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  • 29 Feb 2024

    Avoiding a dispute with a distributor or supplier

    As a business, selling your goods in a new and unfamiliar market can be risky and costly. But entering into an arrangement with a distributor or supplier can provide your business with a way into a new market and audience without you having to commit to a presence in that area. 

    If the arrangement goes to plan and works well, sales and brand awareness can increase outside of your usual area of sales. However, if you have a disagreement with the distributor or supplier, then you could be at risk of reputational damage, confusion over who owns what, a loss in sales, and even sometimes you may be left with stock that you cannot sell. 

    Common causes of disputes with a distributor

    Usually disputes with a distributor or supplier are caused by a breach of contract. This can happen in a number of different ways including: 

    • 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 – e.g., involvement in counterfeiting or breach of confidentiality
    • Termination of a contract – perhaps prematurely or as the arrangement is being wrapped up

    The majority of the time, you will need a commercial solution to reduce any disruptions to your business as soon as possible. 

    Check the distribution or supplier agreement

     

    The first step would be to review your agreement with your distributors or suppliers, if indeed there is one at all. This document is likely to set out the terms and conditions of arrangements between parties and, a well drafted agreement, will ensure that everyone involved is clear of the terms and expectations from them, including what happens should a dispute arise. 

    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are more likely to occur if the distribution or supplier agreement is: poorly drafted, e.g., a DIY effort; or is out of date and no longer reflects the customs and practices of your business as it has evolved.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 – if your businesses goods are perishable you do not want them sat undistributed until they ultimately have do be disposed of. You want to ensure that your products are protected and returned to you as soon as possible. 
    2. Confidential information – if you have concerns about private information being at risk of spread, and that this may negatively impact you brand, you could consider taking injunctive action to reduce the damage to your business and reputation. 
    3. Insurance – if you have insurance arrangements you should check to make sure that your valuable products are properly insured, and any property used to store the products is maintained sufficiently. 

    Options to resolve disputes with a distribution agreement

    Negotiations leading to resolution is likely the ideal scenario when it comes to a dispute with a distributor or supplier. This is because it allows your business to maintain a steady flow of saes, avoids the hassle of having to find a new distributor or supplier, and ultimately avoids what could be a costly dispute. 

    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. 

    Contact our team today

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