FASHION LAW
By Stephen Sidkin U
sing a distributor should be straightforward. You appoint a distributor for your range, they buy, and then they sell.
But what should be straightforward all too often is anything but. The starting point is the distributorship agreement in place with the
distributor. As a matter of English law, this does not have to be written. But, if it is in writing the opportunity for uncertainty is reduced.
When considering the terms of the agreement, the key issues are:
• the basis on which the distributor is being appointed; • minimum purchase requirements; • duration of the agreement; • termination of the agreement; and
• what law is to govern the agreement and, in the event of a dispute, how will that dispute be resolved.
The basis on which a distributor is appointed comes down to the scope of the appointment. A distributor appointed on an exclusive basis for a particular country is one thing. But, does that mean that the distributor is the only person allowed to sell your goods in that particular country? If so, should there be a requirement on the distributor to achieve certain things so far as your brand is concerned? Increasingly, the online channel is dominating footwear. But, if the appointment of the distributor is on an exclusive basis, what does that mean for online sales you might wish to make into the distributor’s territory? Further, unless something is said in the agreement, the distributor will have a good argument for claiming that not only can it prevent you from selling on a wholesale basis, but its appointment also entitles it to object to any online sales that you might wish to make to consumers in the territory. Sometimes it will be the case that there are particular accounts that you will wish to retain as house accounts. In this situation, it is important that a specific provision is included in the distributorship agreement carving out these customers from the exclusivity granted to the distributor. Whether or not a distributor is appointed on an exclusive basis, you
may wish to consider whether you require the distributor to make minimum purchases of your products. What is to be purchased is often the subject of agreement between brand and distributor at the time that the distributorship agreement is entered into. But what is to happen after a number of years when the specified minimum purchase requirements are unstated? Minimum purchase requirements are one thing. Minimum sales
requirements are something else. If there are particular accounts which you require the distributor to try and sell your brand into, these should be specified. Equally, if you require the distributor to sell your entire range into accounts within its territory, enforcement of this requirement will be easier if it is specified in the distributorship agreement. The terms of which the distributor is appointed in terms of exclusivity and
territory, the minimum purchase requirements, and any minimum sales obligations are likely also to have a bearing on the duration of the agreement. From your perspective it is reasonable to assume that you have certain objectives which you would like the distributor to meet in respect of the territory granted. But, standing in the distributor’s shoes, the duration should be such as will provide the distributor with reasonable opportunity of achieving a satisfactory return on investment. In this situation “investment” means a combination of money, effort, and in some cases, opportunity cost if by carrying your brand, the distributor is unable to be involved with a
28 • FOOTWEAR TODAY • JANUARY 2016
competing brand (in respect of which, it is to be hoped that your distributorship agreement contains enforceable non-compete obligations!) Nothing is forever. This is certainly true of the appointment of a
distributor. As such, it is important that the distributorship agreement specifies what are the events of termination which will enable you to end the relationship with the distributor. Usually, these events concern:
• a failure on the part of the distributor to perform its obligations under the distributorship agreement;
• a change of control of the distributor; and • the insolvency of the distributor.
But, there can be others. What is important is to determine the events
which matter to you in respect of the distributor. Equally, it is important to ensure that your distributorship agreement provides that if you choose not to exercise a right of termination upon the occurrence of a particular event, you will not prevented from doing so at some point in the future if the event reoccurs. It is critical to specify in an agreement which country’s laws will govern its
interpretation. A failure to do so will mean that within the European Union it will be the law of the country in which the distributor performs the agreement which applies. This may not always be to your advantage. Similarly, a failure to specify how disputes are to be resolved in terms of, for example, that the courts of a particular country will hear disputes between the parties, could also cost you dear. With reference to this, it is also worth remembering that the laws of certain EU member states (as well as of some countries outside of the EU) protect distributors. The upshot is that terminating a distributorship agreement could result in you facing a claim for unexpected compensation by the distributor! Straightforward? Yes, in principle. But as with anything of value, the devil
is in the detail.
Stephen Sidkin is a partner in Fox Williams LLP and chairs its Fashion Law Group
(
www.fashionlaw.co.uk;
www.agentlaw.co.uk).
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