Denmark: A Guide To Agency And Distributorship In Denmark

Last Updated: 15 October 2019
Article by Steen Rosenfalck

1. Introduction

An overseas company wishing to sell its products in the Danish market may consider appointing a Danish based commercial agent with specific market sector knowledge to negotiate orders on its behalf. Alternatively, the foreign company may seek to sell its products directly to a distributor with knowledge of its domestic marketplace. Such options offer the overseas company a cost-efficient way to test whether its products are suitable for the local market place, before establishing a more permanent presence in the form of, say, a Danish subsidiary company or branch office.

This guide briefly highlights some of the differences between the two types of legal relationships and examines some of the factors to consider when managing an agent or distributor in Denmark.

Our Danish Desk - ebl miller rosenfalck in London have one of the largest Danish desks outside of Denmark, with two partners who are dual qualified as Advokat's in Denmark and also Solicitors in England and Wales. We also have a Legal Director and COO who speak native Danish, and we work closely with the Danish-UK Association. We also have office facilities in Copenhagen.

Publications

  • Steen Rosenfalck - Our Senior Partner, Steen Rosenfalck is a commercial partner, and is a Co-Editor of and Contributor to International Corporate Procedures (Jordan Publishing) and a Contributor to International Agency and Distribution Law (Juris Publishing).
  • Pia Dalziel - is a corporate partner and is an editor and author of Workforce Restructuring in 1st edition, Bloomsbury Professional, 2015)

1.1 Some differences

In agency relationships the parties are normally referred to as the principal and the agent. In distributorships the parties are typically referred to as the manufacturer and the distributor.

In order to retain more control over the sales process the principal may consider appointing a commercial agent to promote and conclude sales/purchases in the principal's own name and ensure that payment is made directly to the principal. A commercial agency could for example be set up as a del credere agency where the agent guarantees the customer's payment to the principal, usually in return for an enhanced rate of commission.

A distributor on the other hand will market the manufacturer's products independently and also deal with most practical issues in respect of the business. Distributorships may therefore be a particularly appropriate route to the market for a business producing specialist products or requiring after-sales support in the local territory.

The commercial agency agreement is structured in such a way that the principal pays the agent commission linked to the sales concluded; whereas a distributor will get his remuneration from the profit margin he makes on his own sales.

2. Agency

2.1 Definition of agent

The 1986 EU Directive on the Co-ordination of the Member States legislation on Independent Commercial Agents has been implemented in Denmark by the Commercial Agents and Sales Representatives Act No. 272 on 2 May 1990 (the "Act"). The Act regulates the internal relationship between the principal and the agent and contains some mandatory provisions which cannot be derogated from to the detriment of the agent, see 1.7 below.

In the Act, a commercial agent is defined as an agent who undertakes for the principal to independently and permanently engage in the sale or purchase of goods on behalf of the principal by procuring offers to the principal, and/or by concluding agreements in the principal's name.

The Act does not regulate the external legal relationship between the commercial agent and third parties. The question of authority to bind the principal is regulated elsewhere, namely in the Contracts Act. In brief, where the agent has exceeded its authority, the principal will usually be bound unless the third party had reason to believe that the agent exceeded its authority. The principal may avoid being bound by an agreement entered into by the agent, if he/she informs the third party immediately after having obtained knowledge of such an agreement.

2.2 The agency contract

There is no legal requirement that a written contract is put in place. However, according to the Act, each party has the right to request that the terms of the agency contract are set out in writing. In any event, it is advisable to protect your interests by agreeing and setting out the terms and conditions for the engagement in an agency contract.

When drafting an agency contract, the following points should be addressed as a minimum:

  • Details of the parties;
  • description of territory, product and exclusivity;
  • the legal position of the commercial agent and the extent of his authority;
  • sales activities of the commercial agent, acceptance and conclusion of orders/sales and complaints handling;
  • sub-agents;
  • stock held by the agent;
  • rate of commission, how the commission is calculated and when it becomes due;
  • should minimum sales targets be inserted? If so, what are the consequences, if the minimum is not met?;
  • restraint of trade clauses;
  • duty to supply information;
  • confidentiality;
  • terms and conditions of business;
  • duration of the contract and period of notice;
  • marketing efforts;
  • further education/training;
  • choice of law; and
  • court jurisdiction and/or arbitration and/or alternative dispute resolution (such as mediation).

Some of the above-mentioned points are dealt with in more detail below.

2.3 The right to commission

A detailed regulation of the agent's right to commission is contained in sections 8-15 of the Act.

