When a goodwill indemnity is payable and what claims arise on termination of a distribution agreement
The expiry or termination of a commercial agreement, such as a distribution agreement, can give rise to significant claims and risks for both parties. Subject to certain conditions, the distributor may claim a goodwill indemnity or compensation for its losses. The supplier, for its part, may resist such claims or assert claims of its own.
In commercial practice, distributors are often referred to as “agents” or “exclusive agents”. As a matter of law, however, distribution is distinct from commercial agency. The distributor purchases the products and resells them in its own name, for its own account and at its own commercial risk.
Exclusive or non-exclusive distribution
Whether a goodwill indemnity claim can arise often turns on the distinction between non-exclusive and exclusive distribution.
The defining feature of exclusive distribution is a genuine contractual commitment to exclusivity. This means, in particular, that the distributor is obliged not to promote competing products within its contract territory. Where the distributor remains free to sell competing products alongside the supplier’s, the relationship will, as a rule, lack the characteristics of exclusive distribution.
The label the parties give to their relationship is not conclusive in itself. What matters is the actual substance of the obligations agreed and the way the relationship operated in practice.
Under Article 14 of Law 3557/2007, the protective provisions of Presidential Decree 219/1991 on commercial agents (which transposed Council Directive 86/653/EEC into Greek law) apply by analogy to exclusive distribution agreements. This is the case where, as a consequence of the agreement, the distributor acts as part of the supplier’s commercial organisation.
Factors taken into account in this assessment include, among others:
- sales targets and monitoring of their achievement
- disclosure of the customer base to the supplier
- advertising and promotion of the products
- maintaining stock and appropriate infrastructure
- compliance with the supplier’s instructions
The distributor’s rights when the supplier terminates the relationship
Where the statutory requirements are met, the distributor may claim a goodwill indemnity. The key questions are:
- whether the distributor brought in new customers or significantly increased the volume of business with existing customers
- whether the supplier continues to derive substantial benefits from those customers
- whether payment of an indemnity is equitable, having regard to all the circumstances
The average annual remuneration over the last five years, or over the entire term of the relationship if shorter, is a ceiling. It is not an automatic method of calculating the indemnity. Where PD 219/1991 applies, a clause that excludes the goodwill indemnity in advance is invalid. Under the same regime, the distributor loses the claim if it does not notify the supplier, within one year of termination of the relationship, that it intends to pursue it.
Separately from the goodwill indemnity, an unlawful, untimely or abusive termination may give rise to an independent claim for damages covering both actual loss and loss of profit.
Even in non-exclusive distribution, the termination of a long-standing commercial relationship may, under strict conditions, be examined as a possible abuse of economic dependence.
When the distributor terminates early
Where the distributor itself terminates the relationship, it is, as a rule, not entitled to a goodwill indemnity. The exceptions are the cases provided for under the applicable regime, in particular where the termination is attributable to the supplier. Moreover, particularly under a fixed-term agreement, early termination without the required conditions being met may give rise to claims by the supplier.
The decisive factors are the terms of the agreement, the existence of good cause where required, the conduct of the parties and the actual loss connected with the early termination.
The supplier’s rights when the distributor claims a goodwill indemnity
A long-standing relationship is not, in itself, sufficient to ground a goodwill indemnity claim. For the supplier, the critical question is often whether the relationship was in reality one of non-exclusive distribution, or whether the distributor lacked the required integration into the supplier’s commercial organisation.
It is also relevant whether the termination is linked to a material breach of the distributor’s contractual obligations.
When the supplier has claims of its own
Damages claims do not operate solely in the distributor’s favour. Subject to the statutory requirements, the supplier may seek compensation for actual loss and loss of profit resulting from a premature or wrongful termination of the relationship.
Pursuing such claims requires specific evidence and a causal link between the loss and the termination. Particular weight is given to historical sales performance, the actual financial data of the relationship and the profit margin.
Why early legal assessment matters
Whether a claim for compensation arises, and how far it extends, is often determined well before any litigation begins. The deciding factors lie in how the agreement was drafted, how it was performed in practice, the financial and commercial records retained, and how the termination was prepared.
Documenting rights, claims and evidence at an early stage has a material impact on each party’s strategy.
At Papatriantafyllou & Thanasenari, early mapping of rights, potential claims and available evidence is a core part of how we handle every commercial dispute arising from distribution agreements, commercial agency agreements and other forms of commercial cooperation. This way, the case strategy is shaped from the moment the relationship comes to an end.