Termination of Representation Contract
The duration of the contract between the manufacturer and his
representative is stipulated as a normal practice. Frequently there
is an option to extend the agreement.
There are several ways to terminate an agreement with a representative.
In some cases, the agreement may be terminated by mutual decision between
the manufacturer and its agents and distributors.
In other cases, when the agreement is for a fixed period of time, the
agreement may be automatically terminated at the end of the period.
In many cases, however, the termination results from a unilateral decision
taken by the manufacturer with respect to an agreement for an indefinite
duration. It is imperative that in these cases, the manufacturer terminates the
agreement whilst respecting the legal obligation to deliver to the agents and
distributors an advance termination notice.
Sometimes, the representative agreements are for an unlimited period with a
provision to terminate the relationship byunilateral reasonable notice at any
time.
However, termination without reasonable advance notification generally
constitutes a breach of contract subjecting the principal/supplier to liability
for damages.
In a landmark case before the Supreme Court of Israel, it was held that the
reasonableness of the notice is a function of two elements: the period of the
time between the commencement of the relationship and the termination, and the
period of time between the notice and the actual termination.
This test has been adopted in many subsequent cases where the courts have
applied the principle on a case-by-case basis. For example, in a distribution
agreement for an indefinite period which lasted for 18 years, a notice of
termination was given by the supplier three months in advance. The Supreme Court
held that this amounted to an adequate period of advance notice as no
significant investment of the distributor in distributing the products had been
required in the previous years and the distributor had not invested at all in
broadening its client market. In any event, the Supreme Court noted that that
the distributor suffered no significant damage from the termination.
However, in a later case before the Supreme Court, where the products of the
supplier being distributed by the distributor consisted of 99 percent of all its
distributions, it was held that a notice of termination of nine months in
advance was not sufficient.
Several factors need to be taken into account for determining the proper
duration of the notice period, including:
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the period of time required in order to penetrate the market
for the products concerned |
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the magnitude of the expenses and investment incurred to
penetrate the market |
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the long-term obligations assumed by the representative |
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the duration of the relationship being terminated |
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the level and development of the turnover |
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the relative importance of the business concerned for the
overall activities of the representative |
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