Legal certainty for your distribution channels in Greece
The common European internal market has considerably facilitated the free movement of goods within the EU and led to an increase in intra-Community trade – with a corresponding need to harmonize commercial-law provisions.
Put simply, commercial agents broker the sale of goods from producers to dealers in return for a commission; the invoice for the purchase of the goods is issued by the producer directly to the dealer, while the commercial agent receives a commission from this transaction. The commercial agent acts in another’s name and for another’s account, operates an independent business, and maintains its own customer base that it cultivates itself – this distinguishes it from a commission agent. The EU Commercial Agents Directive harmonized the relevant provisions across the Union, including in particular the commercial agent’s right to compensation upon termination of the contract.
In contrast to the commercial agent, the distributor sells the goods of one or more manufacturers as an independent merchant in its own name and for its own account – that is, it purchases and resells the goods itself. This often creates an economic dependency on the manufacturer (sales targets, exclusivity agreements, sole distribution rights, territorial protection); such distribution systems can give rise to restrictions on competition and are therefore subject to competition-law scrutiny. Under certain conditions – for example, where the distributor is obligated to make certain investments and achieve certain sales figures and is subject to the manufacturer’s right to issue instructions – the provisions of commercial agency law may also apply by analogy to exclusive distributors (see the discussion below).
FAQ
A manufacturer (entrepreneur/principal) can market a product within the European internal market through various channels. In addition to direct sales to the end customer, many manufacturers rely on marketing through third parties or companies in the respective country. Advantage: these contractual partners are better acquainted with local conditions on the ground, pursue a more effective local marketing strategy, and can often distribute the goods more cost-effectively and efficiently. Common forms of this representative relationship are the commercial agent and the distributor.
Commercial agency law is codified across much of Europe, so that the commercial agent's rights vis-à-vis the principal are protected by numerous mandatory provisions. For distributors, on the other hand, there are no special statutory protective provisions, which raises the question of the extent to which the protective provisions for commercial agents also apply to (exclusive) distributors.
A commercial agent is an independent trader entrusted with negotiating business transactions for another company, or concluding them on that company's behalf (e.g. selling products in the name of a principal to the customer). The agent acts in another's name and for another's account and receives commission payments from the principal for its activity. Unlike a distributor, the agent does not purchase the products itself, but rather acts as an intermediary between the company and the customer.
If such a business relationship between a principal and a distribution partner (in Germany or Greece) is carried out in practice, a commercial agency agreement exists at the same time – regardless of whether there is a written or merely an oral agreement: in either case, the commercial agent has the same rights vis-à-vis the principal. Only the ability to prove the agreements made becomes more difficult for both parties without a written contract; in cases of doubt, courts tend to decide in favor of the commercial agent, so that a written record is advisable in every case.
To determine the applicable law, a distinction must be drawn between the relationship between the commercial agent and the principal, on the one hand, and the brokered purchase contract between the principal and the customer, on the other. The latter, insofar as the commercial agent is engaged for distribution abroad (e.g. in Greece), constitutes an international sales contract to which the UN Convention on Contracts for the International Sale of Goods (CISG) applies – provided that the states concerned have ratified the Convention.
Since the CISG does not apply to service contracts such as the commercial agency agreement, and since there are also no international conventions on the substantive law of commercial agency, national law is decisive in this respect.
The provisions governing the commercial agency agreement were harmonized by EU Directive 86/653 of 18 December 1986 and transposed into national law in all member states. In Greece, this was implemented through Presidential Decree (P.D.) 219/1991, which contains detailed provisions on the rights and obligations of the parties – in particular for the protection of the commercial agent.
Which national law applies to the contractual relationship itself was initially governed by the EC Convention signed in Rome in 1980 (the Convention on the Law Applicable to Contractual Obligations, the “Rome Convention”), implemented in Germany in Articles 27 et seq. of the Introductory Act to the German Civil Code (EGBGB). The Rome Convention was replaced, in the course of the “communitarization” of private international law, by Regulation (EC) No. 593/2008 (the Rome I Regulation), which entered into force on 17 December 2009; the previous rules, including Articles 27 et seq. EGBGB, were repealed accordingly.
