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What should be the role of the distributorship agreement?

This may appear a strange question to ask. But there can be confusion between the distributorship agreement which serves as an umbrella agreement between supplier and distributor under which the parties sell and buy goods. It is also possible for a distributorship agreement to be the agreement under which the distributor acts as distributor for the supplier and the parties buy and sell goods under that agreement.

The two may look the same. But there is a difference.

Where the distributorship agreement is an umbrella agreement, it can be expected that it will set out the rights, duties, and obligations of each of the supplier and distributor. For example, the grant of exclusivity for the sale of a specific product range in a particular geographical area to a certain group of customers through a named channel to market. It must also make clear that the parties to the agreement will sell and buy goods.

However, each sale and purchase of goods will be a separate contract with its own terms and conditions.

English law does not require that a contract for the sale and purchase of goods is in writing nor even that there are express terms and conditions. Instead offer, acceptance, and the intention to create legal relations are the key components. The law – either by reference to the Sale of Goods Act, other relevant legislation, and the published judgments of the courts – will do the rest.

Unfortunately it is often apparent that this default position is insufficient. Instead what is needed are written terms and conditions of sale that set out the legal framework on which goods are sold and purchased.

So no problem where an umbrella agreement provides for goods to be sold by reference to the supplier’s terms and conditions of sale?

Unfortunately again not necessarily so. First, there is the issue of the proper incorporation of the supplier’s terms and conditions of sale into each contract for the sale of goods.

The issue of incorporation is sometimes addressed by a specific clause in the distributorship agreement which is intended to “knock out” any attempt by the distributor to incorporate its own terms and conditions of purchase or just the general law in to the sale contract. But a specific clause in the distributorship agreement will not be enough. Instead it is necessary for the supplier’s terms and conditions of sale to have their own provisions expressly excluding any attempt by the distributor to rely on anything other than the supplier’s terms and conditions of sale.

Second, (where the first issue had been addressed and the supplier’s terms and conditions of sale apply), it can be the case that as a result of what might generally be described as overzealous drafting, the provisions of the distributorship agreement conflict with those of the supplier’s terms and conditions of sale. The simplest way of dealing with this issue is to provide in the distributorship agreement that in the event of conflict the terms of the distributorship agreement will prevail over the supplier’s terms and conditions of sale. But the better approach is to eliminate any inconsistency between the distributorship agreement and the supplier’s terms and conditions of sale unless there is concern that the latter will not be property incorporated into the sale contract made by the supplier!

But what of the distributorship agreement where the distributor acts as the distributor for the supplier and the parties buy and sell goods under that agreement.

Whilst the above issue of incorporation is avoided, it is still necessary to ensure that the distributor does not seek to rely on the general law. But this alone will be insufficient – there remains a need to ensure that the distributorship agreement in this situation contains the provisions usually found in the supplier’s terms and conditions of sale. If is the distributorship agreement does not, sod’s law can be expected to kick in so that the supplier suffers where there is a gap.

And finally, as distributorship agreements are most commonly used in cross-border situations, despite what is stated in the distributorship agreement about it being governed and interpreted by English law with the English courts having exclusive jurisdiction to determine disputes, the distributor’s local law may contain mandatory rules of national law which override.

Happy distributing!