Distribution Agreements in Slovenia

While Distribution agreements are widely used in commercial practice, they are not explicitly regulated by statutory law in Slovenia.

According to the principle on contractual freedom, contractual parties can freely determine mutual rights and obligations governing their distribution relationship, provided they not act in contravention of the constitution, compulsory regulations, or moral principles. In addition, general provisions of law governing contracts apply to distribution agreements. Furthermore, agency provisions on termination, and the obligation to pay a goodwill indemnity upon termination of a relationship, may also be applied to distribution agreements by way of analogy. This would be the case when a particular distribution relationship has numerous elements of a commercial agency contract, and the risks borne by the parties change (as it would bring the distributor’s status similar to an agent, and would thus cause the distribution agreement to have the legal nature of an agency agreement). In cases of long-lasting distribution relationships, the (mutatis mutandis) application of provisions regarding the termination of an agency agreement, and the implications arising therefrom, would generally be appropriate. Rules governing sales agreements, mandate agreements, and license agreements (regarding the IP rights) may also apply to a certain extent, whereby characteristics of the particular distribution relationship shall be considered in each individual case.

Antitrust laws of any affected market also apply to distribution agreements and, therefore, although the distribution agreement would normally be governed by Slovenian laws, the antitrust laws of any affected market will generally apply according to the effects doctrine.

There is no explicit rule under Slovenian law on the manner of appointment of distributor. Therefore, the distributor may be appointed by a letter of appointment executed by both parties, by a written distribution agreement, by exchange of correspondence, or even by conclusive acts. Since there is no specific requirement under Slovenian law on the form of the distribution contract, a verbal appointment or a verbal distribution agreement would, in principle, also be sufficient and legally binding.

There are no registration, notification, or similar requirements under the Slovenian laws with respect to distribution agreements. The distributors performing distribution activities within the territory of Slovenia shall, however, comply with all mandatory general laws for the performance of distribution activities within Slovenia, and shall acquire all the necessary permits and/or authorizations of the Slovenian authorities for distribution of goods (if required; for example, for distribution of medicinal products and medical devices).

The most important clauses to be included into the distribution agreement are clauses on the appointment of distributor (specifying, among others, whether the distributor shall act as exclusive or non-exclusive distributor), the term and termination of the agreement, confidentiality clause, liability clause, the IP rights clause, and data protection clause (if applicable). Normally, a distribution agreement should also contain the general terms and conditions governing the sale of goods under the distribution agreement.

The distributor may be granted exclusivity with respect to certain territories or customers or certain distribution channel. However, any exclusivity arrangement should fully comply with antitrust rules, failing which the exclusivity arrangement would be considered null and void, and the parties may be fined for breach of the antitrust rules by the competent competition authorities. The Prevention of Restriction of Competition Act (in Slovenian: Zakon o preprečevanju omejevanja konkurence, Official Gazette of the Republic of Slovenia, No. 36/08 as amended; “ZPOmK-1”) prohibits, as null and void, any agreements between undertakings, decisions by associations of undertakings, and concerted practices of undertakings (agreements), which have as their object or effect the prevention, restriction, or distortion of competition in the territory of the Republic of Slovenia, with some actions stated as examples of prohibition. This prohibition applies, among others, to agreements that limit or control production, markets, technical progress, or investment, or that share a market or sources of supply.  The prohibition laid down under the ZPOmK-1 is substantially the same as under the Article 101 TFEU. The same applies for the possibility and conditions for exemptions in line with Article 101(3) TFEU.

Accordingly, exclusivity provisions or any other restrictive agreement(s) contained in a particular distribution agreement may benefit from the exemption under the Article 101(3) TFEU and the Vertical Block Exemption Regulation (Commission Regulation (EU) No. 330/2010 of 20 April 2010). In relation to vertical restraints, Slovenian legislation explicitly refers to EU legislation that is applicable even if there is no indication of an effect on trade between EU Member States. Based on the aforementioned:

• the distributor’s active sales to certain territories or customers may, as described above, be restricted only if such restriction fully complies with the applicable antitrust laws.
• passive sales by a distributor cannot be restricted. This also applies to online sales via websites, whereby the supplier may request the distributor to meet certain standards.
• as regards the restriction on distributor’s sales via marketplaces, the EU rules and case law of the CJEU shall apply (as there are no specific rules on the issue under the Slovenian laws and regulations).

