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Cancelling A Distribution Agreement

Cancelling A Distribution Agreement

Distribution agreements, like other commercial relationships, should not be unlimited. They should be able to continue to exist as long as both parties have an agreement and the agreement complies with applicable legislation, but also allow the parties to terminate the agreement if it no longer serves its commercial purpose. A fully thought-out trade agreement should expect it to be terminated at some point. Given the diversity of approaches to termination of distribution agreements, it is important to be advised on the spot during the contract negotiation phase and before any termination decision is made. Below are some important points to consider. However, the validity of the termination provisions depends on the applicable legislation of the distribution contract. In this context, it is possible to draw a general distinction between the legal provisions governing distribution agreements in civil and legal systems. Civil jurisdictions tend to favour the distributor, which is generally in a weaker negotiating position than the supplier, and its survival may depend on the supplier`s activities, particularly where the agreement is exclusive. Distributors can invest considerable sums of money to honour the contract, often at the supplier`s request, and should be allowed to recoup this investment in the distribution of the supplier`s products. On the other hand, the courts place greater emphasis on contractual freedom and the right of the parties to terminate or not renew a distribution contract in accordance with its terms. Therefore, before terminating or not renewing a distribution contract, a supplier should ensure that it examines potential problems that may arise when terminating a distribution agreement and should be advised on the right to reflect on the distribution contract. A common area of concern during termination is the status of the extended customer base or client lists and how this information is handled if there is no specific clause to address the issue. It is clear that both parties have a stake in maintaining control or financial relations with the companies in the end-to-end distribution chain.

The supplier wants to preserve the expanded market obtained by the distribution contract and distributors often want to restrict the use of customer information by suppliers. It is important to report on what each party learns through its relationship with the other. When a supplier or distributor seeks legal advice when entering into a new distribution contract, the first thoughts focus on customer-specific issues. Is a general boilerplate contract sufficient or does the customer want or need a contract specifically tailored to their sector or business relationship? When reviewing a distribution agreement, the parties must have done their homework. Is this a situation in which the other side has shown that he is capable of playing well with others? Has a lawyer asked to intervene to design the contract? Do you know if either party has a well-established history/reputation compared to its former distributors or old distribution contracts? You may have the best product in the world, but if the supplier`s history is a scorched earth dispute when each sales contract is concluded, you can pass on the distribution. If the supplier is willing to share some “control” with the dealer or it will be “their way or the highway”.


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