Avoiding a dispute with a distributor or supplier

Venturing into a new and unexplored market can pose significant risks and expenses for any business. However, partnering with a distributor or supplier can offer a strategic pathway into these new territories. Such collaborations enable your business to tap into an existing market and customer base without the need to establish a physical footprint in the region.

Should the arrangement proceed smoothly and successfully, there's potential for a significant boost in sales and brand recognition beyond your traditional sales territories. On the other side, conflicts with distributors or suppliers might expose you to the dangers of reputational harm, ambiguity regarding ownership rights, a downturn in sales, and the possibility of being stuck with unsellable inventory.

Common causes of disputes with a distributor

Disagreements with a distributor or supplier typically stem from contract violations, which can manifest in several forms, such as:

• Violating exclusive agreements related to product distribution or geographic territories
• Disputes over pricing, payment amounts, and the methods used to determine those payments
• Infringement on intellectual property rights, including participation in counterfeit activities or violating confidentiality agreements
• Ending a contract earlier than agreed upon or during the conclusion of the business arrangement

In most cases, finding a business-focused resolution is crucial to minimising any interruption to your operations promptly.

Check the distribution or supplier agreement

The initial action should involve examining your contract with your distributors or suppliers, provided such a contract exists. This agreement is expected to outline the terms and conditions governing the relationships between the involved parties. A thoroughly prepared contract will guarantee clarity on the terms and obligations for all parties, including the procedures to follow in the event of a disagreement.

Problems are more likely to occur if the distribution or supplier agreement is: poorly drafted, e.g., a DIY effort; or is out of date and no longer reflects the customs and practices of your business as it has evolved. 

If it is the case that your agreement is poorly drafted, then we will work with you to come to a resolution based on the expected outcomes for all parties as the time the document was drafted.

However, sometimes this won’t be possible. In this circumstance we would consider alternative options such as protecting the legal ownership of intellectual property or reviewing whether an injunction may be required to protect any goods. 

Through an evaluation of the strength and weaknesses of your position within the dispute, we will advise on the legal options in view of your commercial objectives. 

Check which jurisdiction applies

It’s important you know what jurisdiction applies so that you know what laws you’re under when resolving the dispute. 

It is likely that an agreement negotiated by a UK based distributor or supplier with state that any disputes will be resolves under the laws of England and Wales. 

Check time limits

Where a dispute involves goods that are at risk or reputational damage is a risk, time is key, and a quick resolution will be essential. It may be that there are additional legislative time limits on bringing action under a distribution or supplier agreement, and it’s important that you are aware of these.

In most contracts, time limits are described as Limitation Periods. Usually these are 6 years from the date of the breach of contract. Or the date of knowledge of breach as a second test. 

Practical issues

There are other practical issues that may need to be addressed in the short term: 

1. Perishable goods – For businesses dealing with perishable items, it's crucial to avoid having these products sit idle until they spoil and must be discarded. It's important to ensure that these goods are protected and promptly returned to your possession.
2. Confidential information – if there's worry about sensitive information being leaked, which could harm your brand, it might be wise to consider legal measures to mitigate any potential damage to your company's image and operations.
3. Insurance – for those with insurance policies, it's advisable to verify that your valuable goods are adequately covered, and that any facilities used for storing these items are properly maintained.

Options to resolve disputes with a distribution agreement

Reaching a resolution through negotiations is often the preferable approach in disputes with a distributor or supplier. This strategy ensures that your business continues to enjoy uninterrupted sales, sidesteps the inconvenience of sourcing a new distributor or supplier, and circumvents the potential expenses associated with a prolonged disagreement.

On the other hand, maintaining and preserving that relationship is not always possible, in which case, ensuring the key concerns are addressed and that damage is prevented or mitigated is key. 

Should negotiations not work out, there are alternative dispute resolution methods that can be tried, including arbitration, adjudication, and mediation, before the case goes to the courts.

If none of these options work out, it is likely that we would issue a claim in court if appropriate for breach of contract on your behalf, including a claim for any damages that may have occurred. A judge will then deal with resolving the dispute and may order for a portion of the parties legal costs to be paid by the unsuccessful party.

How can Hegarty help?

Our team of dispute specialists can help you to look at the best options available to resolve your disagreement should you ever find yourself facing this issue with your distributor or supplier. 

Taking early legal advice and choosing a highly experienced lawyer, will mean that issues will be resolved with the least amount of impact on your business, ensuring you continue to safeguard your rights and your products.