Agency and Distribution Contract Disputes

When entering into an agency or distribution agreement, the thing furthest from everyone’s mind is a contract dispute. If you are involved in a contract dispute related to an agency or distribution agreement, the specialist solicitors at JMW can help you to resolve your concerns with as little impact on your business as possible.

Our solicitors take the time to understand what has happened and then provide you with a strategy to resolve any disputes as amicably as possible. We will always try to resolve contractual disputes using alternative dispute resolution, such as mediation. However, it is not always possible to resolve a dispute without the need to go to court, and our partners and solicitors have significant experience of preparing and running a trial.

Agency and distribution disputes can be complex. We aim to quickly establish the issues in dispute and offer commercially focused advice based on a thorough understanding of your industry and your organisation's specific requirements.

Contact us today to speak to an experienced contract dispute solicitor by calling 0345 872 6666. Alternatively, complete our online enquiry form and we will be in touch at a time that is suitable for you.

How JMW Can Help

The expert solicitors in JMW's commercial litigation team have a thorough knowledge of agency contracts, exclusive distribution arrangements and dispute resolution. Our experience in contract law, including preparing distributor contracts, means we are in a strong position to support you during disputes or to fulfil the legal requirements of termination clauses.

Our team has vast experience of acting in relation to distribution and agency agreements and issues relating to their termination. We can help guide you through a difficult time for you and your business, provide you with the advice and legal strategy you need to make the right decisions, and give you the confidence to progress towards your business' goals.

As a full-service law firm, JMW's experienced commercial litigation solicitors have a track record of success in litigating commercial agreements. This experience in agency and distribution agreements means we are in a strong position to protect your rights during any dispute that may arise.

Meet Our Team of Commercial Litigation Solicitors

The agency and distribution contract disputes team at JMW has a strong track record of resolving disputes, and we offer specialist expertise and personalised strategies to resolve conflicts effectively. We will work to safeguard your rights and resolve disputes in a way that aims to protect commercial relationships and business interests.

What Are the Risks in Agency and Distribution Agreements?

Using distributors or agents when entering a new market provides businesses with access to local knowledge and potential customers without having to establish an office or recruit a sales team in a new market. However, both types of agreement come with the risk of a dispute and, if these situations are not managed carefully, they can have a significant impact on your day-to-day operations and customer base.

Agency agreements

Appointing an agent allows a third party to sell goods on your behalf. An agent is engaged  to act as an intermediary and is granted authority (or ‘agency') to negotiate and enter into contracts on behalf of the principal. This means that contracts will ultimately be signed by both the supplier and the customer and exist between them without the intervention of the agent. The agent does not own the products or services in the course of passing them to the end customer. Instead, it will be paid a commission by the principal.

In circumstances where they apply, the relationship between the agent and the principal is regulated by the Commercial Agents (Council Directive) Regulations 1993 (CARs). 

CARs do not apply to all agency arrangements but, where an agent is negotiating the sale or purchase of goods on behalf of a principal and/or has the authority to conclude the sale or purchase of goods on behalf of a principal, consideration should be given as to whether CAR applies. Notably, CARs do not apply to agency arrangements focussed on the sale or purchase of services. 

CARs provide significant rights to agents, in particular in relation to remuneration and termination rights. Many of the principles of CARs cannot be contracted out of. 

CARs place certain obligations on the agent and the principal. In the case of the agent, these duties include:

• Acting in the best interests of the principal;
• Making best efforts to negotiate and conclude the deal;
• Complying with the principal’s instructions; and
• Communicating all information to the principal. 

In the case of the principal, these duties include:

• Acting dutifully and in good faith;
• Providing documentation and information;
• Informing of acceptance or refusal of a transaction negotiated by the agent; and
• Providing notice in the event of an anticipated decline in demand for the goods.

Pursuant to CARs, if there is no agreement between the principal and the agent in terms of remuneration, then the principal must pay the agent the amount of money that is customary to be paid to agents in that geographical area. Alternatively, if there is no such custom, ‘reasonable remuneration’ is payable.

Importantly, CARs provide that an agent must be provided with a prescribed period of notice to terminate their agency agreement. In the event of termination, CARs provide a mechanism to indemnify or compensate the agent in respect of their ‘lost agency’.

Outside of CARs, disputes in these cases may involve concerns about the credit risk of a potential customer not being addressed, or issues involving the commercial contract between the agent and the principal. Common areas of difficulty include:

• the scope of the agent’s or distributor’s authority;
• exclusivity arrangements and territorial limits;
• performance targets and sales obligations;
• pricing controls and discounting rights;
• marketing responsibilities and cost allocation.

Where the drafting of a contract is ambiguous, parties may disagree over what was intended. This creates uncertainty and can escalate commercial disputes into court proceedings that can affect the ongoing business relationship, unless alternative dispute resolution is sought and agreed to early. Under the CARs, compensation may be payable if the agreement is terminated, and other termination clauses may be in force, which can also result in the need for dispute resolution.

Distribution agreements

A distributor will also find customers in the market in which they have responsibility, but they will enter into contracts with the customer directly. The distributor purchases goods outright and moves them through their own distribution network, which may mean that any contract with the distributor is bound by minimum purchase requirements, defined territory provisions and exclusivity. The distribution agreement does not give the distributor the authority to negotiate or complete sales on behalf of the principal.

