If the answer to this question is yes, you will need to consider your current agency or distributorship agreement to ascertain whether your principal or supplier has reserved the right to sell products online.
As an agent or distributor, you should check whether you have been appointed on an exclusive, sole, or non-exclusive basis. Subject to the other terms of the agreement, the difference between these categories concerns the amount of protection granted to you in respect of competition.
If you are a sole distributor, no other distributors for the sale of the products in the territory can be appointed by your supplier but the supplier reserves the right to sell the products in the territory itself. It follows that if you have been appointed as a non-exclusive agent or distributor, you have no protection from competition in the territory: the supplier is free to appoint others or to sell the products in the territory itself.
As such, in either case, you’re in a hole! Your principal or supplier can sell online without being in breach of these agreements.
However, if you have been appointed on an exclusive basis in a particular territory then your principal or supplier will be in breach of the agreement unless the agreement expressly reserves the right for it to operate a transactional website.
Entitlement as an agent
In this situation, you will be able to claim that the agency agreement has been terminated and claim a termination payment under the Commercial Agents Regulations. Remember that unless the agreement expressly provides that an indemnity will apply, you will be entitled to claim compensation for the termination of the agency. Unlike an indemnity, compensation is uncapped and therefore your entitlement could be considerable!
Entitlement as a distributor
Your position is likely to be less satisfactory than that of an agent. But there can be some possible rights.
First, if the distributorship agreement is for a fixed term you may be able to look to recover the net loss that you have suffered by reference to the unexpired years of the agreement. Your supplier’s exposure could therefore be significant if the agreement still had a large number of years to run.
Second, if the distributorship agreement is for an indefinite term, you should look to claim that the establishment of the transactional website is a repudiatory breach which brings the agreement to an immediate end. This will then entitle you to claim your net loss by reference to the notice which should have been given in order to bring the distributorship agreement to an end in accordance with its terms.
Third, the laws of some countries, may entitle you to compensation equivalent to (or even greater than) that given by law to agents. This can be the case in countries such as Belgium, Germany, Spain and Switzerland as well as those outside of Europe.
What’s likely to happen
Some manufacturers faced with any of these situations will look to take the commercial risk and proceed regardless.
Others who are more circumspect may seek to renegotiate the terms of the agreement with you.
A third type of principal or supplier may look at the agreement itself. Although it does not provide for the manufacturer to establish a transactional website, it may contain provisions which give the manufacturer some room to manoeuvre. For example, what are your contractual duties whether as agent, or distributor? If these have not been performed, it may be possible for the manufacturer to claim breach of the agreement before facing a claim for breach itself as a result of its website.
Even if it is not open to your manufacturer to claim breach, beware that non-performance of certain contractual terms may be used to “manage out” you as an agent or distributor.
Furthermore, as an agent, as well as contractual obligations you will owe statutory and common law duties to the manufacturer. These too may be considered by the principal for the opportunities that they may present.
In the absence of suitable contractual terms which may provide leverage as against the agent or distributor, the principal or supplier is likely to look carefully at some of the defined terms of the agreement. If the territory granted to you is overseas, is it possible that the website can be configured so that orders from customers in certain countries are declined? Alternatively, what is the definition of the “products” which are the subject of the agreement? It may be possible to offer different products through the manufacturer’s website. It may also be possible for the manufacturer to vary the products which are covered by the agreement with you.
For many principals and suppliers, transactional websites selling direct to consumers are the way to go. Being prepared for this possibility may therefore serve you well.
Jane Spiers is an associate and Stephen Sidkin is a partner, both are in the Commerce and Technology Department of Fox Williams and members of the agentlaw team.