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Supply Contract Termination – Claim for Damages

If a supplier terminates a long-term supply contract by giving notice, the shock is often profound. What worked well for the company no longer seems to work well for the supplier. When the contract is terminated, the retailer asks himself what the status is of the right to further delivery or compensation for breach of contract or according to the German Civil Code or the GWB (law against restraints of competition). Suppliers then often argue that restructuring is necessary, targets have not been achieved, etc. In practice, this often means the thinning out of the dealer network and thus the termination of a large number of contracts and dealer relationships. If you and your company are affected by such a termination of your contract, the following questions arise: Does the company have a claim to delivery, is the termination therefore invalid, for example for antitrust reasons according to GWB (Act Against Restraints of Competition)? If the contract and the ongoing business relationship with the supplier are terminated, can the company claim compensation like a commercial agent and additional damages?

Delivery contract termination - judgment of the Higher Regional Court Hamm of May 14, 2020

To answer these questions, as a specialized lawyer, I draw the following commercial law and also antitrust regulations of the GWB and also go into a new decision of the Higher Regional Court Hamm (OLG Hamm) of May 14, 2020, Az: 18 U 93/19. This judgment of the Higher Regional Court of Hamm addresses in particular the important question of how a dealer relationship (dealer) is to be distinguished from a pure buyer-seller relationship (dealer). As a rule, only an authorized dealer is entitled to a compensation claim and a claim for damages, while an independent dealer is not.

The guiding principles of the decision of the Hamm Higher Regional Court are as follows:

1. Qualification as an authorized dealer presupposes - in contrast to an independent dealer - the integration or incorporation of the dealer into the manufacturer's or supplier's sales network, a sales obligation on the part of the company and the supplier's right to issue instructions. The dealer's contract must contain obligations for the distribution and marketing of the products. This is regularly the case with selective distribution. 

2. A continuing obligation in the form of an ongoing business relationship that has now been terminated can be understood as a "legal obligation without a primary obligation to perform", namely as a "business contact" that creates special protection obligations. A breach of duty of such a continuing obligation can be considered due to a premature termination of the delivery and the delivery contract that does not sufficiently take into account the interests of the company. It is therefore not necessary for a specific supply contract to have been concluded. A mere business contact that has existed for a longer period of time is sufficient.

Compensation claim in the event of termination of the supply contract

The judgment of the Hamm Higher Regional Court essentially repeats the requirements from previous case law with regard to the compensation claim of an authorized dealer. A company that is not a commercial agent can only claim compensation (§89b HGB) if the legal relationship between a dealer and the manufacturer or supplier is not reduced to a mere buyer-seller relationship.

Rather, it is necessary for the authorized dealer to be integrated into the sales organization of the manufacturer or supplier in such a way that he has to perform tasks that are comparable to commercial agents to a considerable extent in economic terms. This is the case if he had to act as a commercial agent for the distribution of the supplier's products and was subject to duties typical of a commercial agent. It is therefore crucial that the company has given up a significant part of its entrepreneurial freedom by assuming the contractual obligations.

The big dispute in practice is regularly whether there is an authorized dealer in this sense or just a contract for the delivery of products with a proprietary dealer. An authorized dealer contract requires a framework agreement concluded for a certain period of time, through which the authorized dealer undertakes to sell goods from the manufacturer or supplier in his own name and for his own account - in this respect he is comparable to an independent dealer. Through this authorized dealer contract, the authorized dealer, in contrast to the dealer, is also integrated into the sales organization of the manufacturer or supplier and is subject to a sales obligation and the manufacturer's right to issue instructions.

Integration into the sales organization

Therefore, if an entrepreneur wants to assert a claim for compensation, he must prove that it is an authorized dealer. He is an authorized dealer if he is integrated into the supplier's sales organization, is obliged to sell the contractual products and the supplier is allowed to give the entrepreneur product- or activity-related instructions for the manner of sales. The proprietary dealer, on the other hand, is free to decide whether to distribute and sell the purchased goods at all and, if so, how. 

Sales promotion measures such as advertising, visits to trade fairs or the payment of listing fees do not automatically mean such an integration. These are behaviors that a dealer or an authorized dealer carries out in their own interest in order to increase their sales. Even an exclusive purchase obligation is not sufficient for the assumption that the authorized dealer has to fulfill the duties of a commercial agent. Evidence is required that the company was obliged to actively pursue the sale.

Indications for the status of a company as an authorized dealer are the allocation of a specific sales area, the granting of exclusive sales rights for a specific area or customer groups, a non-competition clause and, in particular, information and reporting obligations.

Requirements for Inclusion

Whether these requirements are met is always checked by the courts on a case-by-case basis on the basis of the contractual agreements. Non-competition clauses, reporting requirements or storage requirements are usually strong indicators of a position as an authorized dealer. These include, particularly in the case of selective sales, quality requirements for online trading and, in stationary retail, the presentation of goods in the store. It is important that according to the new Vertical Exemption Regulation 720/2022, the quality requirements for online trading and stationary sales may be designed differently. The dealer's contract provides information about the sales obligations. The GWB does not contain any rights or obligations in this regard. The sole use of designations in correspondence with third parties, primarily customers of the company, is not sufficient. Even a sole or exclusive right of distribution for a specific area is not in itself sufficient evidence of an authorized dealership relationship if it is not associated with the assumption of a sales obligation or being bound by instructions. You're welcome by mail or by phone Contact me for an initial consultation.

