Newsletter-21

Consequences of Non-Attainment of Guaranteed Minimum Order in Agency and Distribution Contracts* Prof. Dr. H. Ercument Erdem Introduction It is common that agency and distribution contracts provide a minimum order undertaking for the agent and the distributor. Ac- cording to such provisions, the agent or the distributor undertakes to purchase a minimum amount of product from the principal or the sup- plier. Under the contract, several consequences may be attached to the failure to purchase the pre-determined minimum amount. In principal or supplier-friendly contracts, non-attainment of the guaranteed minimum order entitles the principal or supplier to terminate the contract without a notice period, to cancel the agent’s or the distributor’s exclusivity, to reduce the territory allocated to the agent or the distributor, and to claim for damages. In more balanced contracts, the principal or the supplier is entitled to the same rights as the principal or supplier-friendly contracts; however, the existence of objective reasons prevents the principal or the supplier to exercise its rights that cause non-fulfilment, and which the agent or the distributor could not foresee, and for which he is not responsible. Further, a right to catch-up may be granted to the agent or the distributor in subse- quent years. Finally, the agent or distributor-friendly contracts do not consider non-attainment as a breach of contract. This Newsletter examines the conditions and consequences of compensation of damages among the consequences of non-attainment of guaranteed minimum order in agency and distribution contracts. * Article of May 2016