Under sections 9 and 10 the commercial agent is entitled to commission on the completion of commercial transactions concluded during the period of the agency contract:

(1) Where they are the result of the agent's actions; or concluded with a third party whom he has previously acquired as a customer for transactions of the same kind; and

(2) where – if the agent has been given exclusivity to a certain geographical area or a certain group of customers – a transaction is concluded (not as a result of the agent's direct efforts) with a customer belonging to such area/group.

In some circumstances the agent will also be entitled to commission on transactions concluded after termination of the agency contract. This would be the case if

(1) The transaction is mainly attributable to the agent's efforts during the period covered by the agency contract; or

(2) where an order from a third party reached the principal before the agency contract was terminated.

The agent's claim for commission will cease where a contract – for which the agent is otherwise entitled to receive commission – is not performed by the principal, provided the principal can show that the failure to perform the contract is due to circumstances beyond the control of the principal, cf. section 14(1). Most instances of non-performance will naturally be due to the particular third party's failure to perform his obligations under the contract and thus – under the wording in section 14(1) – the risk for the third party's insolvency will typically be on the commercial agent.

In the absence of any agreement on commission the commercial agent shall be entitled to the remuneration which is customary in that business sector. If there is no such customary practice, the agent shall be entitled to a reasonable remuneration taking into account all aspects involved in the business of the agent.

2.4 Termination of the agency relationship

The Act further protects commercial agents by providing rules on the provision of termination notices (sections 22-23) and additional rules for compensation payable to the agent upon the termination of the contract (sections 25-29), see 2.5 below.

If the agency agreement has been agreed for an indefinite period, the agent shall be entitled to a termination notice corresponding to one month for each year the contract has been in force. The maximum termination period is six months unless a longer termination period has been specifically agreed between the parties. It is possible to limit the termination notice to a maximum of three months' notice even if the contract has been in force for more than three years.

If the parties agree to a longer period of notice, the notice to be given by the principal must not be shorter than that to be provided by the commercial agent.

Unless otherwise agreed, a notice of termination will expire at the end of a calendar month.

If on the other hand the agency contract is for a fixed period, the contract will expire automatically on the agreed date without any action required by either party. However, should the parties continue their relationship after the end of the agreed contract term; the whole agreement shall be deemed to be for an unlimited period of time. When determining the termination period, the whole contract period shall be included in the calculation.

Danish law also allows for immediate termination of an agency contract; i.e. without observing the period of notice, should one of the parties be in material breach of its obligations under the contract.

2.5 Compensation to the agent

When a principal decides to sell its products in any new territory via a commercial agent, the introduction of the new product often require considerable efforts by the agent in the start-up phase. In the beginning these will normally only lead to a modest amount of orders, and consequently the agent's commission will be limited. The commercial agent is therefore at risk of being out of pocket if the agency contract, for whatever reason, is terminated early.

The commercial agent is entitled to claim compensation from the principal after termination of the contract, if:

  • The commercial agent has solicited new customers for the principal or has extended the existing business relationship in a way that the principal stands to gain considerable advantages after the termination of the contract; and
  • payment of compensation is deemed reasonable taking all circumstances into account.
  • The claim for compensation is normally up to a maximum of one year's average commission, based on the agent's commission over the last five years. If fewer than five years, the average commission will be based on the period in question.

However, a commercial agent will not be entitled to compensation if:

  • The principal has terminated the contractual relationship because of faults attributable to the commercial agent which would justify immediate termination of the agency contract; or
  • the commercial agent has terminated the contractual relationship (unless such termination is justified by circumstances attributable to the principal), or when age or poor health of the commercial agent prevents him from carrying out his duties; or
  • the commercial agent, with the principal's consent, assigns his rights and duties under the contract to a third party.
  • The commercial agent will lose its entitlement to claim compensation if he/she fails to notify the principal of his/her intention to pursue a claim for compensation within one year after the termination of the agency.

2.6 Restraint of trade clauses

The inclusion of restrictive covenants in an agency contract is recommended. It is possible to agree a restraint of trade clause covering a period of maximum 2 years from the expiry date of the agency contract without paying specific compensation to the agent. A restraint of trade clause is only valid if and to the extent that:

  • It is in writing;
  • it relates to the geographical area or the customer group and the geographical area entrusted to the commercial agent in the agency contract; and
  • it concerns the products covered by the agency contract.
  • The restraint of trade clause may be void if it goes beyond the limits necessary to protect the interests of the principal or if it unnecessarily limits the agent's possibilities to earn a living, cf. sections 30(1) and 30(2) of the Act.

Section 30(3) provides that a restraint of trade clause may be set aside by the courts under the conditions mentioned in section 38 of the Contracts Act.

