Reading time: 3 minutes

A wide variety of businesses use Distribution Agreements. The manufacturer/ distributor relationship represents a relatively easy way for businesses to get access to markets they wouldn’t otherwise have the funds to penetrate. Unfortunately it’s fairly common for Distribution Agreements to be poorly drafted, which will usually lead to disputes and a breakdown in the relationship between the two parties. Getting your Distribution Agreement right the first time is therefore of critical importance.

Set out below is a list of common mistakes in, and problems with, Distribution Agreements.

Don’t Over-Commit

Don’t assign a territory which is too large if the distributor has only proven themselves in a small territory, or not at all. Assign a small territory to the distributor initially and if the distributor performs then expand their territory.

Illegal ‘Exclusive Dealings’ Clauses

Exclusivity arrangements with customers, products or in certain territories may contravene Australian consumer laws. Consult a business lawyer to ensure your Distribution Agreement doesn’t contravene Australian consumer laws.

No Performance Goals

A Distribution Agreement must include clear and quantifiable performance targets and clauses that enable the distribution arrangement to be terminated if the distributor does not meet those performance targets.

Unilateral Price Changes

Allowing one party to set the prices may not be conducive of a good long term relationship between the parties.

Lack of Flexibility in Changing the Distribution Agreement

A Distribution Agreement should be flexible. It’s important that the parties can come together and make changes to it as circumstances change. The permitted number of changes should not be limited or otherwise constrained.

‘After Termination’ Clauses

A Distribution Agreement should include a clause which clearly spells out the obligations and responsibilities of both parties upon termination and outlines what must be done in the period immediately after termination.

Termination for Cause or Convenience

If a Distribution Agreement only allows ‘termination for cause’ then you may run into difficulties if a party wants to terminate the Distribution Agreement but there are insufficient grounds to do so. Consequently, termination may not be allowed or there may be a dispute about what qualifies as a ‘cause’.

If a Distribution Agreement allows ‘termination for convenience’ then either party may be able to terminate after a period of notice (e.g. 30 days).  Care should be taken with such clauses. If one of the parties has gone to a considerable expense in order to set up their business to work effectively in line with the Distribution Agreement a ‘termination for convenience’ clause could be unfair

Market Asymmetry

Often the less experienced party will be taken advantage of during the negotiation process by the other party. A more experienced, savvy operator will be likely to know how to draft a Distribution Agreement to their advantage. A biased or unfair Distribution Agreement may end up costing the less experienced party thousands in the end. Steps should be taken to mitigate this risk.

Conclusion

You should speak to a business lawyer before entering into a Distribution Agreement. Speaking to a business lawyer will help ensure that you end up entering into a fair and flexible Distribution Agreement which will be beneficial to your business.

Webinars

Redundancies and Restructuring: Understanding Your Employer Obligations

Thursday 7 July | 11:00 - 11:45am

Online
If you plan on making a role redundant, it is crucial that you understand your employer obligations. Our free webinar will explain.
Register Now

How to Sponsor Foreign Workers For Your Tech Business

Wednesday 13 July | 11:00 - 11:45am

Online
Need web3 talent for your tech business? Consider sponsoring workers from overseas. Join our free webinar to learn more.
Register Now

Advertising 101: Social Media, Influencers and the Law

Thursday 21 July | 11:00 - 11:45am

Online
Learn how to promote your business on social media without breaking the law. Register for our free webinar today.
Register Now

Structuring for Certainty in Uncertain Times

Tuesday 26 July | 12:00 - 12:45pm

Online
Learn how to structure to weather storm and ensure you can take advantage of the “green shoots” opportunities arising on the other side of a recession.
Register Now

Playing for the Prize: How to Run Trade Promotions

Thursday 28 July | 11:00 - 11:45am

Online
Running a promotion with a prize? Your business has specific trade promotion obligations. Join our free webinar to learn more.
Register Now

Web3 Essentials: Understanding SAFT Agreements

Tuesday 2 August | 11:00 - 11:45am

Online
Learn how SAFT Agreements can help your Web3 business when raising capital. Register today for our free webinar.
Register Now

Understanding Your Annual Franchise Update Obligations

Wednesday 3 August | 11:00 - 11:45am

Online
Franchisors must meet annual reporting obligations each October. Understand your legal requirements by registering for our free webinar today.
Register Now

Legal Essentials for Product Manufacturers

Thursday 11 August | 11:00 - 11:45am

Online
As a product manufacturer, do you know your legal obligations if there is a product recall? Join our free webinar to learn more.
Register Now

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.

Learn more about our membership

Need Legal Help? Submit an Enquiry

If you would like to get in touch with our team and learn more about how our membership can help your business, fill out the form below.

Our Awards

  • 2020 Innovation Award 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Award 2020 Employer of Choice Winner – Australasian Lawyer
  • 2020 Financial Times Award 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year Award 2021 Law Firm of the Year - Australasian Law Awards
  • 2022 Law Firm of the Year Winner 2022 Law Firm of the Year - Australasian Law Awards