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Suppliers supply and distributors distribute - a regular blog, July 2019

Notice terminating the distributorship agreement arrives.  In truth, the distributor has been expecting it for a while – all good things must past etc. 

But what if the notice is defective?  In particular, what if the distributorship agreement allows for the agreement to be terminated by the supplier giving, for example, three months’ notice to expire at the end of a calendar month but the supplier fails to do so? 

In this situation, the notice of termination given by the supplier is defective.  As a matter of English law, this means that the notice of termination is of no effect – it is as if it was never sent. 

At this point in time, the distributor may consider whether the failure of the supplier to give proper notice of termination can work to its advantage.  The distributor can be expected to reach for its copy of the distributorship agreement and to consider the post-termination provisions in particular with regards to the sale or disposal of stock held at termination.  If the distributor is being cute (but not in a Disney like sense), a distributor may even give thought to the possibility of seeking to claim damages from the supplier for the failure to give proper notice and then set off those damages against amounts owing by it to the supplier for goods delivered! 

Sometimes the distributor will respond by informing the supplier that whilst the notice given by the supplier was defective, the distributor is prepared to treat the defect as “cured” if the supplier confirms that the notice period will expire on the date on which it would have expired had it not been defective. 

There are, however, dangers in this approach.  The principal danger is that it opens up the possibility of the supplier seeking to argue that the distributor has accepted that the distributorship agreement is coming to an end and is simply trying to negotiate the date on which termination occurs.  This can have very serious implications if it impacts on:

  • the provisions in the distributorship agreement concerned with, for example, performance or the right of the distributor to dispose of stock post-termination; or
  • the legal entitlement of the distributor to claim compensation for the loss of the distributorship; or
  • both. 

Instead, the better way of proceeding is for the distributor to explain to the supplier that the notice given by the supplier is defective and request that a new notice of termination is given with the correct period of notice.