The Rome I Regulation applies to contractual obligations in civil and commercial matters involving a conflict of laws, even where the law of a non-contracting state is concerned, and covers contracts concluded on or after 17 December 2009 (Art. 28 Rome I Regulation). The parties may determine the applicable law by way of a choice-of-law clause. In the absence of such a clause, the applicable law is determined pursuant to Art. 4(1) and (2) of the Rome I Regulation; where this does not allow a determination, the law of the state with which the contract is most closely connected applies pursuant to Art. 4(3) of the Rome I Regulation. Distribution agreements are, pursuant to Art. 4(1)(f) of the Rome I Regulation, governed by the law of the state in which the distributor has its habitual residence.
Independently of the question of applicable law, the question of jurisdiction arises. This can be agreed contractually by way of a jurisdiction clause; unless the parties have agreed otherwise, such jurisdiction is generally exclusive.
If no exclusive jurisdiction is agreed, the place of performance for services may be determined contractually, which likewise establishes the competent courts. In intra-European business dealings, jurisdiction is today governed by Regulation (EU) No. 1215/2012 of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (the “Brussels Ia Regulation,” the recast Brussels I Regulation) – in particular Art. 7(1) (jurisdiction at the place of performance) and Art. 25 (jurisdiction agreements). The former Regulation (EC) No. 44/2001 (the “Brussels I Regulation”) was replaced by the recast Regulation with effect from 10 January 2015 and no longer applies to proceedings initiated thereafter.
The subject matter of the commercial agency agreement is essentially the provision of a service, the purpose of which is to promote the sale of goods. The contract may be concluded for a fixed or indefinite term and may be terminated by either party subject to certain notice periods; these periods increase with the duration of the contract.
Under Greek law, pursuant to Art. 8(3) and (4) of Presidential Decree 219/1991, a contractual relationship entered into for an indefinite term may be terminated by either party subject to the following notice periods:
1 month from the beginning of the first year of the contract,
2 months from the beginning of the second year of the contract,
3 months from the beginning of the third year of the contract,
4 months from the beginning of the fourth year,
5 months from the beginning of the fifth year,
6 months after a contract duration of 5 years, i.e. from the beginning of the sixth year of the contract.
Notice takes effect at the end of the calendar month, unless otherwise agreed (Art. 8(6) of Presidential Decree 219/1991).
Under German law, notice periods are governed by § 89 of the German Commercial Code (HGB):
in the first year of the contract: 1 month,
in the second year: 2 months,
in the third to fifth year: 3 months,
after a contract duration of five years: 6 months.
To provide proof of delivery, the notice of termination should be sent by registered mail with return receipt or delivered by courier.
The commercial agent is entitled to compensation both under German law (§ 89b HGB) and under Greek law (Art. 9 of Presidential Decree 219/1991), intended to compensate for the benefit that the commercial agent has brought to the principal – arguably the most significant claim in commercial agency law.
The commercial agent is to be compensated for having acquired new customers for the company, with whom the company continues to do business even after the end of the contract. This claim cannot be waived. It is granted only to the extent that the commercial agent has acquired new customers or substantially expanded existing business relationships, and the principal derives substantial benefits from this; in addition, the compensation payment must be equitable.
Taking into account the most recent sales figures, a forecast is prepared to determine the sales potential of the newly acquired customers. The amount of compensation may not exceed one year's commission, calculated as the average of the last five years.
The claim lapses if the commercial agent terminates the contract itself, unless this was reasonable due to health or other reasons attributable to the principal, or if the agent was dismissed for good cause. It also lapses as soon as the commercial agent agrees with the principal to transfer its contractual position to a third party.
Greek courts tend to award damages claims in addition to the compensation claim, based on general principles of civil law, since the EU directive and the Presidential Decree 219/1991 based on it (Art. 9 § 1c) do not exclude further damages claims (arising from tort and from general principles of civil law). If the termination of the contract has caused further damage beyond the loss of commissions and customers, the commercial agent may assert further damages claims under the general principles of the Greek Civil Code.
