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The final revised VBER is planned to enter into force on 1 June 2022. Did you know that the Distribution Law Center is already counting down?


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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:

The Law on Competition of the Republic of Lithuania.

The Civil Code of the Republic of Lithuania (the “Civil Code”)

The Law on Prohibition of Unfair Practices of Retail Companies of the Republic of Lithuania

The Law on Prohibition of Unfair Trading Practices in the Agricultural and Food Supply Chain of the Republic of Lithuania (will inter into force on 1 November 2021)

b. Link(s) to official publication:

The Lithuanian version of the Law on Competition of the Republic of Lithuania is accessible via this link.

The Lithuanian version of the Civil Code of the Republic of Lithuania is accessible via this link

The Lithuanian version of the Law on Prohibition of Unfair Practices of Retail Companies of the Republic of Lithuania is accessible via this link

The Lithuanian version of the Law on Prohibition of Unfair Trading Practices in the Agricultural and Food Supply Chain of the Republic of Lithuania is accessible via this link

c. Link(s) to English translation:

Please note that all English translations provided below are not of the version of the law currently in force:

The English version of the Law on Competition of the Republic of Lithuania is accessible via this link

The English version of the Civil Code of the Republic of Lithuania: is accessible via this link

The English version of the Law on Prohibition of Unfair Practices of Retail Companies of the Republic of Lithuania 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

The Lithuanian legislator has established certain regulations in relation to unfair activities of retail companies and unfair activities in the agricultural and food supply sector, as well as general prohibited unfair market practices. These regulations are incorporated in separate laws.

  1. Unfair activities of retail companies (Law on Prohibition of Unfair Practices of Retail Companies of the Republic of Lithuania)

The Law on Prohibition of Unfair Practices of Retail Companies of the Republic of Lithuania regulates the actions of the retailers having significant market power. The Law is currently not applicable to relations between retailers having significant market power and suppliers whose aggregate income during the last financial year exceeds EUR 40 million. However, on 1 November 2021 amendments of the Law shall come into force under which the Law will not be applicable to relations between retailers having significant market power and suppliers whose aggregate income during the last financial year exceeds EUR 350 million.

The Law sets out the actions, including contractual agreements, which are prohibited for retailers having significant market power. The Law states that retailers having significant market power shall not require the suppliers:

  • to pay directly or indirectly or remunerate in any other way for consent to start trading the supplier’s goods;
  • to compensate for the lost or smaller-than-expected income of the retailer from the sale of goods received from the supplier;
  • to compensate for the operational costs of the retailer related to equipping new stores or renovating the old ones;
  • to acquire goods, services or assets from third parties specified by the retailer;
  • to tie the prices of goods supplied to the retailer as well as the supply conditions to the supplier’s prices of goods and supply conditions applied to third parties;
  • to change the basic supply procedures or goods specifications without notifying the supplier thereof within the time limit specified in the agreement, which may not be shorter than ten days;
  • to accept unsold food products, without payment for such products, except for non-perishable packaged food products if they are safe, high-quality and at least 1/3 of time before their expiration date remains or they have no expiration date and there is a prior agreement in relation to their return;
  • to pay directly or indirectly a part of the costs of sales promotion carried out by the retailer or together with it or to compensate for such costs in any other way, except for the cases where there is a written agreement between the retailer and the supplier regarding the amount of costs to be paid and sales promotion activities to be applied;
  • to compensate for the expenses incurred while investigating consumer complaints, except for the cases where a justified consumer complaint was due to circumstances which are the responsibility of the supplier. In this case, the amount of expenses which the retailer requests the supplier to compensate must be substantiated by the actual expenses of the retailer (however, from 1 November 2021, this shall be no longer effective);
  • to pay directly or indirectly or to compensate for the arrangement of goods, except for the cases where there is a written agreement between the retailer and the supplier regarding payment for the arrangement of goods;
  • to grant commercial discounts on goods, pay directly or indirectly or otherwise compensate a retailer for what has not been agreed in writing, by e-mail or other electronic means.

The Lithuanian Competition Authority monitors compliance with the Law and, in the event of violation of the prohibition, will be able to impose fines of up to EUR 120 000. From 1 November 2021 the fine imposed may be up to 0,7% of the company’s turnover. Note that the retailers having significant market power also are liable under the Law on Prohibition of Unfair Practices of Retail Companies of the Republic of Lithuania.

