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The new VBER entered into force on 1 June 2022.

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Q&A on Distribution Agreements

Part 1: Legislative framework

Q1. Please specify the legislative framework generally applicable to the conclusion and execution of distribution agreements (a)? Please include a link to the official publication of the applicable rules (e.g., relevant link to the Official Gazette) (b) and, if available, to the English translation of the legislative framework (c).

a.  Legislative framework:

In Finland, there is no general legislation directly regulating the relationship between distributors and suppliers. In addition to the general principles of contract law, the national legislative framework applicable to the conclusion and execution of distribution agreements comprises of the following laws:

  • the Contracts Act 228/1929,
  • the Act on Contractual Terms between Businesses (1062/1993),
  • the Unfair Business Practices Act 1061/78, and
  • the Sale of Goods Act 355/1987.

In addition, various types of legislation must be taken into account when concluding the distribution agreement, such as employment, data protection and IPR related provisions. However, as such requirements and rules are not specific to distribution agreements and depend on the nature and content of the contract, such provisions are not included in the scope of this questionnaire. It should equally be noted that sector-specific legislation may also include specific rules or restrictions applicable to distribution agreements. Such sector-specific rules are not, however, discussed in this general-level questionnaire.

b. Link(s) to official publication:

The Finnish version of the The Contracts Act 228/1929 is accessible via this link.

The Swedish version of the The Contracts Act 228/1929 is accessible via this link.

The Finnish version of the The Act on Contractual Terms between Businesses (1062/1993) is accessible via this link.

The Swedish version  of the The Act on Contractual Terms between Businesses (1062/1993) is accessible via this link.

The Finnish version of the Unfair Business Practices Act 1061/78 is accessible via this link.

The Swedish version of the Unfair Business Practices Act 1061/78 is accessible via this link.

The Finnish version of the Sale of Goods Act 355/1987 is accessible via this link.

The Swedish version of the Sale of Goods Act 355/1987 is accessible via this link.

c. Link(s) to English translation:

The English unofficial translation of the Contracts Act 228/1929 is accessible via this link

The English unofficial translation of the Act on Contractual Terms between Businesses (1062/1993) is accessible via this link

The English unofficial translation of the Unfair Business Practices Act 1061/78 is accessible via this link.

The English unofficial translation of the Sale of Goods Act 355/1987 is accessible via this link.

Q2. Other than for agency agreements pursuant to Directive 86/653 (EEC) on the coordination of the laws of the Member States relating to self-employed commercial agents, are there specific rules depending on the distribution format (e.g. franchising, exclusive distribution)?

No

Q3. Other than general contract law and competition law, are there other rules which may generally restrict the parties when drafting and concluding distribution agreements (e.g., rules in relation to unfair contract terms in B2B contracts, specific requirements in the context of a prohibition of abuse of economic dependence)?

Yes

If yes, which general rules apply (a)? Where available, please also include a link to the official publication of the applicable rules (b) and to the English translation of the regulatory framework (c).

a. General rules

In B2B contacts such as distribution agreements, the principle of contractual freedom is especially strong. This principle entails that businesses can, as a rule, choose whether and how to enter into a contract, and also determine the contents of their contract rather freely. Once the parties have exercised their contractual freedom and entered into a contract, the contract is generally considered binding upon the parties.

Nonetheless, certain provisions in Finnish law set out restrictions for the formation and contents of a contract to protect the weaker party, or limit the binding effect of the contract for reasons of reasonableness. Such mandatory rules relating to unfair contractual terms or abuse of economic dependence must always be taken into account when entering into a distribution agreement.

(i) Adjustment of unfair contractual terms (Art. 36 Contracts Act)

The Contracts Act includes a general provision enabling courts and arbitrators to adjust or set aside unfair contract terms. In determining what is unfair, the entire contents of the contract, the positions of the parties, the circumstances prevailing at and after the conclusion of the contract, and other factors are taken into account. However, the courts are typically reluctant to apply the reasonability test in relation to commercial contracts.

