Terminating Distribution Agreements Under UK Law
posted 30th September 2019
Distribution agreements are not protected under UK legislation in the same way as agency agreements are protected under the UK Commercial Agents Regulations 1993. Often sellers will not have written distribution agreements in place, instead it will be dictated by the seller's terms and conditions for the supply of goods. Greenaway Scott considers how to terminate a distribution agreement which is governed by the seller's terms and conditions under UK law.
Terminating a distribution agreement on the seller's terms and conditions.
If there is no written distribution agreement in place but instead the agreement is subject to the seller's terms and conditions for the supply of goods, it must be considered whether there is a termination clause in place. If there is, the seller may be able to terminate subject to this clause and by giving the necessary notice stated. If the terms and conditions do not contain a termination clause, this would mean that each order would simply be subject to the standard terms and conditions.
Common law position
If the conduct of the parties indicates a distribution relationship (for example if exclusivity had been orally agreed) this would mean that a distribution agreement could be implied and termination provisions would be governed by the common law for implied contracts.
In the absence of a breach of contract by the distributor, the common law position for terminating contracts is the implied term of reasonable notice. The case for this implied term is strong where you can argue that both the seller and the distributor cannot have intended the contract to last forever (and there is no other way to end the contract).
To determine what reasonable notice is, the UK courts consider the following factors:
- The length of the relationship between the seller and the distributor;
- How much the distributor contributes to the seller's overall business;
- How quickly the distributor may be able to replace the seller's business; and
- The original intention of both parties when they entered into the relationship.
If the distributor decides to bring a claim against the seller for not providing reasonable notice in their opinion, it would be up to the UK courts to consider the factors listed above to determine whether reasonable notice has been given. If it has not be given, damages would be paid to the distributor.
