Since the distributor couldn’t substantiate that a certain term of notice had been agreed contractually, and the supplier failed to prove that the contract allowed termination with immediate effect, the Supreme Court examined the rules within supplementary law. Comparing various provisions regarding periods of notice – inter alia in the Commercial Agents Act, the Commission Agency Act of 1914, the standard form contract EÅ 04 and international model rules such as the Uniform Commercial Code and the Draft Common Frame of Reference (the DCFR) – the court came to the conclusion that a terminating party (in a distribution relationship) is obliged to observe reasonable period of notice if not otherwise agreed.
When determining reasonable period of notice the following circumstances are pertinent: a) the duration of the contractual relationship, b) the level of incurred investments costs c) time needed for distributor in order to find a reasonable alternative and d) trade custom. In respect of the aforementioned parameters the Supreme Court stated that if the supplier terminates the contract, an exclusive right within the territory is less important than the fact that the distributor is prevented from selling competitive products. Furthermore, if the distributor – upon termination – doesn’t receive any compensation for enhancing the group of customers, the term of notice ought to be extended. However, a rule implying a minimum period of notice, related to the term of contract, does not exist. In respect of the aforementioned circumstances the Supreme Court found a period of three months reasonable.
Thus, since the ruling primarily is based on the particular circumstances of the specific case, the precedential value as regards reasonable term of notice in distribution contracts is somewhat uncertain. Nonetheless, the mere fact that the Supreme Court explicitly bases its decision partly on the product of an academic working group (the DCFR; www.law-net.eu) is somewhat of a novelty in Swedish jurisprudence.
Magnus Nedström, agency & distribution Country Expert for Sweden.
(1) NJA 2009 p. 672.