(ii) Non-binding nature of unreasonable non-competition undertakings (Art. 38 Contracts Act)

According to the Contracts Act, non-competition undertakings are not binding insofar as they unreasonably restrict the freedom of action of a party. Accordingly, non-competition obligations included in distribution agreements must not be overly restrictive either in terms of time or in scope. The provision has lost some of its relevance after Finland joined the European Union and began to apply the EU competition law.

(iii) Unfair contract terms in B2B contracts, based on the Act on Contractual Terms between Businesses (1062/1993)

The act includes a general prohibition of contractual terms or practices, which are unreasonable due to the other party's weaker position or other factors necessitating a higher level of protection. Such other situations may include e.g. situations of economic dependency, where the distributor's business is dependent on a single supplier. The purpose of the provision is to safeguard small businesses and companies economically dependent on their contractual parties from against unfair contractual terms, especially in contractual relationships with large businesses. In the case of an unreasonable term, the Market Court may order the other party to refrain from using the said terms or practice on pain of a fine.

(iv) Maximum terms of payment (Act on payment terms in commercial agreements, Fi: Laki kaupallisten sopimusten maksuehdoista (18.1.2013/30))

In B2B relationships, the term of payment may exceed thirty days only, if the parties have expressly agreed so. In addition, a contractual term stating that the creditor is not entitled do default interest is invalid. If there is not a justifiable cause for this, also a contractual term stating that the creditor is not entitled reimbursement of collection charges as provided in the Debt Collection Act is considered to be invalid.

In addition to the above requirements concerning the terms of the contract, the parties entering into a distribution agreement must take into account the general duty of loyalty, which imposes a duty to inform the other party also during the contractual negotiations. Although Finnish law does not include any specific pre-contractual information obligations for B2B distribution agreements, the general provisions underlining the importance of correct pre-contractual information must be taken into account (see, Q8).

b. Link(s) to official publication:

The Finnish version of the Act on Contractual Terms between Businesses (1062/1993) is accessible via this link.

The Swedish version of the Act on Contractual Terms between Businesses (1062/1993) is accessible via this link.

The Finnish version of the Act on payment terms in commercial agreements is accessibe via this link.

The Swedish versionof the Act on payment terms in commercial agreements is accessibe via this link.

The Finnish version of the The Contracts Act 228/1929 is accessible via this link.

The Swedish version of the The Contracts Act 228/1929 is accessible via this link.

The Finnish version of the Unfair Business Practices Act 1061/78 is accessible via this link.

The Swedish version of the Unfair Business Practices Act 1061/78 is accessible via this link.

c. Link(s) to English translation:

The English unofficial translation of the Contracts Act 228/1929 is accessible via this link

The English unofficial translation of the Unfair Business Practices Act 1061/78 is accessible via this link.

Part 2: Pre-contractual phase

Q4. Are there mandatory provisions in relation to the disclosure of pre-contractual information prior to concluding and/or executing distribution agreements?

No.

Q5. Is there a standstill obligation linked to the requirements imposed for the pre-contractual phase?

No.

Q6. Does the relevant regulatory framework impose sanctions if the pre-contractual obligations are not (fully) respected?

No.

Q7. Can a party be held liable if it terminates the pre-contractual negotiations?

Yes

If yes, on what grounds (a); under what conditions (b); and what consequences are generally linked to such liability (c)?

a. Grounds for pre-contractual liability:

As a rule, each party has the right to terminate pre-contractual negotiations without liability. In other words, taking part in contractual negotiations does not lead to an obligation to conclude a final agreement. However, a party can be held liable for terminating the pre-contractual negotiations in certain limited situations based on case law and the general principles of contract law.

