Distribution, commercial agency and commission

1. Introduction

The three main contractual setups for third-party distribution in Denmark are the following:

Distribution: The distributor enters into contracts in own name and on own account and thus no agent/principal relationship exists.

Commercial Agency: The commercial agent enters into contracts in the name of and on account of the principal or submits offers for the principal.

Commission: The commission agent enters into contracts in own name but on account of the consignor. Commission is preferred in the trading of securities and other financial instruments.

2. Distribution

A distribution agreement is an agreement by which the distributor typically acts in own name and on own account. Denmark has not implemented specific regulation of distributors and distribution agreements. Subject to applicable competition law the parties of such arrangements are therefore to a large extent free to set their own terms and conditions. The most important contractual issues are usually the following:

• Product specification and performance achievements
• Duration and termination notices
• Exclusivity – either product or customer specific or a geographic area
• Non-competition – shall the distributor be allowed to distribute competing products
• Price and price adjustment mechanisms
• Territories – often in connection with exclusivity
• Minimum purchases/volumes
• Liability – not only in relation to product liability but the key issue in case of default
• Stock – the distributor may be required to have a minimum stock in order to fulfil the customers demand for product diversity. It may be helpful to determine pre-termination, who receives title for or is responsible for the distributor’s stock following a termination of the distribution agreement
• Customers – as for Stock, it might be relevant to determine pre-termination which party retains the right to the customers of the distributed product

In case no written agreement has been made or the agreement is not regulating all matters between the parties, then Danish case law will apply. Danish courts have stated that if no termination notice has been agreed upon, then the termination notice must be "reasonable". Depending on the duration of the distributorship a notice between 3 to 6 months are generally considered reasonable.

Another important issue is the distributors claim for compensation upon the supplier’s termination of the distribution agreement without cause. The Danish Supreme Court has stated that in case of the supplier’s duly termination of the distribution agreement the distributor is not entitled to compensation except in extraordinary cases.

3. Commercial Agents

The Danish Act on Commercial Agents (the "Act") is primarily based on the EC Directive on Commercial Agents and generally of optional and mandatory provisions. The Act only applies to the sale of goods. Services are not included and therefore e.g. travel agents are not protected by the Act.

The Act provides for important mandatory provisions in favour of the commercial agent concerning termination notices and remuneration for business generated by the agent following termination by the principal. If the commercial agent is domiciled in Denmark, these mandatory provisions even override choice of law clauses referring to the laws of a country with weaker protection of the commercial agent.

If the agency agreement has not been entered into for a fixed period, the termination notice cannot be shorter than one month during the first year. During the second year it cannot be shorter than 2 months and so forth. The mandatory minimum notice period can, however, not exceed six months unless otherwise agreed. If the notice is agreed to be longer than the Act provides for, the principal’s notice cannot be shorter than the commercial agent’s.

Furthermore, the commercial agent has a right to remuneration upon the principal’s termination of the agency agreement, if (1) the commercial agent has provided the principal with new customers or significantly increased trade with existing customers that the principal will be expected to benefit from post-termination, and (2) remuneration is fair considering all relevant circumstances, including the commercial agent’s loss of commission. The remuneration can not exceed one year’s commission, determined as the average of the last five year’s pay or the average of the whole agency period if such was less than five years.

The commercial agent forfeits his right to remuneration in case of his material default, or if the commercial agent terminates the agency agreement without due cause as specified in the Act, or if he does not inform the principal no later than one year after termination that he intends to claim remuneration.

4. Commission

Commission is regulated by the Danish act on trade commission (Kommissionsloven) which only contains optional provisions, except for provisions regarding the commission agent’s right to contract on own account. Today, the use of commission is rarely used in Denmark in other areas than trade of securities and other financial instruments. In that area the consignor typically allows the commission agent to contract on own account, in other words to be on both sides of the deal, due to the consignor safeguards established in the comprehensive securities law regulation.