Jan 24

Heading off a dispute with a distributor

Written by Jonathan Mortimer
Partner

DDI: 01423 726608
M: 07850 993952
E: jonathan.mortimer@raworths.co.uk

Selling your goods in a new and unfamiliar market can be a risky and costly venture, but entering into a distribution arrangement with a separate distributor can provide your business with a route to market, giving you access to new customers without committing to a presence in that territory.

If this works well, the arrangement can increase sales and enhance brand awareness outside of your usual sales area.  However, a breakdown in your relationship with your distributor can result in you facing reputational damage, confusion over who owns what and potential loss in sales. You may be left with goods you cannot sell.

Jonathan Mortimer, a partner in our Dispute Resolution team based in Harrogate, examines the options to ensure a dispute can be resolved swiftly with least damage to both parties.

Common causes of a dispute

Disputes with a distributor often arise as a result of a breach of contract and these can occur in a number of ways, for example:

• breach of exclusivity arrangements – whether by product or geography;
• pricing structures, payments, and deductions – where there is a disagreement over amounts payable and the policies for calculating payments;
• intellectual property infringement – such as involvement in counterfeiting or breach of confidentiality; or
• termination of a contract – perhaps prematurely or as the arrangement is being wrapped up.

In most cases, you will require a commercial solution which reduces any disruption to your business as quickly as possible.

Check the distribution agreement

A sensible first step is to review your distribution agreement, as this will set out the terms and conditions of the arrangement between you and your distributor. A well drafted agreement will be invaluable in ensuring that everyone is clear on the terms and expectations of the relationship, including if any dispute arises. Problems often arise where the agreement is:

• poorly drafted, for example a DIY effort; or
• is out of date and does not reflect custom and practice as your business has evolved.

If the agreement is poorly drafted, consideration should be given to whether it is possible to negotiate a resolution based on what was expected between the parties at the time of drafting. If this is not possible, alternative options may be available, such as protecting the legal ownership of intellectual property, or reviewing whether an injunction may be required to protect goods.

Check which jurisdiction applies

It is likely that an agreement negotiated by a distributor in the UK will state that any disputes will be resolved under the laws of England and Wales. If another jurisdiction is stated, it might be necessary to work with overseas lawyers to ensure the matter is dealt with under the correct jurisdiction.

Check time limits

In disputes where goods may be at risk, or reputational damage is at risk, time is of the essence and a fast resolution will be essential. There may be additional legislative time limits on bringing an action under a distribution agreement, and we will ensure any relevant time constraints are complied with.

Practical issues

Other practical issues may need to be addressed in the short term.  For example, if you are a food manufacturer, you will want to avoid a situation where valuable perishable food products sit undistributed in a warehouse, and ultimately have to be destroyed. It may be possible to negotiate to ensure that products are protected and returned as soon as possible or, if negotiations fail, it may be necessary to take action to seize any products which are at risk as a matter of urgency.

If you have concerns, that vital confidential information is at risk of being disseminated around the market and that this may negatively impact your brand, it may be possible to seek an injunction to reduce the impact on your business and your brand.

Do not forget to check your insurance arrangements to ensure valuable products are properly insured and any property where products are stored is maintained sufficiently to protect the products.

Options to resolve issues with a distribution agreement

Resolving a dispute through negotiation is likely to be the ideal scenario, as this enables you to maintain a steady sales flow, avoids having to find new a partner to work with and ultimately avoids what may amount to a costly dispute.

However, if it is not possible to preserve the relationship, then we can work with you to ensure that key concerns are addressed, and damage is prevented or mitigated. If a dispute cannot be resolved, then it is essential that a smooth exit takes place to minimise damage.

If negotiation is not successful, arbitration or mediation are alternative options before any dispute needs to go to court.

If all else fails, a final option may be to commence proceedings for a claim in breach of contract, including a claim for any damages that might have arisen. A judge will then decide how to resolve the dispute and may also consider making an order for costs.

How our Dispute Resolution team can help

If you experience the breakdown of a distribution agreement, we can help you look at the best options to resolve your dispute.

By taking early legal advice when a dispute arises, our experienced team can help you to resolve any issues that have arisen with the least disruption to your business, ensuring you continue to safeguard your rights and your product. Our team of experts will work with you to resolve a dispute, using whatever process is most suitable for your business.

For further information and assistance, please contact Jonathan Mortimer in our Dispute Resolution team on 01423 726616 or email jonathan.mortimer@raworths.co.uk.

Raworths is based in Harrogate, North Yorkshire.

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.

Published on 11 January 2024