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||We intervene very often in claims regarding the application of the Belgian Law of 27 July 1961 on the Unilateral Termination of Exclusive Distribution Agreements of Indefinite Duration.
Belgium has a specific legal regime for the termination of certain distribution agreements, in addition to a law on agency contracts. The Belgian Law of 27 July 1961 is a “Police law”. In other words, its terms supersede those of the agreement.
The Law provides that distribution agreements to which it applies, in the absence of a serious breach, may only be terminated by giving reasonable notice or by paying compensation in lieu of notice.
Distributors are also entitled to claim additional compensation from the principal, irrespective of whether or not reasonable notice was given. This additional compensation aims to cover
- costs and investments incurred by the distributor and
- distributor staff redundancy costs.
The Law defines a distributorship as an agreement under which a principal grants one or more distributors the right to sell, in their own name and for their own account, products manufactured or distributed by the principal.
These distribution rights must be
- (more or less) exclusive,
- for a territory including (part of) Belgium and
- for an indefinite duration.
As from their third renewal all limited-term distribution agreements are considered to have become agreements of indefinite duration.
The Law is applicable if no “reasonable” notice is given to the distributor that should be long enough for the distributor to find an alternative distributorship offering the same commercial advantages as the former one.
If the parties fail to reach an agreement, the court will define a “reasonable” notice period. Except for the principle of equity, the Law does not provide any guidelines in this respect. In general, the courts take into account the following criteria:
- the length of time the distributorship has existed;
- the size of the investments made by the distributor
- the amount of the distributor’s turnover generated by the contract products;
- market share and sales growth during the distributorship;
- the specificity of the products;
- the existence of other distributorships for the same product;
- the extent of the territory allocated to the distributor.
In practice, reasonable notice tends to be between 3 months and 3 years, depending on the specific circumstances of the case and on the weight given by the court to each of the above criteria.
An additional compensation covering:
- costs incurred and investments made by the distributor and
- redundancy costs for the distributor for staff dismissed
may be claimed as well, if the distributor proves that
1. in respect of goodwill:
- there had been a significant increase in the number of customers during the term of the distribution agreement;
- that this increase was a result of its marketing efforts; and
- that the customers are likely to continue to purchase the products after termination
2. in respect of costs and investments incurred:
- he made investments or incurred costs that will continue to benefit the principal after termination;
3. in respect of redundancy costs:
- he had to dismiss members of staff as a direct result of the ending of the distributorship.
The Courts set the amount of additional compensation in equity. This is usually fixed at between six months’ and two years’ net profits, between three months’ and one year’s semi-gross profit or gross profit.