Distribution agreement under Dutch law: clauses, competition and exit

A distribution agreement under Dutch law is a continuing contract in which a supplier sells goods to an independent distributor who resells them in its own name, on its own account and at its own risk. Dutch law contains no statutory regime for it: unlike commercial agency and franchise, distribution is governed by the general law of contract, by what the parties themselves agree, and by EU and Dutch competition law. That freedom is the reason the drafting matters so much, because almost everything that will later be disputed has to be settled in the document itself.

What a distribution agreement is, and what it is not

The defining feature is title. The distributor buys the goods, takes them onto its own balance sheet and earns a margin on resale; it is not paid a commission and it does not conclude contracts on behalf of the supplier. Everything else follows from that. The distributor bears the credit risk on its own customers, decides its own resale prices within the limits of competition law, and is responsible for its own stock.

Getting the label right is not cosmetic, because the neighbouring contract types carry mandatory rules that distribution does not. Commercial agency is regulated in articles 7:428 and following of the Civil Code, and those provisions include mandatory notice periods and the customer indemnity. Franchise has been regulated since 1 January 2021 by the Wet franchise, which imposes pre-contractual information duties, a standstill period and consent rights for the franchisee. A licence transfers no goods at all. If a contract is called distribution but the party in question does not in fact carry the commercial risk, a court can qualify it as agency and apply the mandatory agency rules regardless of the heading on the document.

Our note on the licence agreement deals with the last of these; the rest of this article stays with distribution.

The forms of distribution and what each one costs you

Exclusive distribution means the supplier appoints one distributor for a defined territory or customer group and undertakes not to supply anyone else there, including itself. It concentrates the marketing effort and simplifies forecasting, at the price of complete dependence on one partner and a termination problem later on. Sole distribution is the same arrangement with one reservation: the supplier keeps the right to sell directly, typically to named key accounts, while promising not to appoint a second distributor. That reservation is worth writing out account by account rather than in general terms.

Non-exclusive distribution allows several distributors to operate side by side and suits standardised goods where volume rather than brand presentation drives the business. It costs the supplier little in commitment but produces channel conflict and parallel trade, and it needs clear rules on which party services which customer. Selective distribution works differently again: the supplier sets qualitative criteria that any dealer meeting them can satisfy, and refuses those who do not. It is the standard model for luxury, automotive and technical products, and it is lawful as long as the criteria are objective, qualitative and applied without discrimination.

Sub-distribution adds a layer. If a master distributor may appoint sub-distributors, the head agreement has to say who approves them, which obligations flow down, what reporting is required and whether the master distributor answers for its sub-distributors. Without those provisions the supplier loses sight of who is selling its products and on what terms, which is where grey-market complaints usually begin.

Which law applies and what you cannot contract away

Where the parties are in different countries, the law of the contract follows from the Rome I Regulation. Absent a choice of law, a distribution contract is governed by the law of the country where the distributor has its habitual residence, which is not always the answer a Dutch supplier expects. A choice of Dutch law is therefore worth making expressly, and it should be paired with a forum or arbitration clause, because those are two separate choices.

A second regime often runs underneath the first. The individual sales made under the framework agreement are contracts of sale, and where the parties are established in different states that have ratified the Vienna Sales Convention, that Convention applies automatically to those sales unless it is excluded. Many distribution agreements exclude it without thinking about it; the Convention has its own rules on conformity, notification of defects and remedies, and the decision to keep or exclude it should be a deliberate one.

Whatever is agreed, Dutch law reads every contract through the standard of reasonableness and fairness in article 6:248 of the Civil Code. A clause can be set aside where reliance on it would be unacceptable by that standard, and Dutch courts also interpret contracts by what the parties could reasonably infer from each other, not solely by the literal wording. Practical consequences follow: unclear annexes and price lists that contradict the framework agreement invite exactly that kind of argument, so the document should state which text prevails. Check as well that the person signing has authority to bind the company, since a defect in representation is one of the few points that can undo the entire arrangement. Our contract lawyers deal with these questions before signature rather than during a dispute, and the recurring cross-border pitfalls are set out in our article on international commercial contracts.

