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:
The legislative framework of distribution agreements is not regulated in German law as a separate legal matter but is scattered throughout the German Civil Code (Civil Code) and the German Commercial Code (Commercial Code).
b. Link(s) to official publication:
The Bürgerliches Gesetzbuch, German Civil Code is accessible via this link.
The Handelsgesetzbuch, German Commercial Code is accessible via this link.
c. Link(s) to English translation:
The German Civil Code is accessible via this link.
The German Commercial Code 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)?
Yes.
If yes, which specific rules apply (a)? Where available, please also include a link to the official publication of the applicable rules (b) and, if available, to the English translation of the legislative framework (c).
a. Specific rules depending on distribution format:
See, Art. 93 Commercial Code et seqq. regulates the commercial broker.
See, Art. 383 Commercial Code et seqq. regulates the commission agent.
b. Link(s) to official publication:
Art. 93 Commercial Code (commercial broker) is accessible via this link.
Art. 383 Commercial Code (commission agent) is accessible via this link.
c. Link(s) to English translation:
Art. 93 Commercial Code (commercial broker) is accessible via this link.
Art. 383 Commercial Code (commission agent) is not available in English.
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:
Unfair B2B market practices (Gesetz gegen den unlauteren Wettbewerb – Act against Unfair Competition)
The German Act against Unfair Competition (“AUC”) provides, among other things, for regulation of unfair commercial practices between competitors. The Act covers unfair practices against all market participants, e.g. competitors and consumers. According to Art. 3 para. 1 AUC, all unfair commercial practices are unlawful.
According to Art. 4 AUC, the following practices are deemed as unfair:
1. discrediting or denigrating the distinguishing brands, goods, services, activities, or personal or business circumstances of a competitor
2. asserting or disseminating facts about the goods, services or business of a competitor or about the entrepreneur or a member of the management of the business, which are capable of harming the operation of the business or the credit of the entrepreneur, to the extent that the facts are not demonstrably true; if the communications are confidential and if the party making or receiving the communication has a legitimate interest therein, the action shall only be unfair where facts are asserted or disseminated contrary to the truth;
3. offering goods or services which are replicas of goods or services of a competitor if he
- causes avoidable deception of the purchaser regarding their commercial origin;
- unreasonably exploits or impairs the assessment of the replicated goods or services; or
- dishonestly obtained the knowledge or documents needed for the replicas;
4. deliberately obstructing competitors.
Art. 4a AUC provides examples of aggressive commercial practices such as harassment and coercion.
Furthermore, Art. 5 AUC provides that misleading commercial practices, which can lead to causing market participants to take a transactional decision which they would not have taken otherwise, are considered unfair. The Art. gives examples of practices that are considered misleading. According to Art. 5a AUC, practices can be misleading by omission.
If a competitor engages in unfair practices, the competitor is entitled to demand termination thereof and is also entitled to damages. If the competitor acts intentionally and makes a profit to the detriment of numerous purchasers, the competitor can be sued to pay such profit to the federal budget.
b. Link(s) to official publication:
The Gesetz gegen den unlauteren Wettbewerb, Act against Unfair Competition is accessible via this link.
c. Link(s) to English translation:
The Act against Unfair Competition 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?
Yes.
If yes, which mandatory provisions apply (a) and which information must be disclosed (b)? Where available, please also include a link to the official publication of the applicable rules (c) and, if available, to the English translation of the regulatory framework (d).
a. Mandatory provisions:
See, Art. 311 para. 2 Civil Code and Art. 241 para. 1 Civil Code.
b. Information to be disclosed:
Formation of a pre-contractual relationship
The obligation to disclose pre-contractual information only applies if a pre-contractual relationship pursuant to Art. 311 para. 2 Civil Code has been established. In practice, such relationship comes into existence by entering into contract negotiations (i.e. non-binding conversations that could lead to the conclusion of a contract).
Scope of the pre-contractual disclosure of information
The scope of pre-contractual obligations is regulated in Art. 241 para. 2 Civil Code. The concrete scope of obligations of disclosure of information is defined but varies from case to case. The decisive factor is that the obligation to disclose information can be expected to be performed in good faith, taking into account market practices in the individual case.
In this respect, German case law has particularly focused on franchise agreements. The rulings can be applied to similar distribution agreements. For example:
- the franchisor must inform the franchisee about the actual situation of the business and the franchise system
- the franchisor is also obliged to disclose information about the profitability of the franchise system.
Failure to disclose the information can result in damages; under specific circumstances and before the pre-contractual relationship has started, the obligation to pay damages can be waived between the parties.
c. Link(s) to official publication:
Art. 311 para. 2 Civil Code is accessible via this link.
Art. 241 para. 2 Civil Code is accessible via this link.
d. Link(s) to English translation:
Art. 311 para. 2 Civil Code is accessible via this link.
Art. 241 para. 2 Civil Code is accessible via this link.
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 precontractual liability:
See, Art. 311 para. 2 Civil Code and Art. 241 para. 1 Civil Code
b. Conditions for precontractual liability:
According to German contract law, the termination of pre-contractual negotiations is not unlawful and is part of the principle of freedom of contract. As a general principle, any party is free to terminate pre-contractual negotiations. One is only liable, if he/she has created special confidence in the conclusion of the contract and the termination then takes place without good reason.
A further exception is the case where a party negotiated in bad faith and has pretended a willingness to conclude a contract which did not actually exist.
c. Consequences of precontractual liability:
The damaged party may be entitled to damages from the party held liable for the wrongful termination of the pre-contractual negotiations.
According to German law (Art. 249 Civil Code et. seqq.), the damaged party can claim fidelity losses, i.e. the party that is held liable must restore the other party’s financial situation as if no negotiations have taken place. In such case, the damaged party is entitled to damages for costs incurred, the loss of the opportunity to negotiate agreements with other parties or reputational damage.
He/she is not entitled to claim the restoration of his/her financial situation as if the pre-contractual obligations had been respected and an agreement had been concluded (i.e. loss of revenues). This would lead to an obligation of contract which stands in contrast to the principle of freedom of contract.
Q8. Are there other relevant rules and/or restrictions that apply during pre-contractual negotiations between supplier and distributor?
No.
