Introduction
A distribution and commercial agency agreement governs the sale of a supplier's products through an intermediary. The legal consequences of the two forms differ widely, however. A distributor purchases for its own account and risk and resells in its own name. A commercial agent brings about, against commission, the agreements that the principal itself concludes with the customer. The core of the agreement is the allocation of the sales risk and of the market value built up by the time it ends. In that context the agent enjoys mandatory-law protection, including goodwill compensation under Section 7:442 of the Dutch Civil Code (DCC). This page works through the elements of the agreement and, for each clause, considers whether it holds up when the cooperation ends.
The structure of the agreement
The agreement follows the life cycle of the cooperation: first the qualification and the allocation of roles, then the commercial arrangements, and finally the termination and its consequences. That order is not accidental. Whether a clause holds up often depends on the qualification recorded earlier and on the mutual core obligations. The full structure may look like this:
- Preamble, parties and recitals
- Definitions and interpretation
- Appointment of the intermediary
- Exclusivity
- Territory and products
- Purchasing, prices and payment (distribution)
- Commission (agency)
- Obligations of the parties
- Trade mark and IP use
- Term
- Termination of the long-term agreement
- Goodwill compensation on agency (Section 7:442 DCC)
- Liability
- Penalty clause
- Non-competition
- Confidentiality
- Choice of law and forum
- Schedules
Preamble, parties and recitals
The preamble records what type of cooperation the parties are entering into and who performs which role. The title is not decisive in this respect. Whether an agreement qualifies as distribution or as agency depends on the substance of the arrangements and on the way in which the parties give effect to them. Whoever purchases and resells in its own name and for its own account is a distributor. Whoever brings about, against commission, the agreements that the principal concludes with the customer is a commercial agent within the meaning of Section 7:428 DCC. The recitals describe the background: the products, the territory and the fact that the supplier entrusts the sale of its products to an intermediary. Those recitals later steer the interpretation of the operative provisions.
Example recitals +
The undersigned: [Supplier B.V.], having its registered office in [place] ("the Supplier"), and [Intermediary B.V.], having its registered office in [place] ("the Distributor");
whereas the Supplier manufactures the Products described in Schedule 1 and wishes to entrust the sale thereof in the Territory to the Distributor, which will resell the Products for its own account and risk in its own name;
agree as follows.
The supplier / principal wants the chosen allocation of roles to be described precisely and consistently, so that the intended qualification is respected. The distributor / agent has an interest in the same precision, because mandatory-law protection attaches to qualification as agency.
Definitions and interpretation
A list of definitions makes the remaining provisions unambiguous. At the very least the Products, the Territory, the Customers, the Price List and, on agency, the Commission and the method of calculating it are recorded. An interpretation provision governs the order of precedence between the main text and the schedules. In a mixed form, in which the intermediary sells partly for its own account and partly acts as an intermediary, the applicable regime is determined per product line or type of transaction.
Example definitions +
In this agreement the following terms have the following meanings: "Products" means the products listed in Schedule 1;
"Territory" means the territory described in Schedule 2;
"Customers" means the purchasers within the Territory. In the event of any conflict between the main text and a schedule, the main text prevails, unless expressly provided otherwise.
The supplier / principal wants sharp definitions that delimit the scope of application and prevent the re-qualification of mixed transactions. The distributor / agent wants it to be clear per type of transaction which regime applies, so that the corresponding remuneration or protection is established.
Appointment of the intermediary
The core clause records that the supplier appoints the intermediary and on what basis. The appointment describes the assignment: reselling the products in the territory, or acting as an intermediary in sales on behalf of the principal. It is also recorded whether the intermediary may subcontract the appointment to third parties in whole or in part. A clear appointment forms the basis on which the remaining clauses, including exclusivity and territory, build.
Example clause +
The Supplier hereby appoints the Distributor, and the Distributor accepts the appointment, to sell and promote the Products within the Territory for its own account and risk. The Distributor is not authorised to represent the Supplier or to enter into obligations on the Supplier's behalf.
The supplier / principal wants to limit the appointment to a defined assignment and to make subcontracting to third parties subject to prior consent. The distributor / agent wants sufficient latitude to work the market as it sees fit and to engage sub-distributors where necessary.
Exclusivity
Exclusivity means that, within the territory, the supplier appoints no other distributors or agents and does not itself supply directly. A sole-selling right may go further than a mere appointment. If exclusivity is intended, it must be expressly agreed; it is not readily assumed. Where an explicit arrangement is lacking, all that may remain is an ordinary long-term agreement without exclusivity protection. An exclusivity clause is often linked to a minimum purchase requirement, so that the protection goes hand in hand with a consideration in return.
