Distributors gain a new power

July 25, 2013

This article was originally written for and featured in Packaging News.

Slowly but surely English court judgments are turning to favour distributors.

The latest case to do so featured Manchester United branded fragrances and toiletries which were supplied by a UK supplier (which held the licence from Manchester United) to a Singaporean distributor.

The distributorship agreement between supplier and distributor was for significant parts of the Middle East, Asia, Africa and Australasia.  Before entering into the agreement and whilst it was performed the supplier made various representations to the distributor. Although the distributor relied on these representations, some of them were untrue.

Equally unsatisfactory were the actions of the supplier in that the supplier:

  • made delays in the supply of the products;
  • withdrew some products after the distributor had started to market them;
  • failed to respond as it should have to the distributor’s enquiries;
  • tried to take back certain rights granted to the distributor;
  • provided false information to the distributor as to the price at which the products were being marketed in Singapore.

As a result the distributor decided that it could no longer accept the supplier’s actions.

A serious breach of the distributorship agreement by the supplier bringing the agreement to an end was alleged by the distributor. The distributor claimed damages.

The supplier and the distributor had prepared the distributorship agreement. Consisting of just 8 clauses, it could best be described as a short document. It was effectively “term-lite” – in length not covering much more paper than the size of a large envelope.

The Court decided that the various breaches were not particularly serious with one exception.

This was because the Court considered that a duty of good faith and fair dealing was to be taken as implied into the distributorship agreement. Effective communication and co-operation between supplier and distributor was part of this duty in their performance of the agreement. By entering into the distributorship agreement in the first place the parties were bound to work together.

So far as the Court was concerned, good faith and fair dealing are determined:

  1. by the relational nature of the agreement; and

  2. by the standards of conduct to which, on an objective basis, the parties must have been expected to comply without their being stated.

The Court gave judgment for the distributor in its claim against the supplier for breach of an implied duty of good faith in the provision of information. As a result, the distributor was able to claim damages for wasted expenditure and for misrepresentation.

The significant failures of the supplier to communicate and be honest about its own contractual and production positions enabled the distributor to overcome the fact that the distributorship agreement was silent on these issues.

Does this mean that in the future distributorship and their relational agreements will include express declarations that the supplier and distributor will deal with each other in good faith? Possibly.

Can distributors be expected to rely on this recent decision when seeking to tackle alleged failures by their suppliers in situations where the distributorship agreements in question are lax as to the express obligations of suppliers? Probably.

Should supplier and distributor look to state expressly in their distributorship agreement the issues which are important to them so as to reduce uncertainty and the likelihood of future litigation? The answer is blindingly obvious unless either has a burning desire to waste management time and incur legal fees.


Related pages:

Accentuate Limited v Asigra Inc _ A case of goods v services and the effect of a foreign arbitration claim on the agent more

Agency, Distribution and International Trade more

Commercial more

Commercial Team more

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