FASHION LAW
Why performance managing distributors and agents can matter By Stephen Sidkin
T
he prospect of continuing trading uncertainty raises the question of whether your distributors and agents are performing as you want
them to perform. Alternatively could they be doing better and in turn helping your results?
In turn this raises the question of whether your business would do better
by replacing any of your distributors or agents. If so, the issue is then how to achieve this result particularly when distributors and agents do enjoy certain legal protections.
Often the answer is to be found in performance management. If performance management goes well, things turn around and the actual
performance of the distributor or agent has improved then no further action is need. Alternatively performance management can provide you with the way forward to terminate the distributor or agency agreement and avoid a claim for some form of compensation – or at least reduce the amount which may be paid in settlement.
The basis of performance management is the agreement which you have,
whether it is with the distributor or the agent. If it has been drafted to protect your interests, the agreement should impose a raft of duties on the distributor or agent which you can look to take advantage of.
But it is not simply an issue of going through the duties and obligations
and requiring the distributor or agent to fulfil them. Thought is needed both in terms of what you are seeking to achieve (for example, improvement in performance or an excuse to terminate the distributorship or agency agreement) and how it is to be achieved.
If it is a case of using performance management to result in a justification
for termination of the distributorship or agency agreement, it is important that a paper trail is laid. Equally it is important that what is sought from the distributor or agent is reasonable both in terms of scope and time. If it is not performance management may backfire in terms of preventing you from relying on the failure by the agent or distributor in question to perform and possibly justifying them in claiming damages from you!
Certainly in the case of an agent, a repeated failure to comply with your
reasonable requests can result in you being able to take advantage of the Commercial Agents Regulations (the law which protects agents) to avoid making a statutory compensation payment or reduce the amount which is paid in settlement.
Similarly in the case of a distributor. Whilst English law does not provide
expressly the same type of special legal protection given to agents, judgments given in a number of cases in the English courts over the last few years involving distributors have hinted at such protection being given to terminated distributors. Equally the laws of a number of other countries – both within and outside the EU – provide special protection for distributors in a way which is directly analogous to that of agents.
Even without this special protection, failure to properly performance manage a distributor can result in the distributor having a claim for damages for wrongful termination of the distributorship agreement!
So crunch time. Think about how you are going to get to where you want
to be, so far as your distributor or agent is concerned. But equally important is to give thought to how you are going to service the customers in the distributor or agent’s territory following termination. Without careful planning you may find yourself in the situation where:
32 • FOOTWEAR TODAY • AUGUST 2018
Stephen Sidkin is a partner in Fox Williams LLP and chairs its Fashion Law Group (
www.fashionlaw.co.uk;
www.agentlaw.co.uk)
• actions taken by you before termination literally give the game away and can result in the distributor or agent being able to turn the tables on you and claim that they have been constructively terminated; or
• you do not have a replacement distributor or agent (or sales representative) in place in order to continue to service the customers in the relevant territory with the result that both customers and turnover may be lost; or
• both! Also in the case of a distributorship agreement, do you know where the
outgoing distributors’ customers are and how to contact them?
Finally, take care. Whilst it is open to you to performance manage underperforming distributors or agents, it is equally open to savvy distributors and agents to performance manage their suppliers and principals so as to engineer an exit from the distributorship or agency agreement to the maximum advantage of the distributor or agent!!
Further:
• agents will enjoy (what for principals will be) very expensive rights under the Regulations which apply in most cases where an agency agreement is terminated; whilst”
• distributors can seek to take advantage from the right of set off (which will apply unless it has been excluded) so as to off set monies owed to you on stock delivered against damages claimed by the distributor for wrongful termination of the distributorship agreement.
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