Example clause +
The Supplier grants the Distributor the exclusive right to sell the Products in the Territory. During the term, the Supplier will appoint no other distributors or agents within the Territory and will not supply Customers directly, whether itself or through third parties. The exclusivity lapses if the Distributor fails to achieve in any year the minimum purchase requirement set out in Schedule 3.
The supplier / principal wants to limit the exclusivity to a defined territory and product range and to reserve the right to convert it to non-exclusive if sales fall short. The distributor / agent wants exclusivity in black and white, including the prohibition on the supplier supplying in the territory itself or through third parties, so that the market that has been built up is not eroded.
Territory and products
The agreement delimits the geographical territory within which, and the products for which, the intermediary may be active. Precision prevents disputes about passive versus active selling, about online channels and about new product lines. It is recorded whether selling outside the territory is permitted, whether the supplier may withdraw products from the range, and how new products are brought under the agreement. A dynamic product schedule that is updated periodically keeps the arrangement current without the main text having to be amended each time.
Example clause +
The Distributor is entitled to sell the Products actively only within the Territory. Selling outside the Territory and actively approaching purchasers outside it are not permitted. The Supplier may withdraw Products from the range on [number] months' notice;
new products are brought under this agreement by supplementing Schedule 1.
The supplier / principal wants flexibility to adjust the range and to delimit the territory tightly. The distributor / agent wants assurance that customary products remain available and that new products in the same line fall under the agreement.
Purchasing, prices and payment (distribution)
On distribution, the distributor purchases for its own account. The provision governs the ordering process, the applicable price list, discounts, delivery terms and payment terms, usually by reference to the supplier's general terms and conditions. Retention of title until payment in full protects the supplier against the distributor's insolvency. A price-variation clause and an arrangement for the prices of orders in progress prevent argument in the event of interim adjustments.
Example clause +
The Distributor purchases the Products at the Price List in force at the time of ordering (Schedule 4). Payment is made within [number] days of the invoice date. The Supplier may amend the Price List on [number] days' notice;
orders already confirmed are handled at the prices in force at the time of confirmation. The Products supplied remain the property of the Supplier until payment in full.
The supplier / principal wants short payment terms, retention of title and the freedom to adjust prices. The distributor / agent wants protection against abrupt price increases and certainty as to the price of orders already confirmed.
Commission (agency)
On agency, the agent receives no purchase price but commission on the transactions brought about through its intermediation. The commission percentage, the basis, the moment at which the commission becomes due and the method of settlement are recorded. For agency the statute contains rules on when the commission arises and becomes payable that supplement the contractual arrangements. A clear arrangement on commission on orders received after the end of the agreement prevents later disputes.
Example clause +
The Agent is entitled to commission of [percentage]% on the net turnover of agreements brought about through its intermediation. The commission becomes due once the Principal has performed the agreement with the Customer, and is settled monthly. For agreements brought about within [number] months of the end of this agreement and mainly attributable to the Agent's activity, entitlement to commission continues.
The principal wants to delimit the commission basis sharply and to restrict after-payments once the agreement has ended. The agent wants commission also to be paid on orders that are demonstrably the result of its efforts, even where those orders are received after the end.
Obligations of the parties
The agreement lists the mutual efforts. The intermediary undertakes to work the market actively, to hold stock or to generate orders, to report, and to comply with quality and presentation requirements. The supplier undertakes to deliver on time, to provide product information and marketing support, and to respect the appointment. Naming the core obligations sharply is important: a serious failure in one of them may give grounds for rescission or immediate termination without a long notice period having to be observed.
Example clause +
The Distributor uses its best efforts to promote the sale of the Products in the Territory, holds a representative stock and reports quarterly on sales and market developments. The Supplier delivers ordered Products within the agreed periods, provides the necessary product and marketing information, and refrains from direct selling in breach of the appointment.
The supplier / principal wants concrete, verifiable performance obligations, such as a minimum purchase requirement and reporting. The distributor / agent wants the supplier too to commit to verifiable performance, such as delivery periods and support.
Trade mark and IP use
The intermediary uses the supplier's trade marks, trade names and marketing materials. To that end the agreement grants a limited, revocable and non-exclusive licence, solely for the sale of the products within the territory and for the duration of the cooperation. It is recorded that all IP rights remain with the supplier, that the intermediary registers no similar trade marks or domain names, and that all use ceases immediately at the end of the agreement. An arrangement on transferring domain names and customer accounts on termination prevents value from remaining with the wrong party.
Example clause +
The Supplier grants the Distributor a non-exclusive, revocable licence to use the Trade Marks solely for the sale and promotion of the Products within the Territory during the term. All intellectual property rights remain with the Supplier. The Distributor registers no signs or domain names similar to the Trade Marks and, at the end, immediately ceases all use.
The supplier / principal wants to limit trade mark use strictly and to ensure that rights, domain names and accounts return after the end. The distributor / agent wants sufficient scope of use to work the market effectively and clarity as to the wind-down at the end.
Term
The agreement is entered into for a fixed or an indefinite term. An agreement for a fixed term ends by operation of law, but often contains a tacit renewal; that renewal effectively makes the arrangement a long-term agreement with its own termination issues. Where the term is indefinite, the termination arrangement is the pivotal point. The commencement date, the initial term and whether and how renewal takes place are recorded. A commercial agency agreement for a fixed term that is continued after it ends is deemed to have been entered into for an indefinite term.
Example clause +
This agreement takes effect on [date] and is entered into for a period of [number] years. It is renewed tacitly for periods of one year each, unless a party gives written notice of termination at the latest [number] months before the end of the current period.
The supplier / principal wants a clear term with well-defined renewal and notice moments. The distributor / agent wants an initial term long enough to recoup its investments.
Termination of the long-term agreement
Long-term agreements for an indefinite term are in principle terminable, but the requirements that the law and the standards of reasonableness and fairness impose on such termination are strict. If a contractual termination arrangement has been agreed, it must be followed; termination in breach of it is invalid and gives rise to a liability in damages. Where an arrangement is lacking, having regard to the nature of the agreement a sufficiently compelling ground and a reasonable notice period may be required, depending among other things on the duration of the relationship and the investments made by the intermediary. For agency, moreover, the mandatory notice periods of Section 7:437 DCC apply.
Example clause +
Either party may terminate this agreement by written notice with effect from the end of a calendar month, observing a notice period of [number] months. Without prejudice to the foregoing, either party may terminate the agreement with immediate effect if the other party is in attributable breach of a core obligation and fails to remedy that breach within [number] days of a notice of default.
The supplier / principal wants a clear notice period that is not too long, and the possibility of immediate termination on a compelling ground or a serious breach. The distributor / agent wants a generous notice period and, where possible, the requirement of a compelling ground, so that the investments made can be recouped and an abrupt termination is prevented.
Goodwill compensation on agency (Section 7:442 DCC)
If the agreement qualifies as agency, the commercial agent is in principle entitled, at the end of the agreement, to goodwill compensation under Section 7:442 DCC. The compensation is payable to the extent that the agent has brought in new customers or significantly expanded existing customer relationships, the principal continues to derive substantial benefit from this after the end, and payment is equitable. The compensation is capped at one year's remuneration, calculated over the average of the last five years. This right is a matter of mandatory law and cannot be contracted away in advance to the agent's detriment. On distribution, Section 7:442 DCC does not apply, although in certain circumstances a distributor may seek to construct a comparable claim by way of analogous application or the standards of reasonableness and fairness.
Example clause +
At the end of this agreement the Agent is entitled to goodwill compensation in accordance with Section 7:442 DCC, to the extent that it has brought the Principal new customers or significantly expanded existing agreements and the Principal still derives substantial benefit from this. The compensation amounts to no more than one year's remuneration, calculated by reference to the average of the last five years.
The principal wants the compensation to remain limited to the statutory maximum and the agent to substantiate the benefit retained. The agent wants the customers brought in and the resulting benefit to be fully taken into account, so that the goodwill built up is compensated.
Liability
The liability provision limits the loss that the parties can claim from each other. Customary features are the exclusion of indirect and consequential loss, a cap linked to the turnover or commission over a given period, and an exception for intent and wilful recklessness. On distribution, attention is needed for product liability: the supplier indemnifies the distributor against claims for defective products, while the distributor stands surety for loss arising from its own conduct. The agent's mandatory-law claims, such as the goodwill compensation, cannot be eroded through a liability cap.
Example clause +
Each party's liability is limited, per event and per year, to [amount], and to no more than the turnover or commission, as applicable, realised over the preceding twelve months. Liability for indirect and consequential loss is excluded. These limitations do not apply in the event of intent or wilful recklessness, nor to the Agent's mandatory statutory claims.
The supplier / principal wants a watertight cap and the exclusion of consequential loss. The distributor / agent wants indemnification for product liability and mandatory-law claims to remain outside the cap.
Penalty clause
A penalty clause reinforces obligations that are difficult to express in terms of loss, such as the exclusivity, non-competition and confidentiality clauses. The amount of the penalty, whether it applies per breach or per day, and whether additional damages and performance may also be claimed, are recorded. Under Section 6:94 DCC the court may reduce an agreed penalty if equity manifestly so requires; a penalty that bears no relation to the actual loss runs that risk. A differentiated penalty, calibrated to the seriousness of the breach, is more durable than a single high lump sum.
