It is usual in a distributorship agreement for either the agreement itself to set out the terms upon which the products are sold by the supplier to the distributor, or to refer to the standard terms and conditions of sale of the supplier. In both cases such terms will usually include provisions relating to, amongst other issues, the passing of title and risk, payment, and the supplier’s liability in respect of damaged or defective products. Unsurprisingly, they will invariably favour the supplier if properly drafted.
Where products are sold by suppliers on their standard terms and conditions of sale, the supplier should not assume that its terms and conditions will automatically apply. In order for the supplier to benefit from the provisions of the terms and conditions:
- The agreement should expressly refer to the sale of the products on the supplier’s standard terms and conditions.
- It should be made clear in the distributorship agreement which document (the agreement or the terms and conditions of sale) prevails in the event of conflict between the two. Not to do so will provide ambiguity and uncertainty to both parties if a conflict arises.
- The terms and conditions should be properly incorporated into each order made under the distributorship agreement. This is because a distributorship agreement acts as a framework agreement under which each order that is accepted constitutes a separate contract between the parties.
- The supplier may also need to ensure that it has laid a paper trail of a copy of its terms and conditions being provided to the distributor, if it has not included the terms and conditions as an annex to the distributorship agreement.
Why does it matter?
A supplier should seek to avoid a situation where it wishes to rely on the provisions of its terms and conditions of sale to claim a breach by the distributor, but then finds they are not applicable because they have not been properly incorporated into the distributorship agreement. In such a situation the supplier is unlikely to be adequately protected against the distributor and may have no way out of the distributorship agreement at that time.
Equally a distributor will be looking to see if it can take advantage of the right of set off – setting off its claims for damages for wrongful termination of the distributorship agreement against the supplier’s unpaid invoices.
Ultimately each party to a distributorship agreement should be familiar with the terms upon which it is buying or selling the products. As with most contracts, when the arrangement is going well the parties will look to rely on the provisions of the agreement far less than when the arrangement is no longer working.