The contract (based on an oral agreement) was made for an indefinite term, containing no provisions regarding termination or period of notice. The distributor, selling inter alia Massey Ferguson-tractors, acted 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.
In establishing the length of a reasonable period of notice in this case, the Court of Appeal referred to a Supreme Court Case from 2009 (NJA 2009 p. 672, referenced under section 15.3 of the Swedish Distribution Report), according to which the principles of the DCFR are indicative of what circumstances may be relevant in this context. Even if the Court of Appeal did not rule out that the circumstances of a specific case might justify a notice period longer than six months, it stated that six months was reasonable considering all the circumstances of this specific case.
As regards the issue of an indemnity, the Court of Appeal found that the distributor had not proven that it had created a goodwill value that the supplier would continue to derive substantial benefits from. Having come to this conclusion, the court saw no reason to consider whether the rule of the Swedish Act on Commercial Agency concerning indemnity (section 28) might possibly be applied by analogy, and this denied the claim for an indemnity. (However, the distributor was awarded a limited amount of damages based on a breach of contract on the part of the supplier during the notice period.)
The precedential value of Court of Appeal cases shall not be exaggerated. Nevertheless, by leaving the door open for notice periods longer than the “maximum period” (e.g. for commercial agents) the court’s conclusions are interesting. It should be noted that the judgement has been appealed to the Supreme Court. However, as of today, leave to appeal has not yet been granted.
Magnus Nedström, IDI distribution and agency country expert for Sweden