Example clause +
In the event of a breach of the provisions of articles [exclusivity], [non-competition] or [confidentiality], the party in breach forfeits an immediately payable penalty of [amount] per breach, increased by [amount] for each day the breach continues, without prejudice to the right to performance and to compensation for the loss actually suffered to the extent that it exceeds the penalty.
The supplier / principal wants a penalty high enough to deter breach and cumulative with damages. The distributor / agent wants a proportionate, differentiated penalty that does not invite reduction by the court.
Non-competition
A non-competition clause prohibits the intermediary from dealing in competing products within the territory during and after the agreement. Limits apply to its duration and scope: a clause that reaches too far in time, territory or product range may be unreasonably onerous or contrary to competition law, and thereby fall in whole or in part. On agency, a non-competition clause for the period after the end binds the agent only if it has been entered into in writing, relates to the territory or the customer base and the products, and lasts no longer than two years. A clause limited as to place, time and products holds up more readily than a blanket prohibition.
Example clause +
During the term and for [number] months after the end of this agreement, the Intermediary will not sell or promote within the Territory any products that compete with the Products, nor take an interest in an undertaking that does so. This clause is limited to the Territory and the product categories named therein.
The supplier / principal wants to prevent the intermediary from deploying the market knowledge it has built up for a competitor. The distributor / agent wants the clause to remain limited as to time, territory and products, so that it does not unreasonably restrict its business after the end.
Confidentiality
The parties exchange commercially sensitive information: customer data, prices, margins and sales strategy. The confidentiality clause requires confidential treatment, limits use to the purpose of the agreement, and continues to have effect after termination. The scope, the exceptions for information that is already public or lawfully obtained, the duration, preferably indefinite for trade secrets, and the obligation to return or destroy all confidential information at the end are recorded. Linking it to the penalty clause makes enforcement effective.
Example clause +
The parties treat all confidential information they receive in connection with this agreement as strictly confidential and use it solely for the performance of the agreement. This obligation does not apply to information that is already public or has been lawfully obtained from a third party, and remains in force after the end of the agreement. At the end, all confidential information is returned or destroyed on first request.
The supplier / principal wants broad, long-lasting confidentiality with an obligation to return. The distributor / agent wants the same protection for its own data and clear exceptions for information that is already known.
Choice of law and forum
The concluding provisions designate the applicable law and the competent court. In purely national relationships, Dutch law and a chosen Dutch court are the obvious choice. In cross-border distribution or agency the choice of law is crucial, because the agent's mandatory-law protection, including the goodwill compensation, cannot always be set aside by a choice of foreign law. The language, the method of giving notice and any escalation or mediation route before recourse to the court are also recorded.
Example clause +
This agreement is governed by Dutch law. Disputes are submitted exclusively to the competent court in [place]. The parties use their best efforts to resolve a dispute first by mutual consultation before commencing proceedings.
The supplier / principal wants a predictable forum and applicable law at its place of establishment. The distributor / agent wants assurance that a choice of law does not erode the mandatory-law protection, such as the goodwill compensation.
Schedules
The schedules contain the operational detail that keeps the main text light and can be updated periodically: the product list with prices, the description of the territory, the commission structure on agency, the applicable general terms and conditions, house-style and trade mark guidelines, and reporting formats. It is recorded that the schedules form an integral part of the agreement and that, in the event of any conflict, the main text prevails, unless expressly provided otherwise. Current, signed schedules prevent argument about which version applied at the time of a dispute.
Example schedules +
The following schedules form an integral part of this agreement: Schedule 1 (Products and Price List), Schedule 2 (Territory), Schedule 3 (Minimum Purchase Requirement), Schedule 4 (General Terms and Conditions) and Schedule 5 (Trade Mark and House-Style Guidelines). In the event of any conflict between a schedule and the main text, the main text prevails.
The supplier / principal wants schedules that can be updated unilaterally where operationally necessary. The distributor / agent wants changes that affect price, territory or remuneration to be made only by mutual consent.
What does this mean in a dispute?
In practice, disputes about distribution and agency often turn on three questions: how the agreement qualifies, whether it has been validly terminated, and what compensation is due at the end. The qualification determines whether the agent's mandatory-law protection applies. The termination stands or falls with the question of whether the contractual arrangement and the requirements of reasonableness and fairness have been respected. The goodwill compensation requires a substantiation of the customers brought in and the benefit retained. A carefully drafted agreement, with sharp core obligations and a watertight termination arrangement, reduces the scope for argument on each of these points.