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Check out the video uploads of all four panel sessions of our first Virtual VBER Event of 6 October 2022!

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:

The provisions of the Greek Civil Code are applicable to the conclusion and execution of distribution agreements.

Also, by virtue of Art. 14 par. 4 Law 3557/2007, exclusive distribution agreements fall within the scope of Presidential Decree 219/1991 (hereinafter the “PD”). The PD applies to exclusive distribution agreements pursuant to which the distributor has a similar status as that of a commercial agent. More specifically, if the parties agree that the supplier shall sell the goods or services specified in the agreement only to one buyer in the agreed territory and the buyer acts as “part of the supplier’s commercial organization”, the provisions of the PD, as amended by Law 3557/2007, shall apply. The above presidential decree contains provisions on the prior notice to be given to the other party in the event of termination of contracts of indefinite term as well as possible claims of the exclusive distributor in case of termination of the distribution agreement.

With respect to the circumstances in which the PD applies, according to standard Greek case law (judgment of the Greek Supreme Court no. 139/2006), an exclusive distributor is considered to have a similar status as that of a commercial agent, indicatively if the following criteria are met:

  1. The distributor acts as part of the commercial organization of its supplier, having the same integration level to the distribution network as a commercial agent;
  2. The distributor has substantially contributed to the expansion of the supplier’s clientele acting as a commercial agent;
  3. The distributor undertakes the obligation not to compete with its supplier;
  4. The supplier is aware of the distributor’s clientele and in particular the supplier maintains this clientele following termination of the distribution agreement;
  5. The distributor’s economic activities and benefits are similar to the ones of a commercial agent (irrespective of their legal qualification).

Finally, Law 146/1914 on Unfair Competition, and especially Art. 18a regarding abuse of a relationship of economic dependence, is also applicable to the conclusion and execution of distribution agreements.

b. Link(s) to official publication:

Currently not available.

c. Link(s) to English translation:

Not available.

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 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. Specific rules depending on distribution format

As per Question 1 above, by virtue of Art. 14 par. 4 Law 3557/2007, exclusive distribution agreements fall within the scope of the PD.

b. Link(s) to official publication:

See Question 1(b) above.

c. Link(s) to English translation:

Not available.

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

Under Art. 18a Law 146/1914 on Unfair Competition, abuse, by one or more undertakings, of the relationship of economic dependence is prohibited. Such relationship of economic dependence may be established where an undertaking (either customer or supplier of certain products or services) has no equivalent alternative except from its counterparty. The abuse may consist in particular of the imposition of arbitrary contract terms, discrimination or the abrupt and unjustified termination of long-term commercial relations.

  1. Ratio

The ratio of the provision is ‘par conditio concurrentium’.

  1. Conditions
  1. Relationship of economic dependence, namely, an economic relationship between a customer/supplier with market power and a counterparty. However, establishing a dominant position is not required and the two undertakings are not required to compete either.
  2. Absence of an equally efficient alternative. This condition is usually met when no alternative suppliers/customers are available in the market or opting for an alternative supplier/customer will entail significant disadvantages for the dependent undertaking, namely the latter will be either restricted from supplying/being supplied by alternative customers/sources or to do so will entail materially onerous terms that may result in a competitive disadvantage that may even jeopardize its operation in the market. On the contrary, an alternative is considered to be available in case the dependent undertaking may turn to similar, competing products without facing material economic risk.
  1. Economic Dependence                      

Economic dependence may arise due to ‘commercial power’ of the brand of the contract goods or when the dependent undertaking has aligned its commercial activity with the mode of commercial operation of the undertaking enjoying market power. Other criteria for establishing economic dependence may be: (a) the percentage of the dependent undertaking’s turnover corresponding to sales of the goods of the ‘powerful’ counterparty, (b) long-term or (c) exclusive cooperation,

  1. Abuse (indicative list)
  1. Unfair trading terms (e.g. imposition of unrealistic sales targets)
  2. Discriminatory conditions – the notion of ‘discrimination’ as an abuse of relationship of economic dependence is the same as abuse of dominance as an infringement of competition law
  3. Termination without cause and without notice of a long-term commercial relationship, especially when the dependent undertaking duly fulfills its obligations. A non-renewal or termination cannot be described as unjustified and therefore abusive, if resulting from the inefficient promotion of the interests of the undertaking enjoying market power.   .
  1. Legal Consequences
  • Civil claims for damages can be filed before civil courts (punitive damages cannot be awarded under Greek law)
  • Pecuniary penalty may be imposed of EUR 5.000 - 50.000
  • Cease and desist order

b. Link(s) to official publication:

Currently not available.

c. Link(s) to English translation:

Not available.

