Reading time: 5 minutes

It is common for distributorship and similar agreements to require various types of exclusivity from the distributor. For example, in exchange for the principal granting exclusivity of territory to the distributor, it is common for the agreement to provide that the distributor will grant exclusivity of product to the principal. This means that the distributor will not deal in or supply products that compete with the principal’s product/s, and perhaps for good measure that the distributor will not manufacture any products that could compete with the principal’s product/s. This article will look at distributorship agreement and the cartel conduct provisions.

Legality of Cartel Conduct

The problem with these types of provisions is that unless they are carefully assessed they run the risk of falling foul of the cartel conduct provisions of the Competition and Consumer Act 2010 (Cth) which are serious criminal offences attracting fines and potential prison terms for the companies and senior management involved if found guilty of offending them. In short, the cartel conduct provisions provide that a contract, arrangement or understanding between two parties that are or are likely to be in competition with each other that have:

  • the purpose or effect of price fixing;
  • the purpose of restricting output;
  • the purpose of market sharing; or
  • the purpose of bid rigging; and
  • do not have the benefit of an exemption constitute illegal cartel conduct.

It is important to note that the arrangement does not have to be in writing and can be a mere “understanding” and also that two parties that do not at first glance appear to be in competition with each other can be held to be so for these provisions. For example, in recent cases, ANZ and Flight Centre have been held to be potential competitors for the purpose of these provisions, even though they were not current competitors. The exemptions include related bodies corporate, some joint ventures and mergers and acquisitions, but the most relevant to these agreements is section 47 – exclusive dealing.

Effect on Competition

The exclusive dealing prohibitions in section 47 are mainly subject to an adverse effect on competition test, so if the restraints fall within one or more of the categories of that section and are not likely to have an adverse effect on competition in the relevant market, this takes the provisions out of the cartel conduct area.

The classic case of exclusive territory and exclusive products mentioned above are two categories of section 47. This is expressed in the section broadly as the acquisition on the condition that supplier will not supply to others (in the territory) and supply on the condition that the acquirer will not acquire from competitors (who supply the same products).

There may be a case for ensuring that these types of provisions mirror the statutory language to make it clear the section applies to them. It is important to note that one of the restraints mentioned above – agreement not to manufacture the goods – is not covered by section 47 – so it is probably better to eliminate this from the agreement/understanding. As far as the other restraints are concerned, massaging the language is not enough.

Assessing the Market

You need to decide whether, in the structure of the particular market, the restraint has the purpose or has, will be likely to have an adverse effect on competition. 90% of the time the competitive structure of the market will mean that there will be no adverse effect on competition in what is being proposed. However, if your main motivation for doing this is to cause your competitors grief, then this will need to be looked at very closely by way of a market analysis.

In this exercise often the relevant market is defined very narrowly. For example, the market is the market for ski boots, or the market for legal services to SMEs, rather than being defined as the market for ski equipment, or for legal services. This is deliberate as if the restraint is not likely to be anticompetitive in a narrow market then, of course, it is even less likely to be so in a more broadly defined market.

Assuming you have been through the analysis it may sometimes be a good idea to set out the commercial purpose of the restraints in the documents themselves, but it is more important that the legitimate objective appears from the paper trail of emails, etc. leading up to the document itself. It is imperative that this background is scrutinised and if necessary statements made in it be explained, and that it frames overall the commercial imperatives regarding legitimate objectives.

LegalVision’s contract lawyers can assist you in navigating through this minefield and ensuring that you do not end up on the wrong side of the law, as well as helping you with the rest of your distributorship terms and conditions. Questions? Call us on 1300 544 755.


Redundancies and Restructuring: Understanding Your Employer Obligations

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

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

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

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

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

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

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

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

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