The clauses that decide the outcome

A distribution agreement should read like an operating manual. The territory and the customer groups come first and should be defined by reference to something verifiable, a list of countries, regions or postal codes in an annex, not by a phrase such as Benelux that means different things to different people. Alongside it, say explicitly what the distributor may do online, because e-commerce reaches beyond any territory and silence on the point is the single most common source of channel conflict.

The product scope belongs in an annex too, with a procedure for adding new models and for withdrawing discontinued ones. Where exclusivity is granted it should be earned: link it to a minimum purchase or turnover target and state precisely what happens if the target is missed, whether exclusivity converts to non-exclusivity, whether the supplier may appoint a second distributor, and over what reference period performance is measured.

On price, the supplier may recommend resale prices and may set maximum prices, but it may not fix minimum or actual resale prices. Payment terms, interest on late payment and, where the goods are invoiced in a foreign currency, a mechanism for exchange-rate movement all belong in the agreement. So do the delivery terms: choose an Incoterm, name the version, and make sure the allocation of transport, insurance and customs clearance in the contract matches the Incoterm chosen rather than contradicting it. The moment risk passes should be unmistakable, because it decides who bears the loss of a shipment.

Brand use requires a licence, and it should be non-exclusive, revocable and limited to the products and the territory, with approval rights over packaging, advertising and domain names, and an obligation to stop using the marks and hand over any registrations after termination. Confidentiality should be mutual. Where customer data moves between the parties, establish whether each is a controller in its own right or whether one processes on behalf of the other, and paper the arrangement accordingly; the notification periods in the contract should be workable against the deadline the GDPR imposes for reporting a personal data breach to the supervisory authority.

Liability needs three decisions rather than one: the cap, what is excluded, and what is carved out of the cap altogether. A cap expressed as a proportion of the value invoiced over a recent period is the common Dutch solution; deliberate recklessness and intent cannot be excluded. Require product liability insurance at a level that matches the exposure of the products concerned and ask for the certificate rather than the promise. Finally, choose the dispute route consciously: the Dutch courts are quick and comparatively inexpensive, arbitration is private and easier to enforce outside the EU, and a short escalation clause requiring the parties to meet before proceedings costs nothing and settles a surprising number of disputes. Our note on B2B purchase conditions explains how general terms interact with a framework agreement of this kind, and our page on the settlement agreement covers how such disputes are closed off once they arise.

Competition law: the safe harbour and the hardcore list

A distribution agreement is a vertical agreement and falls under article 101 of the Treaty on the Functioning of the European Union and, for purely national effects, article 6 of the Mededingingswet. The Vertical Block Exemption Regulation, Regulation (EU) 2022/720, which applies from 1 June 2022 until 31 May 2034, creates a safe harbour: if neither the supplier nor the buyer holds more than thirty per cent of the relevant market, the agreement is exempt unless it contains a hardcore restriction. Exceeding the threshold does not make an agreement unlawful, but it does mean it has to be assessed on its own merits.

The hardcore restrictions are the ones that void the exemption for the whole agreement. Fixing minimum or actual resale prices is the clearest. So is restricting the territory into which, or the customers to whom, the buyer may sell, beyond the limited restrictions the Regulation permits for exclusive, selective and closed distribution systems. Preventing a buyer from making effective use of the internet to sell is likewise hardcore, although the current Regulation does allow a supplier to charge different wholesale prices for online and offline sales, and to impose different criteria for online and offline outlets in a selective system, provided the object is not to prevent effective online selling. Non-compete obligations on the buyer are exempt only for a limited duration and, after the end of the contract, only within narrow limits.

The consequence of getting it wrong is not only a fine. An agreement caught by article 101 and not exempt is void as a matter of law to the extent of the restriction, and the nullity can be raised by the other party in a dispute about something else entirely. Both the European Commission and the Autoriteit Consument en Markt enforce these rules, and a competitor or a rejected dealer can complain. Selective distribution remains lawful where the criteria are qualitative, laid down uniformly and applied without discrimination, which means keeping a written record of the criteria and of why an applicant was refused.

