Distribution Agreements II

Supplier’s Trading Obligations I

The supplier is usually obliged to supply the relevant goods as defined by the agreement. The agreement may require the goods/ product to conform to a defined specification.

The supplier may be obliged to complete orders promptly. The supplier is likely to undertake to use reasonable endeavours to meet the distributor’s requirements for the goods and to fulfil the orders within a reasonable time.

The agreement may provide that the distributor may or must notify the supplier in writing of its forecast of the quantities of each type of goods that it expects to buy for delivery during the ensuing period, by a certain date before commencement of the period.


Supplier’s Trading Obligations II

The supplier may undertake to use its best or all reasonable endeavours to meet all orders for the relevant goods forwarded to it by the distributor in accordance with its terms of delivery. This obligation may be limited to the extent that the orders do not exceed the forecast for each type of goods given.

The obligation may be framed in terms of using reasonable endeavours to supply the goods, absent circumstances beyond the supplier’s control. The supplier is unlikely to agree unconditionally to meet all demand in all circumstances.


Distributor’s Obligations

The distributor is usually obliged actively to offer the relevant goods/ services in the market. It may undertake that a minimum value will be ordered within a certain time.   Targets may be set out for sales over a  future period of years. The supplier may have a right of termination if sufficient orders are not placed within a certain period.

There may be an obligation on the distributor to keep and maintain a trained sales staff. There may be a minimum spend which is required to be undertaken on marketing.There is likely to be an obligation to maintain adequate stocks of the goods in order to meet the requisite demand.
The distributor will be obliged to buy the relevant goods and/ or services from the supplier and not from a competitor. There may be ongoing obligations to give estimates of requirements for forthcoming periods, if there is a regular purchase pattern. There may be an obligation to give a notice of any variation in requirements.

The basis of payment for the goods and/ or services will be set out. The distributor is likely to be liable for the cost of transport and insurance, as the buyer. Where the supplier transports the goods, he may do so as an agent of the distributor.


Promotion

The distributor is usually obliged to promote the goods or services. The distributor is likely to undertake in an exclusive agreement, to use best endeavours to promote the sale of the goods and/ or services within the territory. He may undertake to satisfy market demands. The supplier is likely to want to approve the marketing material.

This obligation may be defined in terms of expenditure or in other terms. It may be obliged to undertake a minimum number of visits for the purpose of seeking business. There may be a minimum spend required on promotion. The distributor’s marketing materials are likely to be subject to approval by the supplier.

The supplier may undertake to provide the distributor with samples, catalogues, brochures and up-to-date information on the goods and/ or services, as it considers appropriate. It may endeavour to respond to technical enquiries made.

Covenants and warranties may be given regarding promotion and marketing, including confirmation that the distributor complies with legal requirements regarding its establishment and trading in the relevant territory.


Promotion Clauses

A distribution agreement will commonly provide the following specific promotional obligations on the part of the distributor:

  • to be responsible for advertising and promoting the goods and/ or services in the territory; the distributor may not use any advertising materials or promotional literature without the supplier’s prior written consent;
  • to submit an annual advertising and promotion programme to the supplier for its approval;
  • to arrange, at its own expense, and spend at least a specified amount on the implementation of the programme;
  • to display advertising materials and other signs provided by the supplier; observe all directions and instructions given to it by the supplier for promotion and advertisement of the goods and/ or services; and
  • not to make any written statement as to the quality or manufacture of the goods and/ or services without the prior written approval of the supplier.

In some cases, where the franchise is well extablished internationally, the franchisor may promote the brand. It may do so exlcusively, or in tandem with the franchisee. In these cases, the franchisee will be required to contrribute to the franchisor’s  marketing and promotion costs.


Support

At the outset of the agreement, the supplier/ manufacturer may make available to the distributor, the services of an employee who is suitably qualified in order to assist in setting up the business/ establishment. The services may be provided at no extra cost. Expenses such as transport and the salaries of relevant personnel may be the responsibility of the distributor.

The supplier may undertake to supply equipment, know-how, technical and other support, training, promotional material, models and samples as may be required for the operation of the business and sale of the goods by the distributor.

There may be a provision regarding spare parts, after sales service and follow up depending on the nature of the goods. The agreement may provide that after sales support is to be provided. It may require to be supported by approved, promotional materials.

The supplier will usually undertake to provide the distributor with information on the advertising and promotion. The supplier may agree supply any available promotional and advertising material that the distributor reasonably requests, at the cost of one or the other. It may agree in principle to participate with the distributor in fairs and exhibitions in the Territory.


Ongoing Obligations

The supplier may require information in relation to key matters on an ongoing basis. The agreement may oblige the distributor to maintain records of sales and of customers. The supplier may have the right to inspect, audit and monitor performance and sales.

The distributor is usually responsible for obtaining any necessary import licences or permits necessary for the entry of the goods and/ or services into the territory, or their delivery to the distributor. The distributor is usually responsible for any customs duties, clearance charges, taxes, brokers’ fees and like charges payable in connection with the importation and delivery of the goods and/ or services.

The distributor may warrant to the supplier that it has informed the latter of all laws and regulations affecting the manufacture, sale, packaging and labelling of goods (and/ or services) which are in force within the territory. The distributor may be obliged to give the supplier as much advance notice as reasonably possible of any prospective changes in the relevant laws and regulations.

The supplier may warrant to the distributor that the goods and/ or services comply with the local regulations in force at the date of the agreement. On receipt of notice of a change in requirements, the supplier may endeavour or undertake to ensure that the goods and/ or services comply with any change in the local requirements by the date of implementation of that change, or as soon as is reasonably possible afterwards.


Conditions of Sale

The distribution agreement may specify the general terms under which individual sale contracts are concluded. As the distributor is not an agent of the supplier, it must not represent that is entitled to enter contracts or do anything on its behalf.   The supplier is not a party to a contract with any purchaser in the territory.

The distributor may be obliged to make it clear at all times that it sells on its own account and not as an agent of the supplier. The supplies not wish to become party to sale contracts with end users and there may be provisions to secure this position.

The supplier’s conditions of sale in force from time to time may apply to all sales by the supplier to the distributor under the distribution agreement. The conditions of sale that apply at the commencement may be set out. The supplier may wish to vary them from time to time.


References and Sources

Comercial Law Fidelma White  2nd Ed 2012 Ch 4

Enclylopaedia of Forms and Precedents Vol. 16 (4)

International Commercial Agency and Distribution Agreements: Case Law and Contract Clauses (AIJA Series) (2011) H

Distribution Agreements under EC Comptetition Law: Viktoria Robertson (2008)

International Agency, Distribution and Licensing Agreements (Commercial) Christou

Distribution Agreements Under the EC Competition Rules  2002   Korah  O’Sullivan