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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:

Law of 24 July 2014 on the specific rules applying to vertical distribution agreements in the automotive sector.

Luxembourg Consumer Code whose compliance is ensured by the Luxembourg Institute for Standardisation, Accreditation, Safety and Quality of Products and Services (ILNAS) which is a public administration under the authority of the Minister of Economy.

Luxembourg Commercial Code.

Law of 3 June 1994 on the organisation of the relationship between self-employed commercial agents and their principals (agency contract) and transposing Council Directive 86/653/EEC of 18 December 1986.

Law of 23 October 2011 on competition (coordinated version of 4 April 2017). The latter gives new powers to the Competition Council (Conseil de la concurrence). The latter is competent to take binding decisions to enforce competition law. The Council can take different types of decisions, namely interim decisions known as precautionary measures, decisions to accept commitments, or decisions imposing sanctions and decisions requiring undertakings to bring the infringement to an end. The purpose of these decisions is to prevent or stop an anti-competitive practice.

Law of 3 July 2018 on the award of concession contracts (in relation to public procurement).

Grand Ducal Regulation of 23 December 1974 on unfair competition.

b. Link(s) to official publication:

The French version of the Law of 24 July 2014 is accessible via this link

The French version of the Luxembourg Consumer Code is accessible via this link.

The French version of the Luxembourg Commercial Code is accessible via this link

The French version of the Law of 3 June 1994 is accessible via this link.

The French version of the Law of 23 October 2011 on competition is accessible via this link

The French version of the Law of 3 July 2018 on the award of concession contracts is accessible via this link

The French version of the Grand Ducal Regulation of 23 December 1974 on unfair competition is accessible via this link.

c. Link(s) to English translation:

No official English translation is 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)?

No. Luxembourg 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

In Luxembourg law, the only form of distribution that has been legally enshrined is the Law of 3 June 1994 on the organisation of relations between independent commercial agents and their principals. There is no legal basis for concession contracts apart from the law of 24 July 2014 on the specific rules applying to vertical distribution agreements in the automotive sector.

In Luxembourg, the law of 17 May 2004 on competition (Art. 3) has taken up Art. 81 EC Treaty but without inserting specific provisions relating to selective distribution. In several decisions relating to selective distribution, Luxembourg judges have referred to this Community case law.

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)?

No.

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. 1382 and 1383 Luxembourg Civil Code

Art. 1134 paragraph 3 Luxembourg Civil Code

b. Information to be disclosed:

Art. 1382 and 1383 Luxembourg Civil Code. In line with French and Belgian law, Art. 1382 and 1383 Luxembourg Civil Code set out the general principles of extra-contractual liability and duty of care. Luxembourg case law recognises an obligation on the part of the contracting parties to provide information in the pre-contractual phase, the failure to do so constitutes a 'fault of contracting' on the part of the debtor, a culpa in contrahendo, sanctioned by the rules of tort liability as set out in Art. 1382 and 1383 Civil Code (TAL, 25 September 2009, no. 119725 of the roll)*

*Decision available via this link

Art. 1134 paragraph 3 Luxembourg Civil Code. 

Art. 1134, paragraph 3 Belgian Civil Code requires that each agreement has to be executed in good faith. This principle applies to every single phase of a contract, including the pre-contractual phase and requires each party to inform the other party of the elements that should allow the future partner to make an assessment that is as objective as possible of the commercial risk that the commercial cooperation entails.

c. Link(s) to official publication:

The Luxembourg Civil code is accessible via this link

d. Link(s) to English translation:

No English translation available.

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)?

The general regime applies so that damages can be claimed.

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. 1382 and 1383 Luxembourg Civil Code

Art. 1134 paragraph 3 Luxembourg Civil Code

b. Conditions for precontractual liability:

It is accepted that as long as the parties are only at the stage of negotiations, the partners are in principle free not to contract. In certain circumstances, however, the termination of the negotiations might be wrongful. For this to be the case, one of the partners must have broken off the negotiations suddenly and unilaterally, without a legitimate reason. A wrongful termination is one which constitutes an abuse of the right to terminate negotiations. The criterion for abuse of the right is not the intention to harm since bad faith is sufficient to characterise the fault in the abusive termination of the negotiations. The circumstances surrounding the termination may reveal the bad faith of the perpetrator (abruptness, time of termination etc.). Legitimate confidence that is deceived constitutes the fault, and the partner's confidence legitimately increases as the negotiations progress. This trust is assessed differently depending on the qualification of the victim. If the victim is a professional, he can more easily be accused of having given his trust too easily (Luxembourg Court of Appeal, 5 March 2008, roll number 19272, cited by the Tribunal d’arrondissement de et à Luxembourg, 3 July 2014, roll number 132722)*

As any fault is the breach of a pre-existing duty or obligation, pre-contractual fault is the transgression of a general duty of good faith.

Decision available via this link.  

c. Consequences of precontractual liability:

Compensation is payable by the co-contractor on the basis of the principle of pre-contractual liability in tort based on the general law of Art. 1382 and 1383 Civil Code.

The prejudiced party supports the burden of proof (Art. 1315 Luxembourg Civil Code).

As regards the repairable damage caused by the wrongful termination of the negotiations, it comes up against the principle of the freedom not to contract. Strict respect for this freedom means that the breach - in principle - can never be faulty.

Luxembourg law follows the developments of the French Court of cassation which speaks of fault in the exercise of the right to terminate. According to this theory, only the costs incurred by the negotiation and preliminary studies can give rise to compensation, including the cost of the intervention of third parties, the loss of time caused, in a word the 'negative interest', i.e. the interest the victim would have had in not engaging in the pre-contractual negotiations.

Other damages are possible, such as damage to reputation, damage to image, disclosure of know-how or confidential information.

The loss of a chance to conclude a contract with a third party can also be claimed, provided that the opportunity and sufficient probability of the possibility of concluding such a contract is demonstrated.

Finally, vexatious or unfair behaviour of the perpetrator may also be subject to compensation.

In Luxembourg law, the case law is less clear but allows the judge to decide according to the concrete circumstances of the case whether the prospect of gain deserves to be taken into account at least partially in assessing the compensation for the loss of a chance (Luxembourg Court of Appeal, 9 January 2013, no. 25595 of the roll).

Other decisions limit themselves to a restrictive conception of the reparable damage based solely on the costs incurred by the negotiation and preliminary studies (Luxembourg Court of Appeal, 13 February 2008, no. 32877 of the roll, Pas. 34, p. 155).

In any event, the breakdown of the negotiations cannot lead to the forced conclusion of the contract (G. RAVARANI, La responsabilité civile des personnes privées et publiques, 3e édition, Pasicrisie 2014, n°490).

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.

The requirement of a writing is not a condition for the validity of the contract and is therefore only necessary for the purposes of evidence.

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?

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.

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

The relevant principles are contained in the Law of 3 June 1994 dealing with commercial agency. Reference is made to the separate Q&A relating to commercial agency.

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))?

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?

The general regime applies so that damages can be claimed (reasonable notice period taking into account relevant circumstances, compensation in case notice period is too short (costs incurred/profit foregone) and not particular entitlement to goodwill indemnity).

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

No notice is required for a fixed term 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?

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.

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