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SEQ Legal
Sample Distribution Agreement1
...
AGREEMENT:
1.
Definitions and interpretation
1.1
In this Agreement:
...
"Contract" means a contract between the parties for the supply of Products;
...
["Minimum Term" means the period specified as such in the Schedule;]
["Minimum Quantity" the minimum value of Products (calculated using the
Prices) that the Distributor must purchase from the Supplier [during each Year of
the Term] as specified in the Schedule);]2
"Order" means a request for Products issued by the Distributor to the Supplier;
"Prices" means [the Supplier's standard distributor-specific list prices for the
Products [as published on the Supplier's website from time to time / as annexed
to this Agreement and varied by the agreement of both parties from time to
time]];
1
This distribution agreement template is designed for use in relation to territorially exclusive distribution
arrangements between Suppliers and Distributors operating at different levels of the supply chain. It covers
both the general terms upon which a distributorship will be granted, as well as the specific terms
concerning the purchase of products from the Supplier. It is a more basic version of the "premium"
document available on our website.
This template is or may not be suitable for use in relation to: non-exclusive distribution agreements,
selective distribution agreements, or exclusive distribution agreements relating to motor vehicles.
This template has been drafted to aid compliance with the provisions of UK and EU competition law relating
to exclusive distribution arrangements. Specifically, it is designed to aid compliance with the provisions of
Commission Regulation (EU) No 330/2010 on the application of Article 101(3) of the Treaty on the
Functioning of the European Union to categories of vertical agreements and concerted practices – better
known as the Vertical Agreements Block Exemption (the "VABE"). The VABE exempts certain agreements
from the full rigours of UK and EU competition law. However, if either party's market share exceeds 30%, or
if a distribution agreement contains certain prohibited provisions, or in certain other circumstances, an
agreement will automatically fall outside the VABE. If you edit the restrictions on the parties in this
template, or add new restrictions, that may bring your agreement outside the ambit of the VABE.
A detailed exposition of the application of the VABE is beyond the scope of this note. You can see the full
VABE here: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2010:102:0001:0007:EN:PDF
Competition law is a complex area of law. For this reason, before entering into a distribution agreement,
you should always consider taking specialist legal advice, particularly if the agreement is exclusive or
selective. If the market share of the Supplier or the Distributor does or may exceed 30% of the relevant
market, you should always take specialist legal advice. Similarly, if the Supplier and Distributor operate at
the same level of the supply chain, or if they are competitors, or the Agreement forms part of a "selective
distribution system" within the meaning of the VABE, you should take advice.
2
The Minimum Quantity may, in the alternative, be defined by reference to the sales by the Distributor to
customers. In some distribution agreements, the Minimum Quantity will increase over time. If a long
Minimum Term is used, it will be more important to the Supplier to have a robust Minimum Quantity
provision.
"Product Liability Claim" means any claim, dispute and/or proceedings
resulting from or arising in connection with any death, personal injury or damage
to property caused in whole or part by a failure of the Products to comply with the
warranties in Clause [11];
"Products" means the products which are purchased by the Distributor from the
Supplier under this Agreement (details of which are set out in the Schedule);
"Reserved Territories" means all countries, territories and areas excluding the
Territory, being countries, territories and areas in respect of which the Supplier
may from time to time appoint another exclusive distributor and those countries
and areas which the Supplier has reserved to itself;
...
"Territory" means the territories and areas specified in the Schedule; and
...
2.
Appointment and Term
2.1
The Supplier hereby appoints the Distributor as its exclusive distributor for the
Products in the Territory during the Term.
...
3.
Exclusivity3
3.1
The Supplier will not:
3
(a)
appoint any other person as its distributor of the Products in the Territory;
(b)
itself supply the Products in the Territory; or
Exclusivity provisions are subject to regulation by competition law. Generally, exclusivity provisions will be
permissible if they fall within the terms of Commission Regulation (EU) No 330/2010 on the application of
Article 101(3) of the Treaty on the Functioning of the European Union – better known as the Vertical
Agreements Block Exemption ("VABE").
