In a recent case from the Court of Appeal (Svea Hovrätt T 2107-19, 2020-11-18), a question that often recurs for contract lawyers is once again relevant. Does the distributor have the right to a notice period even when though a notice period has not been formally agreed?
In the relevant case a distributor had an oral agreement with an Italian wine producer regarding a product that was important to the distributor. The agreement had been in force for at least about five years. The wine producer terminated the agreement with less than a month’s notice, after which the distributor took legal action against the wine producer and demanded damages corresponding to, among other things, the profit during the 12-month notice period, which he claimed was about SEK 9 million.
The distributor stated that there were several circumstances that spoke in favour of a 12-month notice period despite the fact that no notice period was agreed, such as a long-term cooperation, exclusive sales rights, significant investments by the distributor and that the distributor also had an independent and inferior position vis-à-vis the wine producer.
The Court of Appeal found that a Distributor agreement without an agreed notice period according to practice (NJA 2018 p. 19 and NJA 2009 p. 672) can be terminated with observance of a reasonable notice period. If the agreement is terminated in a shorter period of time, liability for damages for, among other things, lost profit may arise.
The Court of Appeal stated that the agreement in question was such a long-term contractual relationship where the Supreme Court’s established starting point applies, ie. that the reasonable notice period is six months.
The reason why the six-month notice period should be taken as a starting point is to give the weaker party in the contractual relationship, the distributor, the opportunity to adjust costs to the lower revenues by, for example, laying off staff, premises, etc.
The question in this case was therefore whether the relationship between the distributor and the wine producer was so special that the notice period should be longer than six months.
However, the Court of Appeal found that the circumstances were not so special that the notice period would be set at more than six months.
The lesson that both distributors and producers should learn is that before long-term contractual relationships are entered into, the parties should sit down and agree in writing on what applies on the day the cooperation ends.
Nothing lasts forever. The cost of producing a written agreement is negligible in relation to the values that are lost when staff quickly become redundant, organizations unexpectedly have to reduce, the costs of litigation in disputes must be paid etc.
Michael Pålsson
Attorney (LL.M)