This may be the case, for example, where there is reputational damage, or where the commercial agent was induced by the company to make substantial investments shortly before termination, even though, based on the company's previous conduct, the agent was legitimately entitled to expect a long-term cooperation. This also includes violations of the law against unfair competition, provided the termination is aimed at driving the commercial agent out of the market, or a violation of antitrust law through the abuse of a dominant market position by the principal.
Another common form of distribution is sale through distributors. Unlike the commercial agent, the distributor purchases the products from the principal and resells them to the customer in its own name and for its own account, although in certain sectors it may nevertheless make use of an existing distribution network of the company. Advantage for the principal: it receives the purchase price already before the resale, and the insolvency risk of the end customer, as well as the entire handling under sales law, falls within the distributor's area of risk. The distributor is usually contractually obligated to purchase minimum quantities and introduce them into the foreign market, for which it generally must invest.
The applicability of national law is likewise determined here by the provisions of the Rome I Regulation or the Rome Convention (or EGBGB) for contracts concluded before 17 December 2009. Unlike commercial agency law, there is neither at EU level nor at purely national level an independent statute that comprehensively regulates the distributor relationship.
Important clarification for Greece: beyond the mere judge-made analogy, the Greek legislature has expressly extended the application of Presidential Decree 219/1991, through Art. 14(4) of Law 3557/2007, to service agency agreements as well as to certain exclusive distribution agreements, provided the distributor is economically integrated into the supplier's distribution organization. In this respect, Greece already has – contrary to what a blanket reference to “judge-made analogy” might suggest – a statutory basis for such application by analogy, which is further developed by case law on a case-by-case basis.
Under case law both in Greece and in Germany, the application by analogy of the commercial agency provisions to a distributor requires that a relationship similar to that of a commercial agent exist. This requires the distributor to be economically integrated into the principal's sales organization in a manner similar to a commercial agent (e.g. allocation of a contract territory, minimum purchase obligation, non-competition clause). Furthermore, the distributor must be contractually obligated to hand over to the principal the contacts and customer addresses acquired during the term of the contract, thereby giving the principal access to the customer base that has been built up.
Since more recent case law both in Greece and in Germany tends to grant the distributor a right to compensation even where no effective handover obligation has been agreed, it is advisable to agree contractually, at the very least, on an obligation to delete customer data upon termination of the contract.
Where the conditions for an analogy described above are met, the distribution agreement may be terminated subject to the same notice periods applicable to commercial agents.
After termination, the distributor may likewise assert a compensation claim according to the same principles as the commercial agent. However, certain particularities must be taken into account in the calculation, since the distributor in most cases receives no commissions – its profit generally results from the trading margin between the purchase and sale price, or from any bonus payments. Here too, the compensation is capped at the equivalent of the commercial agent's average annual commission, for example calculated on the basis of the average annual net profit.
Under Greek law, the company may also be liable to pay damages if the termination is not effected in compliance with reasonable notice periods; the foregoing statements regarding the commercial agent apply correspondingly. In addition, during the notice period the company must make payments to the distributor equivalent to the gross margin of the last year (the difference between the purchase and sale price, calculated on the basis of the figures for the last year of cooperation). In certain cases, the distributor may additionally claim compensation for non-material damage (apozimiosi ithikis vlavis).
In contrast to ordinary retailers, who merely purchase goods from the principal and resell them, distributors and commercial agents are additionally obligated to promote the sale of the relevant product in a specific territory and thereby to safeguard the principal's interests. In return, they regularly demand exclusive distribution or exclusivity rights, or territorial protection.
The term “exclusive distribution” can have different meanings and should be contractually specified in order to avoid potential damages claims: depending on the agreement, it may mean only the exclusion of direct sales by the principal, the exclusive right of the representative to the exclusion of other commercial agents/distributors, or both.
The legal consequences differ accordingly: in the case of an exclusive agency, direct sales by the principal constitute a breach of its contractual obligation with all attendant consequences (damages, termination for cause by the commercial agent). The mere allocation of a territory or customer base, on the other hand, only expands the scope of commission-bearing transactions and, in the event of a breach, does not give rise to further damages claims – unless it is combined with an exclusivity right. It is therefore advisable to specifically describe the scope of any exclusivity to be granted in the respective contract.