Prohibited provisions (which will automatically bring the whole agreement outside the scope of the VABE)
include "...the restriction of the territory into which, or of the customers to whom, a buyer party to the
agreement, without prejudice to a restriction on its place of establishment, may sell the contract goods or
services...".
However, there are some specific exceptions to this prohibition. The following are permissible: "(i) the
restriction of active sales into the exclusive territory or to an exclusive customer group reserved to the
supplier or allocated by the supplier to another buyer, where such a restriction does not limit sales by the
customers of the buyer, (ii) the restriction of sales to end users by a buyer operating at the wholesale level
of trade, (iii) the restriction of sales by the members of a selective distribution system to unauthorised
distributors within the territory reserved by the supplier to operate that system, and (iv) the restriction of
the buyer's ability to sell components, supplied for the purposes of incorporation, to customers who would
use them to manufacture the same type of goods as those produced by the supplier". See Article 4 of the
VABE. Hence the references to "active" supplies in this draft Clause.
Another prohibited type of provision which may be relevant to distribution arrangements involving
components is set out in Article 4(e): "...the restriction, agreed between a supplier of components and a
buyer who incorporates those components, of the supplier's ability to sell the components as spare parts to
end-users or to repairers or other service providers not entrusted by the buyer with the repair or servicing
of its goods".
(c)
supply the Products to any person for resale, save where that person is
contractually restricted from actively supplying the Products in the
Territory during the Term.
3.2
The Distributor will not actively supply the Products in the Reserved Territories.
[3.3
The Distributor will not for the lesser of a period of 5 Years from the Effective
Date and the Term:
(a)
purchase the Products from any person other than the Supplier; or
(b)
market, distribute or sell any products which compete with the Products.]4
4.
General obligations
4.1
The Distributor will during the Term:
(a)
use [all]5 reasonable endeavours to market, distribute and sell the
Products in the Territory;
(b)
[maintain sufficient stocks of the Products, sufficient facilities, and
adequately trained personnel, to meet customer demand in the Territory
and to ensure that the Distributor is able to fulfil its obligations under this
Agreement].
...
5.
Marketing
5.1
The Distributor will:
(a)
be responsible for marketing, advertising and promoting the Products in
the Territory;
(b)
display or distribute as appropriate all marketing, advertising and
promotional materials reasonably provided by the Supplier to the
Distributor;
[(c)
comply with all reasonable requests from the Supplier in relation to the
marketing, advertising and promotion of the Products.] 6
5.2
The Supplier will, where mutually agreed, participate with the Distributor in fairs
and exhibitions in the Territory.
6.
Reporting7
The Distributor will during the Term prepare and keep appropriate, accurate and
4
If you wish to include alternative non-compete obligations, you will need to look very carefully at the
provisions of Article 5 of the VABE (and the definition of "non-compete obligation" in Article 1).
5
"All reasonable endeavours" is a higher standard of obligation than "reasonable endeavours".
6
In some cases the Supplier might ask for more than simply a budget of third party expenditure; in other
cases there will be no requirement at all and this provision can be omitted.
7
Reporting obligations vary quite widely from agreement to agreement, and you will need to adapt the
suggested clauses somewhat.
up-to-date accounts and business records (including [insert details]) and within
[10] Business Days following receipt of a written request from the Supplier,
supply to the Supplier copies of any or all of these accounts and records.
7.
Orders and Contracts
7.1
Unless otherwise agreed in writing by the parties:
(a)
the terms and conditions of this Agreement are the only terms and
conditions upon which the Distributor will purchase the Products and they
will be incorporated into each Contract to the exclusion of all other terms
and conditions;
(b)
any reference to any of the Supplier's
in any document forming part of or
have the effect of incorporating any
Agreement, nor of forming any other
purchase of the Products.
or Distributor's terms and conditions
evidencing this Agreement will not
such terms and conditions into this
contract between the parties for the
...