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?

Yes.

If yes, which sanctions apply (e.g., nullity of contract, penalty payment)?

According to Art. 197 and 198 Greek Civil Code, the parties shall act in compliance with the principles of good faith and bonos mores during the pre-contractual phase and if the pre-contractual obligations are not being respected the offended party may seek compensation for damages. Positive damages i.e., the reduction of the property/assets of the offended party, may include e.g. the travel and accommodation expenses in the place of negotiations, the fees of various parties (lawyers, notaries, engineers, brokers, etc.). Loss of profit is the cancellation of profit from the conclusion of another contract with the same or better terms.

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:

According to Art. 197 and 198 Greek Civil Code and the Greek legal theory, pre-contractual liability may arise when the conclusion of the contract under negotiations is being annulled.

b. Conditions for precontractual liability:

According to Greek legal theory, the conditions for pre-contractual liability are: (a) the existence of negotiation status, (b) the behavior of either party to be contrary to the principles of good faith and bonos mores, (c) culpability, and (d) the occurrence of damage and the existence of a causal link between culpability and damage.

c. Consequences of precontractual liability:

The offended party may seek compensation (for damages or loss of profit) on the grounds that she considered/believed that the contract would be concluded.

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

No.

Part 3: Contractual phase

A. Form of distribution agreements

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

Only in certain instances.

If only in certain instances, please explain when a written agreement is required.

Not applicable.

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

Non-compete clauses.

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

According to Art. 10 par. 1 PD, an agreement restricting the business activities of an exclusive distributor following termination of the distribution agreement is a non-compete obligation. Art.10 par. 2 PD provides that a non-compete clause shall be valid only if and to the extent that:

  1. it is concluded in writing; and
  2. it relates to the geographic area entrusted to the exclusive distributor and to the type of goods falling under the scope of the agreement.

Also, according to Art. 10 par. 3 PD, a non-compete clause shall be valid for a maximum of one year following termination of the distribution agreement. Finally, Art. 10 par. 4 PD, is applicable without prejudice to the provisions which impose other restrictions on the validity or enforceability of non-compete clauses or which enable the courts to reduce the obligations of the parties resulting from such an agreement (i.e. the application of other law provisions in relation to competition matters is not excluded).

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?

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.

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

The obligations of the supplier in relation to the remuneration of the exclusive distributor, are as follows according to the provisions of Art. 5 PD:

  1. The exclusive distributor is entitled to the specially agreed remuneration.
  2. In the absence of an agreement between the parties and any special provisions, an exclusive distributor shall be entitled to the remuneration that is specified as a percentage of the value of the contract in which he mediates for or concludes on behalf of the supplier, according to the customary practice that applies to the place where he operates regarding the goods covered by the distribution agreement. In the absence of such customary practice, an exclusive distributor shall be entitled to reasonable remuneration taking into account all the aspects of the transaction.
  3. Any part of the remuneration which varies with the number or value of business transactions shall be deemed to be commission within the meaning of the present PD.

The obligations of both parties (supplier and distributor), are as follows according to the provisions of Art. 4 PD:

  1. In performing his activities an exclusive distributor shall look after his supplier’s interests and act dutifully and in good faith.

In particular, an exclusive distributor shall:

  1. make proper efforts to negotiation and, where appropriate, conclude the transactions he is instructed to take care of;
  2. communicate to his supplier all the necessary information available to him;
  3. comply with reasonable instructions given by his supplier.
  1. In his relations with his exclusive distributor, a supplier shall act dutifully and in good faith. In particular, a supplier shall:
  1. provide his exclusive distributor with the necessary documentation relating to the goods concerned;
  2. obtain for his exclusive distributor the information necessary for the performance of the agreement, and in particular notify the exclusive distributor, within a reasonable period, once he anticipates that the volume of commercial transactions will be significantly lower than that which the distributor could normally have expected.
  1. A supplier shall, in addition, inform the exclusive distributor, within a reasonable period, of his acceptance, refusal, and of any non-execution of a commercial transaction which the exclusive distributor has mediated for the supplier.
  2. The Parties may not derogate from the provisions of this Article.

C. Term and termination

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

Yes. 

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

An exclusive distribution agreement may be of definite or indefinite duration, according to Art. 8 par. 2 PD, which provides that a distribution agreement concluded for a fixed period which continues to be performed by both parties after that period has expired, shall be deemed to be converted into a distribution agreement of indefinite period.

