the basis of the (tort) claim and the agreement between the parties.
In the opinion of the Court the tort claim made could have been brought against any manufacturer of tractors that attempted to take over the established network that A-K had built up. The fact that CNHI had easier access to information and contact was not a sufficient causal link between the claim and the agreements. Accordingly, the court admitted the case, which are now pending in Norway.
COMMENTS AND TAKE AWAYS
Within a commercial framework parties are mostly free to choose both governing law and jurisdiction.
The main takeaway from the initial stages of this case is that jurisdiction clauses must be adequately reviewed to avoid inconsistencies in multi-venue transactions.
Where the intention is to carve out certain disputes for one forum as opposed to the other, such division and intention should be made clear using express drafting to avoid any unintended outcomes and wasteful disputes over the appropriate forum. That obligations set forth in the agreement, and obligations based on background law may be subject to different law and jurisdiction may come as a surprise.
Although courts in many countries are familiar in applying foreign law, the foreign law must be pleaded and proved as a fact, usually through evidence of a qualified lawyers (from the relevant jurisdiction). As this case demonstrate this add uncertainty, time and costs to the litigation
Secondly obligations outside the framework of a distribution agreement should always be considered. Both the possibility of such claims, as well as how they are litigated (cost, discovery process etc.) vary from country to country.
Carl Arthur Christiansen, IDI country expert for agency and distribution in Norway
[1] Fiona Trust & Holding Corp v Privalov [2007] 2 Lloyd’s Rep 267