The distributors selling the goods to consumers shall also comply with the Slovenian consumer protection act, which includes rules on distance contracts, language requirements, product liability, advertising, unfair contractual terms, and others; and with the Slovenian Electronic Commerce Market Act, which includes mandatory rules on contractual obligations with consumers including rules on conclusion of online agreements, general obligation on securing data before and after conclusion of online agreements. For instance, before the conclusion of an online agreement, a customer shall be provided with details on the procedures for conclusion of the agreement (i.e. technical details regarding the process, including how the errors before placing an order may be corrected), information in which languages (besides the Slovenian) the agreement may be concluded, and whether the agreement will be stored, or where the agreement will be accessible to the customer. The concluded agreement must be made available to the customer in such a manner that the customer should be able to store it and/ or reproduce it at any time). A distributor is also required to fully comply with the data protection rules. While the distributor would normally not be able to limit its liability towards consumers, the supplier may limit its liability towards the distributor whereby such a limitation of liability would not be valid and enforceable in case there is wilful misconduct or gross negligence on the part of supplier, or in the event of manufacturers’ liability for a defective product.

It should also be noted that Slovenian laws provide specific rules in the event the contract is prepared or otherwise proposed by one party, or the agreement is using content printed in advance by one party. In such cases, unclear provisions must be interpreted in favour of the other party. If the general terms and conditions prepared by one contracting party apply, provisions that oppose the actual purpose for which the contract was concluded or are contrary to good business practices shall be null and void under the Slovenian law, and further, the court may reject the application of (i) individual provisions of general terms and conditions by which the other party’s right to object or appeal is waived, or (ii) provisions based on which a party loses contractual rights or deadlines, or (iii) that are otherwise unjust or too strict for the party. Therefore, when preparing the terms and conditions, it is recommended to consider interests of both parties, and prepare a well-balanced document in order to avoid the risk of certain provisions being declared invalid or unenforceable.

Normally, with a view to ensure appropriate distribution of the goods, suppliers seek to include a minimum turnover clause into a distribution agreement where exclusivity is granted to the distributor. Such clauses are valid provided that they do not infringe antitrust rules (please refer to section 3 above).

According to the principle of contractual freedom, parties to a contract are free to determine the consequences of the distributor’s failure to achieve the minimum turnover agreed. Numerous consequences may be agreed, such as the distributor’s loss of exclusivity, automatic termination of the agreement or the right to termination that the supplier may exercise. When drafting the minimum turnover clauses, special attention should be paid to the following: (i) is the intent of the parties that any failure to meet the minimum turnover thresholds automatically results in consequences foreseen under the agreement, or are other factors, such as the distributor’s guilt or force majeure events, also to be considered?; (ii) shall the distributor be granted the right to remedy the breach? And if yes, how?; and (iii) if not meeting the minimum turnover results in the termination of the agreement, how is the termination effected (e.g. termination with immediate effect or after expiry of notice period, etc). It is therefore very important that the parties address all issues, with respect to (not) meeting the minimum turnover, in the negotiation phase and execute a clear and unambiguous agreement in this respect.

Distribution agreements concluded for a definite term shall automatically terminate upon the expiry of the term for which the agreement is concluded. There are no further notice or other requirements, unless the agreement provides otherwise. However, in the event that the parties continue to perform their obligations under the agreement even after expiry of the fixed term, the agreement shall be deemed to be concluded for an indefinite term, and may be terminated according to the rules applicable to termination of agreements of an indefinite term.

Distribution agreements concluded for an indefinite term may be terminated by a termination notice served to the other party. In such cases, the distribution agreement terminates upon expiry of an appropriate notice period, which shall be of a reasonable length considering all the circumstances of the case. A termination notice may, according to the law, be given at any time except at inappropriate time (the law does not specify what the term “inappropriate time” shall mean and therefore, it is to be assessed by the court considering all the circumstances of the case). Termination provisions governing agency agreements shall be applied, by way of analogy, to the termination of long-lasting distribution agreements. According to Slovenian laws governing agency agreements, the notice period for termination depends on the duration of the agreement, and shall amount to one month for each year that has commenced under the agreement. If the agreement lasts longer than five years, the notice period shall not be longer than six months. The notice period shall start running on the first day of the next calendar month from the date when the termination notice was given, and shall expire on the last day of the relevant calendar month. The parties may, however, agree on different notice periods in the agreement, provided that they are the same for both parties, and are not shorter than the minimum notice periods prescribed by law. Termination notice may be given in any form, however written form is recommended.

