A sound distribution agreement prevents considerable difficulties

A recent ruling by the Rotterdam District Court once again demonstrates the importance of accurately recording agreements between trading partners in writing. By failing to properly establish whether there was a distribution agreement or a series of purchases, clothing brand manufacturer Nickelson lost a case concerning the termination of the agreement.

Distribution agreement

Especially if you do business across national borders, it is very important to record matters properly, because otherwise not even the Dutch court will be able to hear your case. That is what happened in this case involving Dutch clothing brand manufacturer Nickelson and its Belgian distributor Clodenis. Nickelson had summoned the distributor to appear before the Dutch court to confirm that it had terminated the verbally agreed distribution agreement with reasonable notice. Nickelson therefore believed that it did not have to pay any damages or goodwill compensation to the distributor. Clodenis successfully challenged the jurisdiction of the Dutch court in this case.

General terms and conditions

Nickelson first argued that the parties had designated the court in Rotterdam as the exclusively competent court. It referred to its general terms and conditions, which state that ‘All disputes relating to this agreement shall be settled by the competent court in Rotterdam.’ The general terms and conditions also state that they apply to ‘all sales, orders and deliveries’. Nickelson’s order confirmations state: ‘All our purchase agreements are subject to the general terms and conditions on the reverse side, which have been accepted by the buyer.’

Terms and conditions not applicable

In assessing the general terms and conditions and the reference to them in the order confirmation, the court concluded that they did not apply to the agreement between the parties. Although they disagree on the exact content of their agreement, according to the court, both parties are of the opinion that the agreement in any case involved more than just a series of separate purchase agreements. Nickelson itself had referred to the agreement as a distribution agreement when terminating it.

Dutch court not competent

Secondly, Nickelson argued that the Dutch court was competent because the decision to terminate the agreement was taken in the Netherlands and the alleged damage suffered by Clodenis arose in the Netherlands. The court disagreed with this as well, stating that it is not a matter of where the decision to terminate was made, but where the letter of termination was received. As a result of this ruling, Nickelson must still litigate in Belgium to prove its case or appeal the ruling in an attempt to have the case heard on its merits by a Dutch court.

How to avoid a negative ruling?

Five tips for a good distribution agreement.

By applying the following tips, Nickelson could have avoided this negative ruling:

  1. The parties should have recorded their distribution agreement in writing.
  2. The distribution agreement must in any case specify which law applies to the agreement and which court has jurisdiction to rule on any disputes.
  3. The distribution agreement should specify which general terms and conditions apply and that these have been received and accepted by the other party (plus initialing of the general terms and conditions as proof of receipt).
  4. The general terms and conditions should have been described more clearly and precisely. The general terms and conditions used state that they apply to “sales, orders and deliveries” and to “this agreement”, but it is not clear which agreement is meant. In any case, it is not the distribution agreement.
  5. The reference to the applicability of general terms and conditions on the order confirmations should be more precise and broader, i.e. not only applicable to a purchase agreement.

The corporate law solicitors at Fruytier Lawyers in Business are aware of the latest case law on this subject. Do you have a question? Please feel free to contact us without obligation.