Local distributors and commercial agents

Distribution relationships

What alternative distribution relationships are available to a supplier?

For both newcomers and established suppliers, commercial agencies provide a means of penetrating and exploiting the market as well as launching a selection of new products. For the supply of heavy capital equipment (eg, industrial machinery), agents, whether commercial or undisclosed commission agents and with or without a consignment stock, are useful. However, often the best suited for products requiring local storage or modification is the variety of available open or closed distributorship arrangements, such as dealers, value-added resellers and selective distributors, the latter being favoured by high-tech as well as luxury products manufacturers.

Apart from business format franchise contracts, product distribution franchise contracts are a recognised mode of distribution of, in particular, daily consumer products regardless of whether the following apply:

  • the franchisee also carries products of suppliers other than those of the franchisor;
  • the trademark is established;
  • the system feature of the franchisor is weak or strong; or
  • services, such as training and continued assistance, are good or poor.

These (or similar) apply to a variety of trademark licensing arrangements. An optional manufacturing licence contract may warrant the local distributor the ability to manufacture the quantities demanded should the supplier no longer be able to meet the demand. In particular, in the latter case, the manufacturer or supplier may wish to participate, by means of shareholding, in the business of its distributor.

Legislation and regulators

What laws and government agencies regulate the relationship between a supplier and its distributor, agent or other representative? Are there industry self-regulatory constraints or other restrictions that may govern the distribution relationship?

The fairly narrow concept of commercial agency is regulated by the Act on Commercial Representatives and Salesmen (417/1992). The agent, denoted as a commercial representative in the statute, is defined as an entrepreneur who, in a representation contract concluded with another (the principal), has undertaken to continuously promote the sale or purchase of goods on behalf of the principal by obtaining offers for the principal or by concluding sales or purchase contracts in the name of the principal.

There are other types of agents outside the purview of the Act, such as concealed agents and consignment or commission agents, as well as any kind of agency for the supply of services.

The relationship between a supplier and its distributors of goods or services is not regulated by any particular statute but by a number of more or less general statutes, such as the Contracts Act (228/1929), the Sale of Goods Act (355/1987) and the Unfair Business Practices Act (1061/78). Of particular importance are the EU competition rules and, often, the new Trade Secrecy Act (595/2018).

The Competition and Consumer Authority is the government agency that exerts certain powers in respect of competition but is generally regarded as lacking the means to effectively have an impact on consumer issues.

There are a host of self-regulatory constraints and guides that govern the distribution relationship, such as those published under the auspices of the International Criminal Court (ICC). One of the most prominent is the translation into Finnish of the Consolidated ICC Code of Advertising and Marketing Communication Practice 2011. In addition, there are a number of guidelines as to advertising and marketing. Moreover, there are the Council of Ethics in Advertising and the Board of Business Practice, both of which are subagencies of the Finnish Central Chamber of Commerce and specialise in business-to-business sales and marketing issues. In particular, the opinions of these two bodies are held in high esteem for convincing courts and arbitral tribunals on ethical advertising and fair business practice.

Contract termination

Are there any restrictions on a supplier’s right to terminate a distribution relationship without cause if permitted by contract? Is any specific cause required to terminate a distribution relationship? Do the answers differ for a decision not to renew the distribution relationship when the contract term expires?

No, freedom of contract prevails. Apart from where the contract is made for a certain duration, the prevailing opinion is that a party to a distribution relationship cannot be forced to be bound perpetually, and accordingly, unless the parties contractually agree otherwise, both parties are deemed to be allowed to terminate the contract without any specific cause. The aforementioned notwithstanding, there should be a certain time period within which the opposite party may adapt smoothly to the change in circumstances; therefore, the length of the period of notice may vary for a number of reasons.

Any clause that allows the contract term to be renewed must provide for accommodating the change in circumstances.

Is any mandatory compensation or indemnity required to be paid in the event of a termination without cause or otherwise?

Except where the relationship is qualified as that of commercial agency, no mandatory compensation or indemnification is due to the distributor, commission agent or self-employed intermediary solely for the reason that the contract was terminated without cause. However, where essential properties of the relationship are similar to those of a commercial agent, caselaw suggests the courts may be inclined to make use, analogously, of the provisions of the Act on Commercial Representatives and Salesmen (417/1992), harmonised with article 17, paragraph 2 of Directive 86/653/EEC (Council Directive of 18 December 1986 on the coordination of the laws of the Member States relating to self-employed commercial agents). (Implications of this analogous application can be found in Supreme Court case KKO 42 (1987).) Where the relationship is terminated without acknowledging the need to provide a period of notice to enable the opposite party to accommodate itself to the change in circumstances, the intermediary should be able to count on being compensated for the loss caused. The same is true where the termination can be demonstrated as being abusive.

Transfer of rights or ownership

Will your jurisdiction enforce a distribution contract provision prohibiting or restricting the transfer of the distribution rights to the supplier’s products, all or part of the ownership of the distributor or agent, or the distributor or agent’s business to a third party?

Based on the principle of freedom of contract, yes. However, the general rule of the Contracts Act, admitting the competent court to adjust a contract provision that is found to be unconscionable, has been applied in court practice on a number of occasions. The main thrust of the rule is that should the court deem a contract term to be unfair or the application of it to lead to an unfair result, the term may be adjusted or set aside (section 36 as amended by Law 956/1982). In particular, should the distributor or agent run the risk of going out of business because of a contract provision prohibiting him or her, at the peril of payment of damages, from transferring the ownership of his or her business, for a lengthier period of time and with no regard to the change of circumstances, the court may determine the provision to be grossly unfair, unreasonable or otherwise unconscionable.

Law stated date

Correct as of

Give the date on which the information above is accurate.

18 December 2019