Distributors to gain from home advantage where agreement with supplier is silent on jurisdiction

October 23, 2014

Distributors should be drinking to success following the European Court’s decision in favour of a Belgian distributor, determining which courts have the right to hear a dispute relating to a distributorship agreement.

The facts

The distributor, which traded as La Maison du Whisky Belgique and operated the website, whisky.be, had a ten year trading relationship with the French supplier, La Maison du Whisky. It purchased whisky from the supplier for re-sale in Belgium.

A dispute arose when the supplier banned the distributor from operating under the La Maison du Whisky Belgique name and using the website. The supplier appointed a third party as its new exclusive distributor and invited La Maison du Whisky Belgique to order products from the newly appointed distributor. The aggrieved distributor brought a claim for compensation against the supplier in the Belgian courts.

Home or away: which court?

There was no formal written distributorship agreement and a dispute arose as to which court should hear the dispute.

Under Belgian law, the Belgian courts have jurisdiction if a distributor has suffered damage as a result of the termination of a distributorship agreement which covers Belgium (whether entirely or in part). However, the supplier argued that it should be sued in the courts of the country in which it was domiciled, being France, pursuant to the EU Regulation on court jurisdiction (the “Brussels Regulation”).

The European Court noted the general rule under the Brussels Regulation that as the supplier was domiciled in an EU member state other than the state in which the distributor was domiciled, the distributor could not rely on the Belgian law specifying jurisdiction.  However, the Brussels Regulation sets out some exceptions to the general rule. One of these exceptions provides that, in relation to a contract for the supply of services, the defendant may be sued in the place where the services were provided. The distributor had provided the services in Belgium and as such, if a distributorship agreement constituted a supply of services, the Belgian courts could hear the distributor’s claim against the supplier.

Is a distributorship agreement an agreement for the supply of services?

The European Court said yes – a distributorship agreement constitutes a supply of services if the agreement contains specific terms concerning the distribution by the distributor of goods sold by the supplier. It is for the local court to determine whether such an agreement exists.

In coming to this conclusion, the European Court noted that a distributor provides the service of increasing a supplier’s distribution of its products in exchange for remuneration – through use of, for example, the supplier’s marketing, a distributor is able to increase the local market share of the products to a greater extent than an ordinary reseller could.

How to avoid the pre-match coin toss

Where a supplier engages a distributor, the supplier can avoid having to bring an action in the home court of the distributor in the event of a dispute by including an express jurisdiction clause in the distributorship agreement.

This is important as by so doing the supplier will avoid:

  • litigating in a foreign court; and
  • being exposed to a claim for compensation if the law of the distributor’s home court provides that the distributor is entitled to compensation on termination.

Related pages:

Agency, Distribution and International Trade more

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