Distribution Agreement Termination Compensation Clause

When it comes to customer transfer, agents and merchants are subject to different regulations. In the event of termination of the agency contract for any reason, the agent is obliged to transfer its clients to the contracting entity within the subject area and to cooperate and support the payer with a view to the implementation of a smooth and efficient transition. In Norway, distributors are not automatically entitled to compensation if the (distribution) contract is terminated. This newsletter focuses on the essential features and contents of cancellation contracts that terminate agency and distribution contracts. While the common principles for both species are exposed, differences relating to these principles are also addressed where necessary. However, care should be taken to ensure that such clauses are formulated with care. A new decision of the Borgarting Court of Appeal is illustrative (LB-2015-156429). Many distribution agreements contain a clause allowing either party to terminate the contract without legal implication. A termination clause often contains the reasons for the termination, the amount of notice required, and any financial compensation a party would have to pay.

The clause must set all the dates of termination and indicate whether the contract is automatically terminated in the event of a breach of certain contractual conditions. The party attempting to terminate the contract must give the other party as much notice as possible. This notice shall give the other party sufficient time to make further arrangements. In the absence of a specified period of time, as described in the termination clause of the agreement, some states require up to 90 days` notice for the termination of a distribution agreement. The agreement may also require one of the parties to compensate the other for income lost as a result of the termination. As regards distribution relationships, neither the Regulation nor the Block Exemption Notice concerning vertical agreements of the Turkish Competition Authority No 2002/2[5] allow for prohibitions on competition after the end of the procedure. However, these two provisions provide that the trader may be subject to a non-competition clause for a maximum period of one year, provided that the prohibition (i) relates to goods and services that are in competition with the goods or services covered by the contract, (ii) is limited to the facility or land in which the trader has worked during the term of the contract and (iii) is mandatory for the protection of the know-how transferred to the distributor by the contracting entity. Electronic correspondence prior to the conclusion of the contract indicated that the parties may have had a different understanding of the clause (and the underlying intent). The clause was introduced because the merchant wanted to distinguish between “termination for failure and termination for success”. This is how he wrote; If a termination is due to the fact that the client wishes to sell “its services” directly to customers in Norway, it would be appropriate to pay compensation.

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