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:

In case of a non-exclusive distribution agreement, the mandate provisions Greek Civil Code (Art. 725 and 726) on termination of agreements of definite and/or indefinite duration are applicable. In particular, according to said provisions of the Greek Civil Code, the representative has the right to terminate the mandate (i.e. here the non-exclusive distribution agreement) freely and at any time, subject to a contrary agreement (meaning that the above provisions are not considered as mandatory rules and the parties may agree otherwise). In case of an untimely, without good reason, in abuse of any right or against the ethics termination of the mandate, the representative is obliged to compensate the principal for suffering positive damage, i.e., the reduction of the property/assets of the offended party, and loss of profits. So, in case of a non-exclusive distribution agreement, where the mandate provisions of the Greek Civil Code are applicable, due to the special relationship of trust that governs the parties, the untimely or abusive termination of the contract shall never be invalid and always leads to its termination. However, the law provides the said compensation rights to the parties, but not the right to claim the recognition of the invalidity of the termination and the fulfillment of the contract, since the conditions of the relationship of trust, which is required by the said type of contract, are not met.

In case of an exclusive distribution agreement, as per Question 1 above, the rules and restrictions with respect to the termination of distribution agreements are as follows, according to the provisions of Art. 8 par. 3, 4, 5 and 8 PD respectively:

  • Where a distribution agreement is concluded for an indefinite period, either party may terminate it upon notice.
  • The period of notice shall be one month for the first year of the agreement, two months for the second year commenced, three months for the third year commenced, four months for the fourth year commenced, five months for the fifth year commenced and six months for the sixth year commenced and subsequent years.
  • The parties may not agree on shorter periods of notice.
  • If the parties agree on longer periods than those provided for in paragraph 4, the period of notice that the supplier is required to abide by cannot be shorter than those that the exclusive distributor is required to abide by.
  • The agreement may be immediately terminated even without abiding by the notice periods of paragraph 4 in case of failure of one party to carry out all or part of her obligations depending on the respective terms of the distribution agreement as well as where exceptional circumstances arise, such as cases of force majeure.
  • Unless the parties have agreed otherwise, the end of the termination notice must coincide with the end of the calendar month.

In the event the supplier does not abide by the notice periods of the PD, an exclusive distributor might react by putting forward one or all of the following claims:

Interim Measures petition requesting the continuation of the distribution agreements until the case is resolved before the courts in a definite matter.

Claim for damages incurred due to the unlawful termination of the distribution agreement. Possible claims can be based on the following grounds:

  • Loss of profits.
  • Damages for unamortized investments and for dismissal of personnel
  • “Moral’ damages: Greek courts have proven rather reluctant in awarding such damages on commercial disputes, especially where the appropriate prior notice has been granted by the supplier.  

Irrespective of whether a prior notice in accordance with the PD is given, the terminated distributor may still claim clientele’s (goodwill) compensation and compensation for any additional damages under the criteria set out in Art. 9 PD. Such compensation cannot be higher than the annual average of the distributor’s gross profits deriving from the distribution of the contract goods during the last 5 years or of any shorter period based on the agreement’s duration. The conditions for granting this compensation is that the supplier maintains “material benefit” from any new business introduced by the exclusive distributor.

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

According to Art. 8 par. 3 PD, in case an exclusive distribution agreement is of indefinite term, either party may terminate it upon notice. The notice periods are being provided for by Art. 8 paragraphs 4 and 5 PD, as mentioned under (a) above.

In case an exclusive distribution agreement is of definite term, either party may terminate it immediately and without abiding by the time limits of Art. 8 par. 4 PD (as mentioned under (a) above), in case of failure of one party to carry out all or part of its obligations, as well as where exceptional circumstances arise.

Regarding termination of the non-exclusive agreements of definite or indefinite duration one party has the right to terminate the agreement of an indefinite period freely and at any time, subject to a contrary agreement, meaning that the above provisions are not considered as mandatory rules and the parties may agree otherwise.

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

An exclusive distribution agreement of an indefinite period may be terminated by one party for convenience, under the condition that termination shall be effective upon notice (see Art. 8 par. 4 PD, as mentioned under (a) above).

An exclusive distribution agreement (either of definite or indefinite period) may be terminated by one party for breach of contract by the other party, at any time, without any notice being required (see Art. 8 par. 8 PD, as mentioned under (a) above).   

Regarding non-exclusive agreements, in case of an untimely, without good reason, in abuse of any right or against the ethics termination of the agreement, the party who has terminated the agreement is obliged to compensate the principal for suffering positive damage, i.e. the reduction of the property/assets of the offended party, and loss of profits.

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?

No.

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?

Pursuant to Αrt. 250 Greek Civil Code, the statute of limitations pertaining to claims regarding the performance of distribution agreements is 5 years after the termination or expiry of such agreement.

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