Spotting a real distribution

I was reviewing what was supposed to be a Distribution Agreement from the US the other day.

The document was to allow my client to import sealants into Australia and give my client exclusive distribution rights to the products within a specified market. There were so many things wrong with the contract and it often frightens me how many people out there would simply sign a document like the one I reviewed for my client, without a second glance.

Some of the problems I noticed and those you should look out for, especially when looking at US contracts (which in my experience are a mishmash of legalese and super long clauses, set out in a hodgepodge fashion with only cursory mentions of the commercial deal at hand – sorry for being harsh and generalising – I am sure there are some well drafted US contracts out there!) are:

  • The Distribution Agreement referred to the buyer as an Agent in many places. There is a significant legal difference in the relationship between supplier and distributor and that between supplier and agent and it is important that this is clarified in Agreements.
  • There was no reference to an Incoterm and so no indication as to who was responsible for freight/insurance and other expenses in addition to the price of the products.
  • There was no actual “appointment of distributor” clause, nor was there any reference to the supplier granting the distributor a licence to use the supplier’s intellectual property to sell and market the products in Australia.
  • The contract purported to offer my client exclusive rights to a territory but then 10 clauses and a few pages later, backtracked and only gave exclusive rights to a certain industry in the territory.

So the moral of this story is to always read your agreements and have them reviewed by a qualified legal advisor and most importantly, always ensure that the agreement actually reflects your relationship with the supplier.

It may not seem important now but in terms of liability if something goes wrong if your relationship is not clarified then this could cause a lot of grief.

For more Export Matters blogs, click here.

Lynda Slavinskis is an outgoing, intuitive and commercially savvy lawyer. She has worked in-house at Sussan Corporation and Tattersall’s and now assists small and medium businesses with import, export, leases, franchising, employment and general business advice as principal solicitor of Lynda Slavinskis Lawyers & Consultants. Lynda is on the Victorian State Government’s Small Business Advisory Council.

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