At the outset of a distribution agreement, what is to happen when the supplier–distributor relationship comes to an end is often the furthest thing from the parties’ minds. Initial arrangements can be informal and the minutiae of the agreement between the parties can be overlooked.
In a surprisingly large number of instances, the agreement can fail to be committed to paper at all! But even when a formal distribution agreement is signed by the parties, practical arrangements for dealing with what happens on termination may often not be included. These will be of vital importance at the conclusion of the parties’ relationship and consideration of them at the outset will save you time, and more importantly, expense in the later stages.
At the end of a distribution agreement, the distributor will be concerned predominantly with ensuring that it can continue to provide alternative supplies for its customers. On the other hand, regardless of the reason for termination, the supplier will wish to bring an end to the commercial relationship as soon as possible to enable it to pursue its future commercial objectives either through the appointment of a new supplier for the products in question or to move on to new ventures. Written distributorship agreements, where they exist, will ordinarily deal with the position in relation to payments due from the distributor to the supplier on termination. However, they can fail to address other practical matters. This could mean that far from obtaining a clean break and being able to concentrate on the future, you become embroiled in ongoing wrangling with the ex-distributor and are unable to access information held by the distributor which is vital to moving your business forward.
At the outset, therefore, the supplier (“you”) should consider what practical steps will need to be taken at the conclusion of the relationship and ensure that provision is made for these in a formal distributorship agreement. If included in an agreement, the failure of the distributor to comply will give rise to a simple action for damages in breach of contract alongside your other legal remedies.
The following factors should be considered by the supplier:
At a time when the relationship is likely to be frayed, if these practical matters are addressed upfront in the distribution agreement, on termination the parties will have a clear checklist of what needs to be concluded, how they are going to be dealt with, and the timescale in which they are going to be completed, minimising the potential for further dispute (and therefore, the further involvement of lawyers) and providing both parties with as swift and as clean a break from the relationship as possible.
Siân Barr is an associate in the Commerce and Technology department and a member of the agentlaw team. Sian can be contacted on sbarr@foxwilliams.com.