Distribution agreement

A distribution agreement (or distributor contract) is a legal agreement between a supplier of goods and a distributor of goods. The supplier may be a manufactuer, or may itself be a distributor reselling another's goods.

Distribution agreements may be categorised as either exclusive or non-exclusive. In an exclusive distribution agreement, the supplier will grant to the distributor exclusivity over a particular territory and/or product line and/or sales channel. The usual quid pro quo for exclusivity will be some kind of performance obligations.

Distribution agreements often incorporate terms and conditions of supply, sometimes in the body of the agree and sometimes as a schedule or annex to the agreement. These should cover all the nitty-gritty concerning supplies, including the delivery of goods, the transfer of risk in and title to the goods, inspection requirements, returns, and so on.

Distribution agreements can fall foul of competition law, and some care should therefore be taken with their drafting.

Common issues to consider when drafting an distribution agreement are:

• the territorial or other scope of the agreement;
• non-exclusivity or exclusivity (taking into account competition law);
• non-compete obligations (taking into account competition law);
• minimum performance obligations;
• reporting obligations;
• marketing rights;
• trade mark licensing;
• the applicable terms and conditions of sale;
• the circumstances in which the agreement may be terminated; and
• the consequences of termination.

Informal understandings often lead to misunderstanding. The process of creating and negotiating a contract helps to ensure that the parties really do agree upon the terms of the deal. Equally important, where something does go wrong, a written agreement will usually help.

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