Distribution Arrangements
Distribution Agreements
A distributor is often given the exclusive right to sell a product within a particular territory. This is an exclusive distributorship.
A distributor is in business on his own account and may be more motivated, as he takes on additional business risks. A supplier will generally not be liable for the distributor’s activities, in contrast to the position with an agent.
Common Obligations
Typically, the distributor will be obliged
- to purchase the goods from the supplier only;
- not to deal in competing goods;
- to use best endeavours to promote the goods;
- not to manufacture goods of the same or similar type.
Legal Relationships
In the supplier-distributor relationship, the distributor and the supplier stand at arm’s length in a commercial relationship. Subject to certain competition law restrictions, they have considerable freedom to decide the terms and conditions of their relationship.
Agency Contrasted
Unlike a commercial agent (under a commercial agency arrangement), a distributor is an independent operator. It takes its own risk and trades on its own account with third parties.
Types of Distributorship
- An exclusive distributorship gives the distributor exclusivity in relation to the supply of the supplier’s products or services within the defined territory.
- Sole distributorships are arrangements by which a single distributor is appointed within a territory, but whereby the supplier reserves the right to sell directly.
- A non-exclusive distributorship gives the supplier the freedom to sell and appoint other distributors.
Export Distribution
A sole distribution agreement may be entered between an exporter and a manufacturer. A non-exclusive export distribution agreement involves the supply of goods by the manufacturer to the exporter / distributor without exclusivity.