Local distributors and commercial agents

Distribution structures

What distribution structures are available to a supplier?

For both newcomers and established suppliers, the commercial agency provides a means of penetrating and exploiting the market as well as launching a selection of new products. For supply of heavy capital equipment, such as industrial machinery, the agent, whether the commercial or the undisclosed commission agent and with or without a consignment stock, comes in handy. However, frequently, best suited for products requiring local storage or modification is the variety of available open or closed distributorship arrangements, such as the dealer, the value-added reseller or the selective distributor, the latter mode being favoured by high-tech as well as luxury products manufacturers.

Apart from the business format franchise contract, the product distribution franchise contract is 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
  • the services, such as training and continued assistance, are good or poor.

The same or similar applies 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 Commercial Agents Act). Such an agent, in the statute denoted as a commercial representative, is defined as an entrepreneur who, in a representation contract concluded with another (the principal) has undertaken to promote, continuously, 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.

Thereby, outside the purview of the Act fall all other types of agents, such as the concealed agent and consignment or commission agent among others, 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 (see question 13).

The Competition and Consumer Authority (FCCA) is the government agency exerting certain power in respect of competition, but is generally regarded as lacking the means to effectively have an impact on consumer issues.

There is 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 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 sub-agencies of the Finnish Central Chamber of Commerce and specialised in business-to-business sales and marketing issues. In particular, for convincing courts and arbitral tribunals on ethical advertising and fair business practice, the opinions of these two bodies are held in high esteem.

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 ought to be a certain period of time within which the opposite party may adapt themselves smoothly to the change of circumstances, and therefore, the length of the period of notice may vary depending on a number of reasons.

Any clause to the effect that the contract term may be renewed provides for accommodating to the changed circumstances.

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

Save where the relationship is qualified as that of commercial agency, there is no mandatory compensation or indemnification 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, case law suggests the courts may be inclined to make use, analogously, of the provisions of the Commercial Agents Act harmonised to article 17, paragraph 2 of the EU Directive 86/653/EEC (Council Directive of 18 December 1986 on the coordination of the Member States relating to self-employed commercial agents). (Implications of such analogous application can be found in Supreme Court case KKO 42 (1987).) Where the relationship is terminated without taking heed of the need for providing for a period of notice enabling the opposite party to accommodate him- or herself to the changed circumstances, the intermediary should be able to count on being compensated for the loss caused. Of course, 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 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 found 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 unfair or the application of such term leading to an unfair result, the term may be adjusted or set aside (section 36 of the Contracts Act 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 such provision be considered grossly unfair, unreasonable or otherwise unconscionable.