Businesses change. Distributorship agreements are superseded by events. In a new blog, partner and chair of Fox Williams’ agentlaw team, Steve Sidkin, discusses the value of distributorship agreements. Do you regularly review yours?
“Easy in but not easily out, as the lobster said in the lobster pot”.
C S Lewis’s proverb demonstrates well the difficulties that each of the supplier and distributor can find themselves in by entering into a distributorship agreement without giving thought as to what is to happen on termination.
In one case, a distributorship agreement made clear that:
“any disputes arising under this agreement will be resolved amicably by negotiation but any matter than [sic] cannot be resolved by mutual agreement shall be referred to Rules of Arbitration of the International Chamber of Commerce and consideration will be given to the laws of England”.
As it turned out arbitration using ICC Rules did not suit the wronged party. Nor did the vague reference to English law.
In another case, the distributorship agreement provided for:
“the formation, existence, construction, performance…validity and all aspects whatsoever of this Agreement or any term of this Agreement shall be governed by the general principles of law as restated in Unidroit Principles of International Commercial Contracts, and by the 1980 Vienna Convention on sales of goods”.
It further provided that:
“the parties irrevocably agree that, the competent body to settle all disputes between them arising out of or in connection with this Agreement will be an arbitral tribunal in Stockholm composed by three arbitrators, one nominated by each party and the third by the two arbitrators so designated…the arbitration proceedings shall be governed by Arbitration Rules of the The Arbitration Institute of the Stockholm Chamber of Commerce…”.
But neither party had any connection with Sweden and the lack of a clear statement of the substantive law of the agreement left the outcome at best a lottery.
As such these issues matter because if the distributorship agreement proves to be of significant value to either supplier or distributor, there can be value to be gained - or lost - in disputing its termination. This can be so even where the law governing the terms of the agreement does not expressly provide for compensation to be paid when the agreement is ended in accordance with its terms. It can also be so when monies are owing by distributor to supplier and the distributor seeks to set off the monies owed against the “loss” that it has suffered as a result of the distributorship agreement coming to an end.
By claiming rights when arguably they do not exist, the claimant is taking advantage of the failure of the other party to consider at the start of the relationship whether the governing law and disputes resolution provisions of the agreement will be, at worst, neutral.
However, it is also the case that if it was necessary to accept such provisions in the first place in order that the distributorship agreement could be made, perhaps the benefit gained during the agreement’s lifetime will have made it worthwhile in any event.
But don’t ask the lobster for its view!