Ending the agreement: notice, stock and the goodwill myth

Dutch law sets no statutory notice period for distribution. Case law treats the relationship as a continuing-performance contract, so a supplier who terminates has to observe a reasonable period, and what is reasonable is judged on the duration of the relationship, the investments the distributor made and how dependent it had become. A rough working figure used in practice is several months per few years of cooperation, but it is an indication, not a rule, and the safest course is to agree the period in the contract.

Goodwill compensation is a different matter, and it is regularly stated wrongly. The statutory right to a customer indemnity applies to commercial agency, under article 7:442 of the Civil Code, and it does not extend to distribution. A distributor buys and resells for its own account and risk and is not an agent, so there is no statutory entitlement, and Dutch courts have not accepted the agency rules as applying to distribution by analogy. Compensation on termination is possible, but only along the general route of reasonableness and fairness, and it remains the exception rather than the expected outcome.

The practical consequence is that the notice period, not a goodwill claim, is where the exposure sits. Set the period out in the contract, together with what happens on exit: whether the supplier buys back saleable stock and at what price, what happens to demonstration material and spare parts, how long the distributor may continue to service customers it has already supplied, when brand use must stop, and what happens to the customer list. Provide separately for immediate termination on defined grounds such as insolvency, a change of control or a serious breach, and describe those grounds rather than relying on a general reference to breach.

Cross-border trade: VAT, customs and product liability

Goods moving from the Netherlands to a business in another member state are an intra-Community supply, zero-rated at origin with the VAT accounted for by the buyer, provided the buyer VAT identification number is valid and the transport can be evidenced. The evidential requirements are strict and the risk of getting them wrong falls on the supplier, so the contract should oblige the distributor to supply its VAT number, to notify any change and to co-operate in providing proof of transport. The fiscal treatment itself is a matter for your tax adviser; what we advise on is the allocation of these duties and of the consequences if they are not met.

Goods coming from outside the European Union bring customs duties, origin rules and, for a growing range of products, export control and sanctions screening. Say who acts as importer of record, who bears duties and any anti-dumping levy, and who is responsible for screening the end customer. That last question is not administrative: a distributor selling into a sanctioned destination creates exposure for the supplier as well.

Product liability deserves separate thought. Under article 6:185 of the Civil Code the producer is liable for damage caused by a defective product, and a party that imports a product into the European Union for commercial purposes is treated as the producer for these purposes. A distributor that imports from outside the EU therefore carries producer liability towards injured persons even though it manufactured nothing, which is precisely the exposure that the insurance clause and the indemnity in the agreement should address. Regulatory duties travel with the product as well, from CE marking and technical documentation to recall obligations, and the contract should say who holds the documentation and who leads a recall.

Templates and where they fail

A template is scaffolding, not a contract. The clauses a downloaded model most often gets wrong for a Dutch or European arrangement are the competition provisions, because a template drafted elsewhere may contain resale price or territorial restrictions that are hardcore here; the termination provisions, because they assume a statutory notice regime that does not exist in Dutch law; and the delivery and risk provisions, because the Incoterm and the contractual allocation contradict each other.

Beyond that, templates are usually silent on the things that matter in a specific sector. Medical devices need vigilance reporting and unique device identification duties written in. Food and drink need traceability, shelf-life and returns arrangements. Software and connected products need service levels, update obligations and export controls on encryption. Luxury goods need selective criteria and a workable mechanism against grey-market resale. The right moment to take advice is before exclusivity is promised, before either party approaches the market share threshold, and before the first shipment leaves, because each of those is far cheaper to arrange than to unwind.

How Law and More can help

We draft and negotiate distribution agreements for suppliers entering the Dutch and European market and for distributors who want to secure supply and protect the investment they are about to make, and we advise on termination, on competition-law exposure and on disputes about territory, targets or exit. We also advise on the neighbouring models, so that the arrangement you sign is the one that actually fits the commercial relationship. If you are preparing or reviewing a distribution agreement, contact the contract team at Law and More. Where the arrangement involves staff on the ground in the Netherlands, our note on the Dutch employment contract sets out what that requires.