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Distribution Agreements: General Contractual Framework

Tuesday, 20 March 2012

A distribution agreement governs the commercial and legal relationship between a supplier or manufacturer and a distributor of its products. Generally a supplier will appoint a distributor who will buy products at its own risk and distribute them in a particular territory to its own customers. Agreements may be in the form of a letter or a more detailed contract; either way there are numerous matters for the parties to consider.

Matters Generally Covered in Distribution Agreements
A good Distribution Agreement will clearly define the relationship between the parties and the terms on which the distributor may sell the supplier’s goods. The agreement should aim to provide adequate protection for both parties and define terms fairly and clearly to limit disputes. Matters that ought to be covered include:

  • Whether the distributorship is an exclusive one;
  • The territorial scope of the agreement;
  • A list of the supplier’s products covered and, where appropriate, the agreement should cater for new or improved versions of the products;
  • Training requirements;
  • The duration of the appointment, termination provisions and detail any post-termination arrangements that might be required;
  • Pricing and payment provisions;
  • Any obligations of the distributor regarding sales targets, marketing activities etc;
  • The extent of the distributor’s authority to act on behalf of the supplier in its dealing with customers and other third parties;
  • The obligations of the supplier in addition to supply, such as any marketing support or training;
  • Arrangements for general matters such as:
    • insurance, advertising and confidentiality;
    • allocating responsibility for compliance with applicable laws generally or in the relevant location;
    • detail handling procedures for product liability, warranty claims etc.

The agreement itself is subject to contract law but it may refer to relevant statutory provisions regarding the sale of goods such as the Sale of Goods Act 1979 and European competition regulations.

Considerations for Suppliers
There are numerous considerations for suppliers such as: sales targets for distributors and what happens if those targets are not reached, previous exclusive arrangements entered into, the credit-worthiness of the distributor, preference for an agency agreement as an alternative, updated goods and the distributor’s selling of competing products.

Considerations for Distributors
Distributors also have various details to consider such as territorial exclusivity, best endeavours clauses (which may be unduly onerous), support provisions, rights regarding updated versions of products, achievability of sales targets and restrictions on termination.

Distribution agreements should aim to fit the requirements of the parties’ business relationship to ensure a smooth ongoing union. If you need advice regarding such arrangements Rollingsons has experienced lawyers who can help you; for more information please contact James Crighton via e-mail or by phone on 0207 611 4848.