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 by unilateral 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:

	the period of time required in order to penetrate the market for the products concerned
	the magnitude of the expenses and investment incurred to penetrate the market
	the long-term obligations assumed by the representative
	the duration of the relationship being terminated
	the level and development of the turnover
	the relative importance of the business concerned for the overall activities of the representative