Claim for investment cost reimbursement upon termination of a distribution agreement

In Austria, Section 454 of the Austrian Commercial Code (Unternehmensgesetzbuch - UGB) provides for a mandatory right to compensation for investment costs in favor of commercial agents and authorized dealers (hereinafter uniformly referred to as "Authorized Distributors”). Authorized distributors shall be relieved of the risk that costly investments are frustrated due to the termination of the distribution or agency agreement.

Section 454 (1) UGB stipulates the following: "An entrepreneur, who participates in a vertical selective distribution system as integrated entrepreneur or self-employed commercial agent (section 1 Commercial Agents Act (HVertrG)) is, in the case of the termination of the contractual relationship with the integrating entrepreneur, entitled to reimbursements of the investments, which he agreed to provide in connection with a uniform distribution pursuant to the distribution agreement, to the extent they have neither been amortised nor are reasonably realisable at the termination of the contract."

The claim relates exclusively to those investments to which the Authorized Distributor was contractually obligated. Mere pressure from the manufacturer or supplier (hereinafter uniformly referred to as " Principal”) to make investments in a uniform brand appearance is therefore not sufficient. Such pressure may be expressed, for example, in the form of "non-binding recommendations". What is necessary is the existence of a contractual obligation in the narrowest sense of the word. Of course, this also includes unilateral instructions by the Principal if the Authorized Distributors is contractually obligated to comply with them.

The explicit restriction to contractually required investments may seem surprising at first glance. However, it becomes understandable when one considers how difficult it would otherwise be to distinguish these from truly voluntary investments. Truly voluntary investments should not be covered by the claim for investment cost reimbursement under any circumstances.

The claim exclusively covers investments for uniform distribution, hence product- and brand-specific investments and is limited to investments that are neither amortized nor reasonably realizable upon termination of the contract.

According to the prevailing literature, amortization occurs when the costs of the investment are at least covered by the income generated from it. Partial amortization reduces the claim. Losses in earnings for which the Authorized Distributor is responsible lead to the loss of a claim for compensation for investment costs to the extent that the costs would already have been covered without them.

An investment is realizable if the Authorized Distributor can sell or rent it out. The term "reasonable" means that the Authorized Distributor must make reasonable efforts to realize the investment. Only if this fails, he can claim compensation for investment costs with reference to the lack of usability. In the case of brand specific furnishings, however, reusability is often doomed to failure from the outset. Because of existing trademark rights, the Authorized Distributor usually may not use these items without a license.

Section 454 (2) UGB lists those cases in which no claim for investment cost compensation is due:

• Termination of the distribution agreement by the Authorized Distributor without the Principal having given attributable good cause for this; fault (negligence, intent) is not required.
• Termination of the distribution agreement by the Principal for good cause. The cause must be attributable to the Authorized Distributor; fault (negligence, intent) is not required.
• If the Authorized Distributor transfers the agreement to a third party with the Principal’s permission (since in this case the distribution agreement continues to exist and within the contract transfer the Authorized Distributor is usually compensated for his investments anyway).

Section 454 UGB is unilaterally mandatory in favor of the Authorized Distributor. Thus, a contractual exclusion of the investment cost compensation before the termination of the agreement is invalid. Also, according to the prevailing opinion, Section 454 UGB is an overriding mandatory provision in the sense of Article 9 Rome I Regulation (Regulation EC No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations). In justification, the literature refers to the fact that Section 454 UGB can be interpreted as a "claim for damages" pursuant to Art 17 (3) of the Commercial Agents Directive (Council Directive 86/653/EEC of 18 December 1986 on the coordination of the laws of the Member States relating to self-employed commercial agents).