8.
Delivery, risk and title8
...
9.
Prices and payment
...
[10.
Performance obligations9
The Distributor will during each Year:
11.
(a)
place Orders with the Supplier in respect of at least the Minimum Quantity
of Products (acting reasonably); and
(b)
enter into Contracts with the Supplier in respect of at least the Minimum
Quantity of Products (providing that the Distributor will not be in breach of
this Clause [10(b)] if the failure arises out of the unreasonable rejection of
one or more Orders by the Supplier).]
Warranties
...
8
Two alternative Clause 8.1s are suggested. Under the first Clause 8.1, the Distributor is responsible for
delivery etc.; under the second, the Supplier is responsible. The first is similar, although not identical, to EX
WORKS delivery under Incoterms 2000. Obviously, only one of the Clause 8.1s should be used, and you
may well need to significantly rewrite the provision.
9
The quid pro quo for territorial exclusivity is commonly some kind of performance obligations. The structure
of such obligations will vary considerably from agreement to agreement.
12.
Product Liability Claims10
12.1
[Subject to the Distributor's compliance with Clause [12.2],] the Supplier hereby
indemnifies and undertakes to keep indemnified the Distributor against any
losses, damages, claims, obligations, liabilities, costs and expenses (including
legal fees and costs and expenses incurred in investigating, preparing, defending
or prosecuting any litigation, claim, proceeding or demand) arising out of or in
connection with any Product Liability Claim, except to the extent that the
liabilities, losses, costs, damages and expenses arise as a result of the default of
the Distributor [or any third party].
...
13.
Limitations and exclusions of liability
...
14.
Legal compliance
14.1
The Distributor warrants that it has notified the Supplier of, and undertakes to
keep the Supplier reasonably notified of, all applicable laws, rules and regulations
in the Territory affecting:
14.2
15.
(a)
the design, composition and manufacture of the Products; and
(b)
the packaging and labelling of the Products.
Without prejudice to the Supplier's obligations under Clause [11], the Distributor
must comply with all applicable laws, rules and regulations in the Territory
relating to, and must obtain all licences, permits and approvals required in
relation to:
(a)
the marketing, promotion and advertising of the Products;
(b)
distribution, sale, supply and delivery of the Products; and
[(c)
the import, export and re-export of the Products.]11
Termination
...
16.
Effects of termination
...
[16.4 On termination of this Agreement:
(a)
the Supplier will have an option to buy from the Distributor all (but not a
portion of) the Products that are: (i) in the possession and control of the
Distributor; and (ii) in resaleable condition;
10 Distributors will often require a product liability indemnity, as they usually have little control over this kind
of risk.
11 You should ensure that this is consistent with Clause 8.1.
17.
(b)
if the Supplier exercises this option, the Supplier must pay to the
Distributor an amount equal to the original amount paid by the Distributor
to the Supplier in respect of those Products (excluding original delivery
costs);
(c)
the option must be exercised within [1 month] of the date of effective
termination and, if the option is exercised, the purchase must be
completed within [2 months] of the date of effective termination;
(d)
if the option is exercised, the Supplier will arrange and pay for the return
of the Products;
(e)
if the option is not exercised within the [1 month period], the Distributor
will be entitled for a period of [12 months] from the date of effective
termination of this Agreement to continue to sell and distribute the
Products it held in stock at the date of effective termination; and
(f)
promptly following the exercise of the Supplier’s option or on the
expiration of the [12th month] following the date of effective termination
(which ever is earlier), the Distributor will cease to sell and distribute the
Products, and will make all Products remaining in its possession or control
available for collection by the Supplier.] 12
General
...
This is a sample version of an SEQ Legal distribution agreement template.
Omitted sections of the template are indicated by ellipses. You can purchase a
full SEQ Legal distribution agreement document from:
http://www.template-contracts.co.uk/acatalog/distribution_agreements.html
12 This suggested sell-off provision may well need to be amended, possibly heavily, to suit a particular
distribution arrangement.