In addition, certain pre-contractual arrangements, such as the use of non-binding letters of intent or binding pre-contracts, may limit a party's freedom to withdraw from the pre-contractual negotiations. However, the impact of such arrangements largely depends of the content and nature of the instrument, and is not further elaborated in this questionnaire.

b. Conditions for pre-contractual liability:

Liability for the termination of pre-contractual negotiations can take place if a party has negotiated in 'bad faith' and used prohibited negotiation practices, and generally requires negligence or intent. Based on case law, such prohibited negotiation practices could include, inter alia, providing misleading or false information about products and practices, or carrying on the negotiations despite the fact that the party is clearly not able to fulfil the agreement in terms of expertise, or its financial situation.

In theory, liability for termination of pre-contractual negotiations could also take place upon the termination of long-lasting agreement negotiations. In the absence of any relevant case law on the matter, the legal position is currently unclear. However, it has been argued that such liability could take place if a party has given a too positive image of the likelihood of concluding the agreement. In this manner, the party would breach the general principle of loyalty by giving the other party grounds to believe that the agreement will be made.

c. Consequences of pre-contractual liability:

The other party may be entitled to damages by the party who has caused the termination of the pre-contractual negotiations. As a rule, the party that is held liable must restore the other party’s financial situation as if no negotiations have taken place. Accordingly, the damages generally consist of the costs incurred due to the negotiations.

The other party is only entitled to claim damages for the loss of revenue due to not concluding the agreement in very limited situations, where there are specific grounds for claiming such damages. Based on case law, such specific grounds mainly relate to breaches of statutory requirements to conclude an agreement.

Q8. Are there other relevant rules and/or restrictions that apply during pre-contractual negotiations between supplier and distributor?  

Yes.

If yes, what do these specific rules and/or restrictions entail?

Although Finnish law does not include specific provisions governing the disclosure of pre-contractual information prior to concluding and/or executing distribution agreements, Art. 33 Contracts Act, reflecting the general principle of loyalty, is interpreted as a general obligation on the parties to share essential and relevant information with the other party, if that party would otherwise not be aware of such information. According to the said provision, a transaction is not enforceable if it was entered into under circumstances, under which it would be considered incompatible with 'honour and good faith' for the other party to invoke the transaction, if that invoking party was presumed to have known of such circumstances.

Further, the use of false and misleading expressions concerning one's own, or another party's business operations are prohibited based on the Unfair Business Practices Act, if they are of such nature that they could affect the supply or demand of a product. Accordingly, the supplier must provide an accurate description of its products and operations to the distributor.

It should also be kept in mind that the Sale of Goods Act contains certain non-mandatory provisions governing the provision of information, which apply only if the parties to the distribution agreement have not agreed otherwise.

Part 3: Contractual phase

A. Form of distribution agreements

Q9. Must a distribution agreement be executed in writing to be valid and enforceable?

No, never.

Q10. Are there any (other) requirements as to the form of the distribution agreement for it to be valid and enforceable?

No.

B. Content of distribution agreements

Q.11 Other than restrictions imposed by EU competition law (including Regulation (EU) 330/2010), do specific rules and/or restrictions apply in distribution agreements with respect to

  • the territory in which or the customers to whom the goods/services will be sold;
  • an exclusivity granted to the distributor;
  • (exclusive) sourcing/purchasing obligations;
  • resale prices;
  • non-compete clauses

Yes specific rules apply to non-compete clauses.

If yes, what do these specific rules and/or restrictions entail?

Please see the section on "Non-binding nature of unreasonable non-competition undertakings" under Q3 a).

Q12. Do specific rules and/or restrictions apply in distribution agreements with respect to

  • obligations of the supplier vis-à-vis the distributor, including in relation to the remuneration of the distributor;
  • obligations of the distributor vis-à-vis the supplier or vice versa;
  • a non-solicitation clause during and/or after the term of the distribution agreement;
  • minimum sales quota imposed on the distributor;
  • specific sector rules?

No specific rules apply.

C. Term and termination

Q13. Are there particular rules and/or restrictions in relation to the term (incl. renewal) of distribution agreements?