  1. Unfair activities in the agricultural and food supply sector (Law on Prohibition of Unfair Trading Practices in the Agricultural and Food Supply Chain of the Republic of Lithuania)

The Law on Prohibition of Unfair Trading Practices in the Agricultural and Food Supply Chain of the Republic of Lithuania, which will come into force on 1 November 2021, identifies the groups of suppliers and buyers of agricultural and food products, a list of prohibited unfair trading practices in the agricultural and food supply chain and a ban on such unfair trading practices. The goal is to protect the suppliers which have weaker negotiation power compared to the buyer.

One of the main prohibitions is that of late payments to the suppliers based on the respective 30 and 60 days terms set by the laws. In addition, it is prohibited for the buyer to:

  • cancel orders for perishable products shortly in advance (30 days is always considered an unfair period);
  • to unilaterally change the terms of the contract regarding the frequency, method, place, time, volume, quality standards, payment terms, prices, certain services provided to the supplier;
  • require unrelated payments, including for product defects, losses not due to the supplier's fault;
  • buy products without a written contract;
  • illegally obtain, use or disclose the supplier's trade secrets;
  • require the supplier to reimburse the costs of dealing with consumer complaints when the supplier is not at fault.

Also, without prior written agreement, it is prohibited for the buyer to:

  • return the products without paying for those unsold products or disposing of them;
  • require payment of a fee for the storage of products at the buyer’s place, demonstration or inclusion in supply lists or supply to the market;
  • demand the costs of applying discounts (when selling through sales promotion measures), of advertising, of marketing, of renovation of sales premises.

The Law is monitored by the Agency on Rural Business and Market Development. The fine imposed might be up to 0,7% of the company’s turnover, except for the infringements related to elate payments to the supplier for which the fine might be up to 20% from overdue debt.

  1. Unfair market practice (Art. 15 Law on Competition of the Republic of Lithuania)

According to the Art. 15 Law on Competition of the Republic of Lithuania, undertakings are prohibited from actions contrary to fair business practices and good usages if such actions may negatively impact the other undertakings’ ability to compete.

Such actions include those related to unauthorized use of the mark identical with or similar to the undertakings’ name or trademark. Unfair practice is also imitating the product or product packaging of another undertaking and copying the shape, color or other distinguishing features of that product or product packaging.

Unfair actions also include misleading other undertakings by providing incorrect or unreasonable information about quantity, quality, components, characteristics, manufacturing place or means, price of its or other undertakings’ goods or risks related to the usage of such goods, as well as the provision of incorrect or unsubstantiated information about its managing personnel, qualifications of employees, the legal, financial or other position of an undertaking if it could have a damaging effect for the other undertaking.

The list of unfair practices also includes the usage, transfer and disclosure of the other undertakings’ trade secrets without prior consent as well as the receipt of such trade secrets from unauthorized persons, for the purpose to compete, by seeking the benefit for itself or by seeking to harm the other undertaking. Undertakings are also prohibited from proposing that the employees of the competing undertaking terminate their employment contracts or refrain from performing all or part of their work-related duties, seeking self-benefit or inflicting damage on that undertaking.

b. Link(s) to official publication:

The Lithuanian version of the Law on Prohibition of Unfair Practices of Retail Companies of the Republic of Lithuania is accessible via this link

The Lithuanian version of the Law on Prohibition of Unfair Trading Practices in the Agricultural and Food Supply Chain of the Republic of Lithuania is accessible via this link

The Lithuanian version of the Law on Competition of the Republic of Lithuania is accessible via this link

c. Link(s) to English translation:

The English version of the Law on Prohibition of Unfair Practices of Retail Companies of the Republic of Lithuania (please note that the English translation provided is not of the version of the law currently in force) is accessible via this link

The English version of the Law on Prohibition of Unfair Trading Practices in the Agricultural and Food Supply Chain of the Republic of Lithuania not available.

The English version of the Law on Competition of the Republic of Lithuania (please note that the English translation provided is not of the version of the law currently in force) 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:

Art. 6.163 of the Civil Code.

Art. 6.185 of the Civil Code.

Art. 6.186 of the Civil Code.

b. Information to be disclosed:

Art. 6.163 Civil Code sets out the general obligations, rights and liabilities of the parties during the pre-contractual stage of relations, including the obligation of the parties to disclose to the other party all the information known to it that has a major impact on the conclusion of the agreement, as well as the obligation to act in good faith. The Art. also states that a party who enters into contract negotiations or negotiates unfairly must compensate the other party for the damage caused. Negotiations shall be deemed to be initiated or negotiated in bad faith when the negotiating party has no intention of concluding the contract or carries out other actions that do not meet the criteria of good faith.