2.7 Mandatory rules

The Act contains a number of mandatory rules which cannot be derogated from to the detriment of the agent. It is not possible to enter into a choice of law clause which precludes the commercial agent from the protection under the Act. If such clause is entered into, all the mandatory provisions of the Act shall remain applicable.

Under section 1(1) of the Act, the Act may be deviated from by agreement unless otherwise stated in the Act. Apart from the rules in Part III, governing employed commercial sales staff, the rules of the Act cannot be derogated from by custom or usage.

2.8 Choice of law

Private international law sets out which country's laws shall govern an international legal relationship. The main rule under private international law is that the commercial agent's place of business determines which country's legal rules must be applied. Sections 1(2) and (3) of the Act contain provisions regulating the – comparatively limited – extent to which it is possible to deviate from the rules in sections 22 and 25-27 regarding the termination of the agency contract via a choice of law agreement.

3. Distributorship

3.1 Definition

There is no Danish legislation directly governing the relationship between a manufacturer and a distributor so the general rule of freedom of contract applies. Nor is a distributor defined in statute. It is, however, commonly accepted that a distributor trades in its own name and on its own account as opposed to an agent.

For these reasons it is important to negotiate and enter into a written contract between the parties in order to create certainty.

3.2 The distributorship

Distribution agreements may be structured as an exclusive, sole or non-exclusive distributorship.

Under an exclusive distributorship the manufacturer appoints only that particular distributor in a given territory and the manufacturer would normally refrain from selling directly into the territory. This allows the distributor to prevent both the manufacturer and other distributors from actively operating in his "territory". However, if a so-called absolute territorial protection is built into the agreement; i.e. protection from parallel import, the agreement may be contrary to EU competition law.

Under a sole distribution agreement, the manufacturer commits to not appointing any other distributors in the territory. However, the manufacturer often retains a right to sell directly to customers in the territory. If such direct sales do take place the manufacturer is obliged to account for any profits relating to these sales to the sole distributor.

A distributor bears all risks associated with its sales, including non-payment by a customer. The distributor is normally under an obligation to maintain and insure warehouse facilities at its own costs. The distributor will be obliged to keep the manufacturer's goods separate from other goods in the warehouse and to maintain up to date records in relation to the goods, payments and shipping etc.

Critically, a manufacturer cannot set minimum prices for the re-sale of the products by the distributor in Denmark. Such conduct would be regarded as price-fixing and anti-competitive. It renders the company and any relevant directors liable to fines and any such requirement is void. Such prohibition is a stark contrast to agency arrangements, where the principal has full control over pricing (subject to the usual market forces). A manufacturer can, however, advertise a recommended re-sale price provided he makes it clear that this is non-binding.

A manufacturer can, however, prohibit a distributor contractually from re-selling at prices in excess of a given level. Such maximum prices are permitted and not considered anti-competitive, as the law regards them as protecting the interests of the consumer.

3.3 The distributorship contract

When drafting a contract for a distributorship it is important that the terms are not identical to the terms of an agency agreement as similar wording could lead to the contract being interpreted as a commercial agency agreement and consequently liable to protection under the mandatory rules in the Act.

It is common practice to impose obligations on the distributor in respect of marketing activities to be undertaken, minimum sales, after-sales support and training of staff. The distributor will usually employ its own staff.

The distributor's ability to act independently, the calculation of prices, marketing measures and the registration of trademarks are some of many aspects to be considered. It is strongly recommended that manufacturers take steps to register and protect intellectual property rights such as trademarks and patents, which should then be carefully licensed for use by the distributor during the lifetime of the agreement and brought to an end upon termination. This should be tackled as part of an overall brand strategy in appropriate cases, taking into account tax, corporate governance and group structures.

3.4 Notice periods

Notice periods may be stipulated freely.

If no notice period has been stipulated both parties have the right to a "reasonable" period of notice. Pursuant to Danish law, a reasonable notice is typically between 3 to 6 months, depending on the duration of the contractual relationship.

In case of material breach of contract by one of the parties, the contractual relationship may be terminated immediately without notice.

3.5 Compensation to the distributor

The rules of the Act governing agency are generally not used analogously on distributors. The Danish courts have, however, been asked to determine whether a distributor would be entitled to compensation in connection with the termination of contract; only in rare circumstances have the courts found in favour of the distributor. In some cases, the distributor has succeeded, but until now this has only been the case when the manufacturer has terminated the contract without proper notice.

Compensation may also be awarded in cases where the manufacturer has encouraged the distributor to invest in the sale of the products and then terminate the contract.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions