Distribution law in Austria

Austrian law on Agency Agreements is set out in the Austrian Commercial Agents Act, which implements the requirements of EU law on Commercial Agents.

Under Austrian law, an Agency Agreement can be entered into both verbally or in writing. There are no special formalities to take into account. For evidentiary purposes, we recommend setting out the Agency Agreement in writing.

In any case, upon request of either party, the other party is obliged to cooperate in formalising in writing the content of the Agency Agreement already entered into verbally.

Statutory law does not provide for any specific information obligations regarding Agency Agreements.

Under Austrian law, a general obligation exists to answer questions correctly and to provide certain crucial information without special request prior to entering into an agreement (doctrine of culpa in contrahendo).

The Principal and the Commercial Agent are free to agree on the scope of the Commercial Agency. In particular, the parties may decide on instructing the Commercial Agent (1) worldwide or for a certain geographic region, (2) for all or only for certain products of Principal, (3) for all or only certain customers of the Principal.

Austrian statutory law provides for a non-compete obligation of the Commercial Agent during the contractual term (for a post-contractual non-compete obligation, see below).

Austrian law generally allows a restriction on the Commercial Agent's freedom to pick up Commercial Agencies for third parties. The Commercial Agent may even be obliged to solely represent the Principal.

The EU regulation on vertical restraints (Commission Regulation No 330/2010) only plays a limited role in the field of Agency Agreements (in the field of Distribution Agreements it plays a significant role, see below). However, whether it could apply to the Commercial Agent in the individual case should be assessed at the beginning of a cooperation and this could have significant legal implications.

The Agency Agreement can grant the Commercial Agent the power to negotiate and conclude agreements in the name and for the account of the Principal.

The Commercial Agent has the following primary obligations based on statutory law:

• to seek to acquire business for the Principal, and to provide the Principal with the opportunity to enter into contracts with customers or even conclude such contracts herself in the name of the Principal;
• to inform the Principal immediately of any business transaction that he has closed for him;
• to provide the Principal with relevant information regarding the market, creditworthiness of customers and requirements concerning the products;
• to diligently safeguard the interests of the Principal in all business respects;
• to follow the Principal’s instructions;
• maintain confidentiality;
• to adhere to non-compete obligations during the contractual term based on case law;
• to hand over everything he received from the Principal or received due to a transaction; and
• to not accept rewards from third parties.

The Principal has the following primary obligations based on statutory law:

• to give to the Commercial Agent the necessary documents and all necessary information relating to the goods concerned and information necessary for the performance of the agency contract;
• to inform the Commercial Agent immediately when he anticipates the volume of transactions will be considerably lower than the Commercial Agent could have expected, especially regarding the previous business scale or according to the details given by the Principal; and
• to notify the Commercial Agent without delay about the acceptance or rejection of a transaction intermediated or closed without authorization by the Commercial Agent, or the non-execution of a business intermediated or closed by him.

We strongly recommend detailing in the Agency Agreement the obligations of the Commercial Agent and the Principal. Although statutory rules in this regard exist, it is important to avoid a legal situation, which the parties did not desire. When setting out the obligations in the Agency Agreement, the vast amount of case law should be taken into account in order to avoid the risk of setting out invalid contractual provisions.

There are no mandatory rules governing the remuneration of the Agent. Generally, the Commercial Agent is entitled to commission for business transactions between the Principal and customers within the scope of the Commercial Agent's instruction.

During the contractual term, unless otherwise agreed, the Commercial Agent can claim a commission if:

• the transaction has been concluded as a result of its action. The mere naming of a third party who would like to conclude a transaction does not lead to a claim for commission unless such a trade practice for the relevant business sector exists;
• the transaction has been concluded with customers that were exclusively assigned to the Commercial Agent;
• the transaction has been concluded within a territory that was exclusively assigned to the Commercial Agent;
• the transaction has been concluded with a third party whom the Commercial Agent has previously acquired as a customer for transactions of the same kind.

For business transactions, which are concluded after the contractual term has ended, unless otherwise agreed, the Commercial Agent is entitled to a commission if:

• the business transaction is mainly attributable to the Commercial Agent's efforts during the contractual term and if the business transaction was entered into within a reasonable period after the end of the contractual term; or
• the customer’s offer to enter into a contract with the Principal was received by the Principal or the Commercial Agent prior to the Agency Agreement’s end.

A subsequent Commercial Agent has no right to claim commission if the predecessor deserves it, unless the circumstances justify a division of the commission between the Commercial Agent and its predecessor.

The statutory rules on the Commercial Agent's remuneration are not mandatory. We recommend stipulating in the Agency Agreement the exact way the Commercial Agent's commission will be calculated in order to avoid statutory law leading to a result which the Principal and/or the Commercial Agent did not desire.

A del credere clause is valid.

There are no statutory rules on the term of Agency Agreements. The Parties are thus free to decide on the duration of the Agency Agreement. Agency Agreements on a fixed term are converted to Agency Agreements on a indefinite term if they continue to be performed after the fixed term.

Where an agency contract is concluded for an indefinite term either party may terminate it by notice. If the Agency Agreement has been entered into for a fixed term, the Agency Agreement may only be terminated extraordinarily for good cause. Otherwise it automatically ends at the end of the fixed term.

Minimum notice periods must be respected. During the first year, one month's notice must be given, during the second year two months' notice must be given, three months' notice must be given during the third year, four months' during the fourth year, five months' during the fifth year and during the sixth and any subsequent years a six months' notice must be given.

The notice periods cannot be shortened by contractual agreement, however, they may be extended provided the notice period for the Principal is at least of the same length as the notice period of the Commercial Agent.

A Commercial Agent is entitled to make an appropriate compensation claim after termination of the contractual relationship if and to the extent that:

• he has brought the Principal new customers or has significantly increased the volume of existing business;
• it is to be expected that the Principal or its legal successor will be able to derive considerable benefits from this volume of business even after termination of the contractual relationship; and
• the amount of the compensation is equitable taking into account all the circumstances and, in particular, the commission lost by the Commercial Agent on the business concluded with the customers in question.

The compensation claim generally amounts to the loss of income of the Commercial Agent due to the termination of the contractual relationship. This loss is calculated on the basis of a ‘prognosis period' and past income of the Commercial Agent. The prognosis period is to be determined on the basis of the goods distributed and usually amounts to two to three years (but may be longer e.g. in case of a very long life cycle of the relevant products). The past income is determined on the basis of the income of the Commercial Agent in the last twelve months prior to the effective date of termination.

From these earnings only income attributable to customers acquired/expanded by the Commercial Agent are taken into account. In the final step this amount is reduced by the assessed average customer fluctuation and discounted to its present value.

The amount of the compensation may not exceed a figure equivalent to one year's average annual remuneration over the preceding five years and if the contract goes back less than five years, the indemnity shall be calculated on the average for the period in question.

The rules on the Commercial Agent's compensation claim are mandatory and may not be contractually excluded.

No compensation is due when:

• the Principal has terminated the agency contract because of default attributable to the Commercial Agent which would justify immediate termination of the Agency Agreement under national law;
• the Commercial Agent has terminated the Agency Agreement, unless such termination is justified by circumstances attributable to the Principal or on grounds of age, infirmity or illness of the Commercial Agent in consequence of which he cannot reasonably be required to continue its activities;
• the Commercial Agent assigns its rights and duties under the Agency Agreement to another person with the consent of the Principal.

The Commercial Agent must claim its compensation claim within one year after termination of the Agency Agreement.

A post contractual non-compete obligation is invalid.

All claims based on the Agency Agreement expire after three years. If the claim has been notified to the Principal, the limitation is sustained until receipt of the written reply of the Principal.

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There are no specific statutory rules on Distributors. Subject to certain requirements, certain provisions of the Austrian Commercial Agents Act apply by way of analogy (especially the provision on compensation after termination). In addition, Austrian sales law (section 1053 and following Austrian Civil Code) and certain provisions of the Austrian Commercial Code apply.

Under Austrian law, a Distribution Agreement can be executed both verbally or in writing. There are no special formalities to take into account. For evidentiary purposes, we recommend setting out the Distribution Agreement in writing.

Statutory law does not provide for any specific information obligations regarding Distribution Agreements.

Under Austrian law, a general obligation exists to correctly answer questions and to provide certain crucial information without special request prior to entering into an agreement (doctrine of culpa in contrahendo).

Exclusivities can be granted, subject to the EU regulation on vertical restraints ((Commission Regulation No 330/2010)).

There are statutory limits to the Principal's and the Distributor's freedom to agree on the scope of the Distribution Agreement (mainly based on EU Competition law).

In particular when it comes to limiting the geographic region in which the Distributor may (or may not) sell the products and the customers to which it may (or may not) sell them, the EU regulation on vertical restraints plays a significant role: such limitations are admissible only under specific requirements which need to be assessed in the individual case.

Furthermore, also agreements with respect to the amounts of products the Distributor must source from the Principal is subject to EU Competition law: contractual provisions which require the Distributor to source 80% or more of its demand in products solely from the Principal are not allowed.

Non-compete clauses are valid subject to EU Competition law. If the market shares of both parties are below 30%, non-complete clauses are valid provided that they do not exceed five years, are geographically limited and proportional to the rights and interests of the Principal.

Such a provision is only limited by the general principle of violation of moral principles. If this provision violates moral principles which means it is in conflict with the general principles of Austrian law and/or the Distributor would have to act illegal to reach these quotas, it becomes unenforceable.

The contract can only impose maximum prices or suggest recommended resale prices although the parties must be confident that the maximum or recommended price will most of the time not operate as a disguised fixed price. This point is important in all cases, but above all where the Principal's or Distributor's market share is over 30%.

As a general principle, it is assumed that the Distributor has the following primary obligations:

• to distribute the products;
• to provide the Principal with relevant information regarding the market, (potential) customers and requirements concerning the products;
• to diligently safeguard the interests of the Principal in all business respects; and
• to maintain confidentiality.

As a general principle, it is assumed that the Principal has the following primary obligations:

• to apply reasonable efforts to deliver all products ordered by Distributor;
• to support the Distributor with respect to the Principal's business (for example in providing brochures, etc.); and
• to grant the agreed rebate to the Distributor (see below).

We strongly recommend setting out in the Distribution Agreement the obligations of the Distributor and the Principal. As no specific statutory law on Distributors exists, this is important to avoid disadvantages. When setting out the obligations in the Distribution Agreement, the vast amount of case law should be taken into account in order to avoid the risk of setting out invalid contractual provisions.

As a general principle, the Distributor is not entitled to a specific remuneration for its distribution activities. The remuneration of the Distributor consists in the profit it generates in purchasing the Principal's product with a rebate and selling them to its customers at a higher price. The parties may, following the principle of freedom of contract, agree on additional remunerations such as minimum monthly payments.

There are no statutory rules on the term of Distribution Agreements. The parties are thus, as a general principle, free to set out the parameters of the contractual term, for example in agreeing on a fixed term or an indefinite term or a combination.

If the parties agree on a fixed term and, after the expiry of the fixed term, continue to perform the Distribution Agreement, the Distribution Agreement is considered to have been tacitly renewed for an indefinite term.

If the Distribution Agreement has been entered into for a fixed term, as a general principle, the Distribution Agreement may only be terminated extraordinarily for good cause. During a fixed contractual term, no termination for convenience is admissible. Generally, all fixed terms which exceed five years should be thoroughly assessed.

Distribution Agreements of a fixed term without the possibility of an early termination end upon the expiry of their term, without prior notice, unless this leads to a result that is conflicting with the principle of reasonableness and fairness.

Distribution Agreements of an indefinite term where no notice period was agreed upon, may only be terminated with a reasonable and timely notice period. A reasonable notice period takes into account all circumstances of the specific case.

There are no specific formalities.

Two different types of compensation claims exist.

Claims based on Sec 454 of the Austrian Commercial Code:

• Distributors can claim compensation for investments made according to the distribution contract in order to achieve a standardised distribution system, insofar as these investments are not amortised and not adequately utilizable by the Distributor. However, Distributors have to be subject to vertical restraints. The compensation is calculated by deducting amortisation from the respective investments made by the Distributor.

Claims based on the Law on Commercial Agents (analogous application):

• If the Distributor is integrated into a distribution system similar to a Commercial Agent contract, he is entitled to claim compensation. The amount of compensation is derived from the advantages gained by the manufacturer and the Distributor's loss of potential turnover.

Under Article 5 of Commission Regulation 330/2010 relating to vertical agreements, post-contractual non-competes are not allowed, with the single exception of a one-year post-termination non-compete connected to a franchise where the franchisee remains for that period of one year in the building where it performed the franchised activity.

There is no automatic termination in the case of bankruptcy.

A contractual provision allowing termination in the case of bankruptcy is not valid.

A statute of limitation of three years applies to all claims regarding the performance of a (Distribution) Agreement.

Jurisdiction clauses:

• Contractual jurisdiction clause is valid.

Arbitration clauses:

• An arbitration clause has to be in writing and signed by both parties or by the exchange of a letter, fax, E-Mail or other forms of communications and prove the consent of the parties. However, some aspects of a decision by an arbitration tribunal can be reviewed by a court.

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