Distribution agreements (either concluded for definite or indefinite term) may also be terminated extraordinarily for serious cause. In such cases, the agreement terminates with immediate effect upon the service of termination notice to the other party. This right may not be limited or excluded by the agreement. The termination notice for cause must specify the serious cause that presents the grounds for termination, failing which the termination shall be deemed to have been made with the notice period. An unjustified termination shall give the other party the right to claim damages suffered due to unlawful termination, and the right to terminate the agreement without notice.

Goodwill indemnity may be due to a distributor in the event of termination of the distribution agreement, based on application of agency rules by way of analogy. This would be in cases where a particular distribution relationship has numerous elements of a commercial agency contract, and the risks borne by the parties are changed decisively, making the distributor’s status more similar to an agent, and would thus cause the distribution agreement to have the legal nature of an agency agreement. Goodwill indemnity shall, however, not be payable if the agreement is terminated due to a breach on part of the distributor, if the agreement was terminated by distributor (except where the distributor terminated the agreement due to breach(es) committed by the supplier, or due to the distributor’s age or disease), or if, based on the agreement between the distributor and supplier, another distributor enters into the agreement in place of the (previous) distributor. For further details regarding goodwill indemnity claim upon termination of distribution agreement, please see the response under the Section 6 further below.

There is no specific law in force in Slovenia that governs distribution agreements. Consequently, there are no explicit provisions requiring a supplier to pay goodwill indemnity to a distributor upon the termination of a distribution relationship. However, according to Slovenian legal theory, goodwill indemnity provisions applicable to agency relationships may be applied, mutatis mutandis, to distribution relationships. However, this application of agency rules on goodwill indemnity is not automatic. Agency rules may apply only in cases where a particular distribution relationship has numerous elements of a commercial agency contract, and the risks borne by the parties are changed decisively, making the distributor’s status more similar to an agent, and would thus cause the distribution agreement to have the legal nature of an agency agreement.

If conditions for application of agency rules to distribution agreements are fulfilled in a particular case, and if the reasons for excluding the right to goodwill indemnity do not exist (in this regard please see Section 5 above), the distributor would be entitled to claim goodwill indemnity only if (i) the distributor brought new customers or significantly increased the volume of business with existing customers, and the supplier continues to derive substantial benefits therefrom, and the payment of goodwill indemnity is equitable having regard to all the circumstances; or (ii) the payment of indemnity is justified by special circumstances (in particular the loss of commission on transactions with the above described customers). The claim for goodwill indemnity (if any) is only available at the expiry of distribution agreement. There is no bar on contractually excluding or waiving the claim for goodwill indemnity under the Slovenian law.

The distributor is required to notify the supplier of his intent to enforce the right to goodwill indemnity within one year of termination of the distribution relationship, failing which he loses the right to claim the indemnity. The amount of indemnity would depend on actual circumstances of the case. The law applicable to agency agreement provides that benefits to the supplier and the non-compete obligations for the distributor should be taken into account when determining the amount of goodwill indemnity. However, there are no further rules or formulas developed by courts according to which the claim is to be calculated. The amount of the goodwill indemnity is, however, limited by an average annual margin of the distributor for last five years preceding the termination of the agreement.

Payment of goodwill indemnity shall not exclude the distributor’s right to compensation for damages, or other claims the distributor might have towards the supplier, due to the termination of distribution agreement.

It is strongly recommended that, upon signing of distribution agreement, parties also determine the terms and conditions governing individual sales of goods purchased pursuant to the distribution agreement. By doing so the parties will be certain on the applicable law (among others, whether the United Nations Convention on Contracts for the International Sale of Goods applies), and jurisdiction applicable to individual sales of goods.

For the performance of distribution relationships, attention should also be paid to applicable data protection laws and regulations. If one party (e.g. distributor) engages other contractors for the performance of particular activities under the distribution agreement, and consequently those contractors qualify as data processors, all legal requirements under the applicable data protection law should be fulfilled in this regard (among others, appropriate data processing agreement shall be in place). In cases where the distributor collects customer data and shares it with the supplier, applicable provisions of data protection laws (including GDPR) should be considered. It should also be analysed whether, due to the data collection and processing, the supplier and distributor may be considered as joint controllers, and if so, the applicable legal requirements should be complied with.

