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28 October 2020

European corporate legal insights: Applicable law to distribution agreements in the different European countries

Source: Andersen Global

In your jurisdiction, is there a regulation of distribution contract and through what legislative tool?

The Ukrainian legislation does not specifically regulate distribution agreements. Notably, Ukrainian law in different spheres operates with the notions “distribution”, “distributor”, “dealer”, “dealer activity” and stipulates mandatory requirements to be obeyed by both suppliers and distributors/dealers, to name but a few: distribution of medicines, motor cars, agricultural vehicles, securities
etc. At the same time, even in the said spheres Ukrainian law does not specifically address any requirements to the distribution agreements themselves.

Notwithstanding the above, pursuant to Article 6 and Article 627 of the Civil Code of Ukraine, the parties are free to enter into the contracts that are not directly stipulated by law and stipulating its terms and conditions. At the same time, such contracts shall comply with general principles of civil legislation, customary business practices, requirements of reasonableness and equitableness.

In the absence of specific regulations, in Ukraine distribution agreements are mainly governed by the Civil Code of Ukraine and the Commercial Code of Ukraine (the “Commercial Code”). Moreover, while concluding distribution agreements, the parties shall take into account the provisions of competition legislation, legislation regarding quality, safety of goods and of protection of consumers’ rights, legislation in the sphere of intellectual property and advertising as well as other mandatory provisions stipulated in the current Ukrainian legislation.

Is it allowed in your jurisdiction the submission of the contract by agreement of the parties to different legislation from the one applicable to the distributor territory with a waiver of the legislation of the latter?

Under Article 43 of the Law of Ukraine “On International Private Law” the parties to the contract are generally free to agree on the applicable law, except situations when Ukrainian law directly prohibits such agreement. However, it should be stated that the abovementioned submission does not permit to avoid application of mandatory provisions of Ukrainian law (pursuant to Article 14.1 of the Law of Ukraine “On International Private Law”).

Pursuant to Article 32 of the Law of Ukraine “On International Private Law” if the parties fail to agree on the law to govern the contract, the latter will be governed by the law of country, which has the closest connection to the transaction. If other is not foreseen by or does not follow from the conditions or content of the transaction or from all circumstances of the case, then the transaction is deemed to have the closest connection to the law of the state, where the party that shall perform execution to be the decisive value for the content of transaction, has its residence or location.

Article 44 of the Law of Ukraine “On International Private Law” sets forth the list of contracts and defines parties thereto that shall perform execution to be the decisive value for the content of transaction. The above list does not include the distribution contract, however, taking into account the position of the scholars as to the close connection between the distribution contracts and sale and purchase contracts, the party that shall perform execution to be the decisive value for the content of the distribution contract, shall be the seller (in case of the distribution contract – the supplier).

Is the distributor entitled to be compensated upon the termination of the term of his distributions right? What is the applicable compensation, if any?

Ukrainian law does not provide any rules on compensation to be paid upon termination of the distribution agreements. There is no relevant case law either. Hence, general provisions of civil law shall apply i.e. the parties to the distribution agreements are allowed to agree upon such a compensation as well as methodology how it shall be calculated.

At the same time, in case of unjustified unilateral termination, the other party may claim for damages compensation (including actual damages, loss of profit, moral damages, if any), and for imposition of penalties set forth in the distribution agreement. The amount of the damages claimed had to be proven before the court by the party claiming the latter.

Can the distributor validly waive such compensation in the contract itself?

Taking into account that Ukrainian law is silent on any such compensations, the parties are free to regulate this issue by their own. If they do not want to have such a compensation in place, it shall not be indicated in the agreement.

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