1. Distribution Agreements
Presented by
Stephen Wyer, George Green LLP
Head Office Birmingham Office
195 High Street, Cradley Heath, West Midlands, B64 5HW 43 Temple Row, Birmingham B2 5LS
Tel: (01384) 410410 Fax: (01384) 820065 Tel: (0121) 698 8532
DX: 20752 CRADLEY HEATH

2. DISTRIBUTION
FORCE MAJEURE
A distributor:
•buys goods on his own account from supplier/exporter;
•resells goods to customers in his own territory as an independent
contractor;
•adding a margin to cover his own costs and profit; and
•does not act as a channel of communication between the supplier and
the customer (no authority to create a contract between his own
supplier and the customer).
May be low risk way for supplier/exporter to expand business into new
markets/territories
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3. COMPARISON WITH AGENCY
FORCE MAJEURE
In comparison, an agent;
•is appointed by the supplier/exporter to negotiate and possibly
conclude contracts with customers on behalf of the supplier/exporter;
•is paid commission on the sales he makes, usually on a percentage
basis; and
•benefits from (and is burdened by) on-going relationship with supplier/
exporter.
Supplier/exporter has more control over an agent than a distributor but
retains more risk also
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4. ADVANTAGES
FORCE MAJEURE
• May be able to pass on risk associated with the products
• Not generally liable for any liability incurred as a result of the
distributor's activities (contrast with agency)
• Distributor may be more motivated to sell the stock purchased
(faces greater risk from failure to sell than agent)
• No need to have an established place of business within the
distributor's territory, which will reduce the supplier's administrative
costs (may also be beneficial for tax reasons).
• Only needs to monitor the account with the distributor (rather than a
number of customers)
• No compensation or indemnity is payable to a distributor on
termination of the distribution agreement under UK law (contrast
with agency)
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5. DISADVANTAGES
FORCE MAJEURE
• Less control over the activities of a distributor than an agent - not
suitable for products where contact with the ultimate customer, tight
control over marketing or control of the price of products is
essential
• The entire credit risk in respect of sales into an exclusive territory is
concentrated with an exclusive distributor - rather than with each
customer under an agency
• A distribution agreement is far more likely to be at risk from
competition law problems than an agency agreement (more later!)
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6. CONSIDERATIONS
FORCE MAJEURE
Must investigate financial health and commercial ability of
proposed distributor - Looking for :
•a good knowledge of the product area and a proven track record in the
territory;
•resources to purchase adequate volume of product, promote and
advertise and provide after-sales service;
•creditworthiness;
•no competing commitments which could hamper effective promotion
and sales of the contract products.
•No issue under local laws - laws governing the appointment and
operation of a distributorship vary from country to country
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7. EXTENT OF APPOINTMENT
FORCE MAJEURE
Exclusive: The supplier/exporter will neither sell itself, nor appoint any
other distributor to sell, into the exclusive territory
Sole: No other distributor will be appointed but the supplier/exporter
reserves the right to make its own sales into the territory
Non-exclusive: The distributor may be competing with third parties
and sales by the supplier/exporter
Selective: additional distributors are only appointed if they meet
certain criteria - suitable where enhanced service/advice required at
the point of sale (can cause competition law problems due to their
potentially exclusionary nature but may be justified)
Always ensure there is common understanding
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8. KEY TERMS
FORCE MAJEURE
Purchase and resale:
•Agreed volumes
•Forecasting
•Sales outlets
•After sales service
•Maximum (not minimum) resale price
Advertising and promotion:
•Commitment
•Approach
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9. KEY TERMS
FORCE MAJEURE
Flow of information:
•Sales
•Other relevant matters (e.g. local laws on packaging and labelling)
Intellectual property:
•Use of supplier/exporter IP (e.g. trade marks)
•Retention of ownership
Product liability:
•Pass liability to distributor (by indemnity)
•Supplier/exporter may still be liable under local law/regulation – cannot
be contracted out of
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10. COMPETITION LAW
FORCE MAJEURE
A “vertical agreement” under EU/UK competition law.
Illegal if intent or effect is anti-competitive.
May well benefit from block exemption but must avoid common pitfalls
so as to qualify
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11. TERRITORIAL RESTRAINT
FORCE MAJEURE
Supplier/exporter often seeks to restrict sales by distributor into certain
territories:
•Only permitted where restricted territory is reserved exclusively for
supplier/exporter or third party distributor
•Otherwise the restriction will be an illegal restraint on the free
movement of goods
•May restrict “active sales” only – a ban on passive sales will always
breach competition law (hardcore restriction)
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12. TERRITORIAL RESTRAINT - EXAMPLE
FORCE MAJEURE
Supplier/exporter appoints Party A to distribute in France:
•Blanket ban on A selling outside France = illegal
•Restriction on active sales by A into Germany where Party B has been
appointed as exclusive distributor = permitted
•Restriction on passive sales by A to German customers = illegal
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13. HARDCORE RESTRICTIONS
• Price-fixing or resale price maintenance - fixed or minimum resale
price prohibited (supplier may impose a maximum resale price, or
recommend a resale price) other than in certain limited
circumstances
• Territorial/customer sales restrictions
• Cross supplies between distributors within a selective
distribution system – must be freedom to purchase the contract
goods from other appointed distributors within the network (cannot
force distributors to purchase exclusively from a given source)
• Access to spare parts - the only prohibited restriction on the
supplier/exporter, who must be allowed to sell components as spare
parts to end users
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14. DISTRIBUTION
Proper agreement is crucial!
We can help!
Call Stephen Wyer on 01384 340513 or
e-mail swyer@georgegreen.co.uk.
Thank you!
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