In very rare cases, termination of distribution agreements may, on the basis of the law itself, trigger the transfer of employees of the distributor to the a new distributor or the supplier. This might be the case where a new distributor (or supplier in cases when the supplier commences with the direct distribution of goods) acquires all or part of the assets of the first distributor, in order to pursue business activity under the distribution agreement. This may constitute a transfer of undertaking, and require specific obligations of the new distributor towards the employees of the previous distributor. Although such situations that qualify as a transfer of undertaking are rare, this possibility should also be considered when appointing new distributor in the Slovenian market.

International distribution agreements may be governed by a foreign (non-Slovenian) law. The possibilities and limitations set forth under the Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (“Rome I Regulation”) shall apply, and the Slovenian courts would, in case of a dispute, apply the Rome I Regulation. Generally, an agreement can be governed by the law chosen by the parties, whereby the choice of law shall be made expressly or clearly, demonstrated by the terms of the contract or the circumstances of the case. The choice of law clauses are, in principle, fully recognized by Slovenian courts. The courts of Slovenia would refuse to recognize the choice of law clauses only due to overriding mandatory provisions (exceptions under Article 9 of the Rome I Regulation). If all the elements, relevant to the situation at the time of the choice of law, are located in Slovenia and not in the country whose law has been chosen, the Slovenian courts will, regardless of the choice of law clause, apply mandatory provisions of the Slovenian law (see Article 3, para. 3 of the Rome I Regulation).
If the distribution agreement does not contain a valid choice of law clause, it shall be governed by the law of the country where the distributor has its habitual residence (Article 4, 1(f) of the Rome I Regulation). Therefore, foreign suppliers who wish for the distribution agreement to be governed by the laws of the country where they are seated/registered, should pay special attention to the applicable law provision in the contracts concluded with the distributors.

Disputes arising from an international distribution agreement may be submitted to a foreign jurisdiction, or to a foreign arbitration, in the event the parties have chosen such a forum for dispute resolution.
In case of a dispute between the parties, the validity of the jurisdiction clauses shall be assessed in accordance with the Regulation (EU) No. 1215/2012 of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (“Regulation Brussels I recast”). Provisions of the Regulation Brussels I recast also apply to the recognition and enforcement of foreign judgements in Slovenia. In cases where the Regulation Brussels I recast does not apply, international treaties are applicable (i.e. in case of agreements between Slovenian entities and entities from Norway, Switzerland, and Iceland – the Convention on jurisdiction and the enforcement of judgments in civil and commercial matters (Lugano Convention)). For other international agreements, jurisdiction clauses are possible in accordance with the Private International Law and Procedure Act (Zakon o mednarodnem zasebnem pravu in postopku, Official Gazette of the Republic of Slovenia No 56/99, “ZMZPP”). It should be noted that under the ZMZPP, the Slovenian courts may be chosen to have jurisdiction only when at least one of the parties to the agreement is a Slovenian entity, and foreign courts may be agreed to have jurisdiction only if at least one of the parties is a foreign entity.

If the parties have agreed to submit the dispute to a (foreign) arbitration, such agreement shall be concluded in writing. Even if all parties to the agreement are Slovenian entities, they are entitled to agree to foreign arbitration to resolve any disputes with respect to claims that the parties may freely dispose with, except in cases where the exclusive jurisdiction of Slovenian courts is determined. For example, Slovenian courts shall have exclusive jurisdiction over disputes regarding rights in rem over real estate, enforcement of rewards in the territory of Slovenia, disputes regarding entries into public registers, among others. In this regard please refer to Article 24 of the Regulation Brussels I recast. Foreign arbitration awards are recognized in Slovenia in accordance with the applicable provisions of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

When the parties do not agree on a competent forum to resolve disputes arising out of the distribution agreement, the following rules are applicable:

• as a general rule, a party domiciled in a (Member) State shall be sued in that member state.
• in cases of commercial agreements, a party domiciled in a Member State may also be sued in the place of performance of the obligation in question (Article 7(1) of the Regulation Brussels I recast; Article 56 of the ZMZPP).
• in cases where the ZMZPP applies, the Slovenian courts shall not have jurisdiction if there is such a connection between the matter and a foreign country, if a similar connection between a matter and Slovenia would present grounds for exclusive jurisdiction of Slovenian courts (Article 50(2) of the ZMZPP).

It is recommended to include jurisdiction or arbitration provisions in the distribution agreement so that the parties are well aware in advance of the body that shall have jurisdiction over any dispute(s) between them.