No. There are no specific laws regulating the term of distribution agreements. Consequently, the parties are free to agree on the term of the agreement. In the absence of a clause governing the term in the distribution agreement, the agreement is generally deemed to be in force for an indefinite period of time.

Q14. Are there any specific rules and/or restrictions with respect to the termination of distribution agreements (e.g. minimum notice period, statutory right to compensation (goodwill or other))?

Yes.

If yes, what do these specific rules and/or restrictions entail (a)? Please include whether these specific rules and/or restrictions differ depending on whether the distribution agreement is of definite or indefinite duration (b) or whether the distribution agreement is terminated by one party for convenience or for breach by the other party (c).

a. What do these specific rules and/or restrictions entail:

There are no mandatory laws regulating the termination of distribution agreements, minimum notice periods or statutory rights to goodwill compensation. In line with the principle of freedom of contract, the parties are basically free to determine the applicable grounds for termination as well as the respective notice periods. In the case of an unreasonably short notice period or other unreasonable terms, it is nevertheless possible to invoke Art.  36 Contracts Act (see, Q3 above).

In the absence of a termination clause in the distribution agreement, the general principles regarding the termination of agreements apply. Accordingly, an agreement concluded for an indefinite term can be terminated for convenience by using a reasonable notice period. What is considered reasonable must be assessed in light of the contractual relationship as a whole.

It should, however, be noted that the analogous application of relevant agency legislation cannot be entirely excluded. In a case (KKO 1987:42) concerning an exclusive distribution agreement, which was entered into for an indefinite period of time and did not include termination provisions, the Supreme Court analogously applied the cancellation and termination provisions of agency legislation in force at that time. However, such analogous application of agency legislation has not taken place since.

b. If applicable, differences dependent on whether the distribution agreement is of definite or indefinite duration:

As a rule, fixed-term distribution agreements expire at the end of the specified period. Such fixed-term contracts cannot generally be terminated for convenience, unless such a possibility is agreed upon between the parties.

c. If applicable, differences dependent on whether the distribution agreement is terminated by one party for convenience or for breach by the other party:

The above (section (a)) discusses the parties' rights to terminate the distribution agreement for convenience.

Based on general principles of contract law, a party may terminate a contract with immediate effect in case of a fundamental breach of contract. In other words, termination for breach is allowed in cases where it would not be reasonable to require the suffering party to continue the contractual relationship after the breach. The said general principle is also reflected in Art. 25 Sale of Goods Act, the provisions of which are only applicable to the sales of goods if the parties have not agreed otherwise. As also mentioned above, parties to a B2B distribution agreement are rather free to agree on the grounds of termination, and may thus also specify which acts or omissions would qualify as fundamental breaches under the distribution agreement.

Q15. Is it possible to terminate the distribution agreement based on certain grounds for termination (breach or other) included in the distribution agreement?

Yes.

If yes, is prior judicial intervention required in order for the termination of the agreement to take effect?

No.

Part 4: Post-contractual phase

Q16. Is the supplier required to repurchase the stock that is still at the distributor’s disposal when the distribution agreement ends?

Yes.

Q17. Are there other post-contractual obligations that generally apply to either of the parties in the context of the termination of the distribution agreement?

No.

Part 5: Dispute resolution

Q18. Do specific rules and/or restrictions apply as regards the choice of forum and/or jurisdiction?

No

Q19. Can the parties opt for arbitration?

Yes

If yes, are there any rules and/or restrictions as regards the enforceability of arbitration clauses in distribution agreements?

No.

Q20. What is the statute of limitations applicable to claims regarding the performance of a distribution agreement?

The general limitation period is 3 years. As a rule, the limitation period starts to run when a debt is due for payment or when a party becomes aware of a breach of contract. If the limitation period is interrupted by the party, a new limitation period starts to run from the date of the interruption. (Finnish Act on Statute of Limitations, Art. 4–7)

Part 6: Additional comments

Finnish competition law adheres to the principles established under EU competition law so that there are no specific deviations in the law or the case law to be reported.

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