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Getting products
to customers is vital for many businesses. Some exporters use
distributors, others agents. For some the distinction is blurred. I
n
business this is not a problem. In law it can be a different story.
In 1999 the
Appeal Court ruled between two packaging companies. The Italian claimant
was a manufacturer. The English defendant acted as a manufacturer, but
also imported the claimant’s goods into the UK. The defendant failed to
pay for some goods. The claimant sued. In return the defendant claimed it
was the claimant’s agent (not a distributor). Accordingly, under the
Commercial Agents Regulations it was entitled to unpaid commission and compensation
following termination of the agency agreement between the parties.
The court decided
for the claimant. Whilst the claimant was happy for the defendant to act
either as a distributor or as an agent, the defendant had chosen to act as
a distributor. Its actions were inconsistent with those of an agent.
If a person acts
as both a distributor and an agent for the same supplier/principal, there
is likely to be uncertainty and, if the Regulations apply, a great cost to
the supplier. This is because the Regulations protect agents.
It is therefore
important to make clear if someone is acting as a distributor (with few
rights) or as an agent (with many rights). This
can be achieved by using a written contract. A distributorship agreement
should specify the duration of the agreement and as to how (if at all) it
may be extended. It is also important to determine the status of the
distributor.
If the
distributor is appointed on an exclusive basis then the parties usually
intended that only he will be able to sell the goods in a particular
territory or to specific customers. In the absence of a contractual
provision to the contrary, the exporter cannot seek orders in that
territory or from such customers. Nor can the exporter appoint another
distributor.
This changes
where the appointment is made on a sole basis. Here the goods can be sold
either by the manufacturer or the distributor in the territory or to
particular customers. But the manufacturer cannot appoint another
distributor unless there is an indication to the contrary. If the
appointment is non-exclusive, the supplier can seek orders and appoint any
number of distributors.
Of critical
importance will be the terms on which the goods are sold by the exporter
to the distributor. Often the exporter will not have standard terms and
conditions of sale on which it can rely. Even where standard terms exist,
they are rarely properly incorporated into the agreement.
It is also useful
for the supplier if the agreement sets out the obligations of the
distributor to promote the products in the market. In particular will
there be a minimum performance obligation on the distributor?
One subject that
is often overlooked is the possibility of the goodwill associated with the
product shifting to the distributor during the lifetime of the agreement.
This was the subject of a recent High Court decision which went against
the US manufacturer of Snorenz.
If the
distributor is to create packaging, the agreement needs to provide for
copyright in the packaging to be owned by the supplier. At the same time
the distributorship agreement should require the packaging to carry the
supplier’s own name. The agreement should also prohibit the distributor
from obliterating the supplier’s name on the packaging.
Taking these
steps should assist a supplier in retaining ownership of the goodwill in
the territory where a distributor has been appointed. As
nothing lasts forever, the agreement needs to state on what grounds the
manufacturer can terminate the agreement and deal with the consequences of
termination.
When the
distributor is in the UK and the agreement is subject to English law, then
following termination no-fault compensation will not be payable on
termination (unlike the case of an agent). If the distributor is outside
the UK or the law of another European country applies, care may be needed.
For example, German law protects distributors in a similar way to agents
following termination of the agreement. As a result a distributor can
claim no-fault compensation.
Whatever the
situation - agent and distributor or agent or distributor - the
need to be clear is vital.
--oo0oo--
This Guidance Note was supplied by Stephen Sidkin and
posted with his permission. It first appeared in the March 2002 Edition of
Overseas Trade published on behalf of Trade
Partners UK.
Stephen
Sidkin is a Commercial Law Partner with Fox
Williams, a law firm in the City of London
Stephen can be contacted at Fox Williams, Ten
Dominion Street, LONDON, EC2M
2EE,
Tel:- (020) 7628 2000; Fax:- (020) 7628 2100
© Fox Williams
2002
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