In order to claim compensation, the authorized dealer must also be obliged to transfer its customer base to the manufacturer or supplier, so that the latter can immediately and easily utilize the advantages of the customer base at the end of the contract. The obligation of the authorized dealer to transfer the customer base does not have to result expressly and directly from the written dealer contract; it can also result from other obligations imposed on the authorized dealer.

A special case is the commission agent. A commission agent is a company if it is constantly entrusted with the sale of goods in its own name and for the account of the supplier or manufacturer, so that it participates in the economic success solely in the form of an agreed fixed commission, and the goods are sold at specified prices and has to sell conditions. In such a case, there is no (separate) contractual obligation to transfer the customer base because this obligation to transfer is already regulated by law.

Supply Contract Termination – Claim for Damages

If there is no authorized dealer relationship, it will be difficult for companies to assert claims for damages due to the termination of the business relationship. In the case of an ongoing business relationship without a written contract, however, there is a continuing obligation. Such a continuing obligation can be understood as a "legal obligation without a primary obligation to perform", namely as a "business contact" according to the German Civil Code, which justifies special protection obligations according to the German Civil Code. The Hamm Higher Regional Court determined this in its judgment of May 14, 2020.

However, the OLG Hamm does not go so far as to see the termination of the contract and the cessation of supplies to the company as a violation of such a duty to protect. A mere business contact does not justify any claim to further uninterrupted delivery. If there is no claim to delivery, non-delivery cannot be a breach of duty that would justify claims for damages.

At most, a breach of duty due to a premature termination of the delivery that does not sufficiently take into account the interests of the plaintiff in the event of termination of the contract can be considered. Consequently, there is only a breach of duty if the manufacturer or supplier stops the delivery without notifying the company of the impending termination of the supply contract and the end of the delivery for a specific point in time. According to this decision by the Hamm Higher Regional Court, the supplier can therefore be obliged to comply with a deadline for terminating the supply contract. This period is usually no more than six months, because a commercial agent or authorized dealer contract can also be terminated with a maximum of six months.

However, there are individual decisions that assume a one-year notice period if the business contact has existed for more than 20 years. According to the judgment of the OLG Hamm of May 14, 2020 cited above, a notice period of six months can now be assumed in practice. A termination of the supply contract and the cessation of delivery before this period has expired can therefore oblige the company concerned to pay damages.

Claim for delivery based on antitrust law

However, a claim for delivery can arise from the antitrust law result. In Germany, the right to delivery under antitrust law is based on the provisions of the GWB on the abuse of a dominant position or relative market power. If it is a cross-border situation, European antitrust law applies.

If the supplier is a leading manufacturer or supplier of contract goods, in particular branded products, he may be obliged to supply other companies. Antitrust law, in Germany the GWB, restricts the right to terminate in this respect. Because where there is a legal right to delivery under antitrust law, this right to delivery must not be circumvented by termination.

This applies in particular if the supplier has particular market power or is even dominant in the market. This requires a market share of 40% on the product market of at least 40%. However, if there is no such market power, the retailer or buyer must prove that their range would be incomplete without these products, because consumers expect a specialty store to stock these branded products. One then speaks of a range-related dependency. The prerequisite is that non-delivery is tantamount to exploiting a dominant position in the form of unreasonable hindrance.

The dominant position here does not exist because the supplier or manufacturer has a market share of more than 40 %, but because of its position in relation to the dealers. According to the current legal situation, only small and medium-sized companies can invoke this so-called relative dominant position and product-related dependency. I would be happy to explain to you by e-mail or telephone whether your company is generally eligible for delivery. An exception to this is when the supplier operates a selective distribution system, because he can then himself define criteria for dealers that he selects for delivery and distribution. In this case, the exclusion of certain dealers is not unreasonable.

Delivery contract cancellation – This is important now

The judgment of the Hamm Higher Regional Court essentially confirms the previous case law on the prerequisites for a contractual dealer's right to compensation. It is necessary that the authorized dealer is integrated into the sales organization of the manufacturer or supplier and is therefore obliged to sell and to observe sales instructions. In addition, the authorized dealer must be obliged to transfer the customer base to the manufacturer or supplier.

In the case of pure buyer-seller relationships, i.e. own traders, the Higher Regional Court of Hamm has created legal support for companies that have been terminated. Depending on the duration of this buyer-seller relationship, suppliers and manufacturers are now well advised not to terminate their own dealers immediately or abruptly stop delivery, but to observe a certain period of time for the termination of the supply contract. Here you will be able to orientate yourself on the notice periods applicable to commercial agents. Feel free to sign upif you have any questions about this.

Anwalt Gesellschaftsrecht und Handelsrecht

dr Andrelang, LL. M

Specialist lawyer for international business law

Specialist lawyer for commercial and corporate law


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