Art. 6.185 Civil Code regulates the cases where one of the parties uses standard clauses in the agreement between the parties. According to this Art., the standard clauses are obligatory to the other party only in case the other party had a chance to get familiar with such clauses. In B2B relations, this obligation is considered to be fulfilled if the party provides such standard clauses in writing to the other party prior or during the conclusion of the agreement. This obligation is also fulfilled if prior to the conclusion of the agreement the party informs the other party that the agreement will be concluded under the standard clauses and informs where such clauses may be found or offers to the other party to send a copy of the standard clauses. According to Art. 6.186 Civil Code, the unexpected (surprise) standard clauses (i.e. the clauses which could not be reasonably expected by the party to be in the agreement) are null if the party did not properly disclose them to the other party.

c. Link(s) to official publication:

The Lithuanian version of the Civil Code of the Republic of Lithuania is accessible via this link

d. Link(s) to English translation:

The English version of the Civil Code of the Republic of Lithuania (please note that the English translation provided is not of the version of the law currently in force) is accessible via this link.

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

Yes.

If yes, what does this standstill obligation entail (how long, specific procedural requirements, etc.)?

According to Art. 6.165 Civil Code, if the parties have entered into the preliminary agreement, the preliminary agreement shall include the term for conclusion of the main agreement. If the term is not set under the agreement, the main agreement shall be concluded within one year from the conclusion of the preliminary agreement.

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. 6.163 Civil Code, a party who enters into contract negotiations or negotiates unfairly must compensate the other party for the damage caused.

According to Art. 6.186 Civil Code, the unexpected (surprise) standard clauses (i.e. the clauses which could not be reasonably expected by the party to be in the agreement) are null if the party did not properly disclose them to the other party.

According to Art. 6.164 Civil Code, if one party provides confidential information to the other party during the negotiations, the other party, upon learning or receiving this information, must not disclose or use it for its own purposes in an unlawful manner, whether or not the contract has been concluded. The party in breach of this obligation must compensate the other party for the damage caused.

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:

Art. 6.163 Civil Code

Art. 6.165 Civil Code

b. Conditions for precontractual liability:

Any party is in principle free to terminate pre-contractual negotiations, but it is required to negotiate in good faith. According to Art. 6.163 Civil Code, negotiations shall be deemed to be initiated or negotiated in bad faith when the negotiating party has no intention of concluding the contract or carries out other actions that do not meet the criteria of good faith.

According to Art. 6.165 Civil Code, pre-contractual liability applies if the parties have entered into the preliminary agreement and the party unreasonably avoids or refuses to conclude the main agreement.

c. Consequences of precontractual liability:

According to Art. 6.163 Civil Code, a party who enters into contract negotiations or negotiates unfairly must compensate the other party for the damage caused.

According to Art. 6.165 Civil Code, if the parties have entered into the preliminary agreement and the party unreasonably avoids or refuses to conclude the main agreement, the other party shall compensate the other party for the damage caused.

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.

According to Art. 1.73 Civil Code, the agreement on sale-purchase of goods by installment and preliminary agreements shall be concluded in writing.

According to Part 1 (8) Art. 3 Law on Prohibition of Unfair Practices of Retail Companies of the Republic of Lithuania, the buyer is prohibited to request from the supplier to pay directly or indirectly a part of the costs of sales promotion carried out by the retailer or together with it or to compensate for such costs in any other way, except for the cases where there is a written agreement between the retailer and the supplier regarding the amount of costs to be paid and sales promotion activities to be applied. Also, the buyer is prohibited to pay directly or indirectly or to compensate for the arrangement of goods, except for the cases where there is a written agreement between the retailer and the supplier regarding payment for the arrangement of goods. The buyer is also prohibited to grant commercial discounts on goods, pay directly or indirectly or otherwise compensate a retailer for what has not been agreed in writing, by e-mail or other electronic means.

According to Part 4 (5) Art. 4 Law on Prohibition of Unfair Trading Practices in the Agricultural and Food Supply Chain of the Republic of Lithuania, the unfair practice is prohibited in case the buyer buys agricultural and food products without a written contract with the supplier (except in certain cases).

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

No.

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?

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? 

See, answers stated in the Q5.

C. Term and termination

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

No. 

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))?

No. 

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?

Yes.

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

According to Art. 1.37 Civil Code, the parties have the right to set the applicable law. Otherwise, the law of the country with which the agreement is most closely connected is applicable to the agreement.

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 statute of limitations is limited to 10 years (Part 1 Art. 1.125 Civil Code). Shortened statutes of limitations are set for certain claims, such as claims related to the penalties (fines), quality of the sold goods and damage occurred due to poor quality products.

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