When products are purchased, there are two sales contracts - one when the distributor purchases the products from the principal and the other when the end customer buys the products from the distributor. This means that there is a risk of ambiguity in contractual arrangements about each party's legal duties, and this can lead to disputes.

A recurring risk is that a contract labelled as a “distribution agreement” operates in practice as an agency relationship. This matters because agents may acquire statutory rights under CARs, which may include compensation or indemnity payments on termination.

If the dispute results in litigation, the court will look at the substance of the relationship rather than the label used in the contract. Where a supplier exercises extensive control over pricing, customers or contract terms, a distributor may argue they were acting as an agent, exposing the supplier to unexpected liabilities. This is one reason that it is vital to seek legal advice at your earliest opportunity if a dispute arises.

What Are the Most Common Disputes in Agency and Distributor Agreements?

There are several recurring issues that can result in disputes in agency or distributor agreements, whether under contract law or with reference to specific contractual obligations. Because agreements are typically made to facilitate sales in new territories, contracts involving cross-border elements can be subject to disputes over which laws apply and which courts have jurisdiction. Even within England and Wales, poorly drafted jurisdiction clauses can lead to disputes. The team at JMW has a wealth of experience in working with international businesses and cross-border disputes under commercial law in England and Wales, and can provide advice on which would be the governing laws in your specific case.

Termination, commission, compensation or indemnity payments

Termination rights are among the most common flashpoints in both agency and distribution arrangements. Disputes may arise concerning:

• insufficient notice periods;
• termination without contractual or lawful justification;
• failure to follow agreed termination procedures;
• termination for alleged breaches; or
• compensation for early termination, particularly where a contract is nominally a distribution agreement but operates as an agency agreement in substance.

Termination of an agency agreement can trigger compensation or indemnity payments for commercial agents. Distributors are not protected in the same way, no compensation is automatically payable to the distributor on the termination of a distribution agreement in England and Wales. Distributors have two contractual relationships: one with the principal company and the other with the end customer buying the goods. If there is not a sufficient ‘link-up’ between these contractual positions, a distributor can find itself stuck in the middle of disputes that would otherwise be between the supplier and end customer. 

Other financial disputes with an agent involve entitlement to commission, especially if the contract does not contain sufficient provisions to determine whether an agent receives commission on completed or pending sales, repeat orders, or sales that remain pending until post-termination.

CARs impose obligations on principals to act in good faith and provide agents with information needed to verify commission, and any perceived breaches of these duties can give rise to claims alongside contractual disputes.

Distributors do need to be mindful that when selling to consumers, they may be liable under s.30 Consumer Rights Act 2015 to reimburse the consumer for the price of the goods or to repair the faulty goods.

With our experience in reviewing and litigating contracts of this type, the team at JMW can offer practical advice on the contractual provisions that apply and your legal obligations. Whether we act on the principal's behalf or for the agent or distributor, we offer practical advice that puts your commercial objectives at the forefront, and can help to find a resolution that helps the parties to end their relationship on the best possible terms.

Misrepresentation

A misrepresentation occurs when one party induces another party into contracting with an untrue statement. This can occur when an agent makes a false statement about goods or services offered by the principal company.

Can I Pursue Alternative Dispute Resolution with an Agent or Distributor?

There may be a clause in the agreement setting out how disputes are to be resolved. In the absence of such a clause, we will attempt to resolve any disputes amicably and try to maintain the commercial agreement with your agent or distributor. 

Mediation and other forms of alternative dispute resolution play a practical role in resolving disputes arising from agency and distribution agreements. They offer a structured way for parties to address commercial and legal disagreements without the need for court proceedings, which can save time and money, and preserve commercial relationships.

Through mediation, the parties can explore issues such as termination, unpaid commission, compensation claims, or exclusivity disputes in a confidential setting. Because many disagreements arise at the end of an ongoing commercial relationship, mediation provides an opportunity to resolve matters without damaging reputations or market positions.

Mediators do not decide the outcome. Instead, they help the parties to clarify the points in dispute and test the strengths and weaknesses of their respective positions under the law. This allows the parties to work towards a mutually acceptable resolution, which may include negotiated settlements on compensation, revised termination terms, or agreed payment structures.

From a procedural perspective, courts in England and Wales expect parties to consider alternative dispute resolution at an early stage. A failure to engage with mediation, without good reason, can result in adverse costs consequences even if a party later succeeds in litigation. As a result, mediation often forms part of the dispute resolution process in agency and distribution disputes, either before proceedings are issued or alongside them. JMW can represent your interests and help you to protect your commercial position during any mediation process.

Q

What is an agency?

A

An agent brings in work or orders on behalf of a person or company known as the principal. The agent will facilitate contracts with third parties, and may be known as an agent or intermediary. Obvious examples include an estate agent when selling a house. However, disputes tend to arise when an agent is selling goods and services on behalf of a principal.

Q

What is a distributor?

A

A distributor is a person who buys goods from a supplier and then sells those goods in a specific territory.

Q

What happens if there is no agency agreement in place?

A

If you do not have a written agency agreement in place, the duties of each party may not be clearly defined, which can also lead to disputes. Without a written agreement in place, there is a strong possibility that there will be less control and accountability for both parties.

Whether you are an agent, a distributor or a principal, we would strongly advise having a written agency agreement in place. The team at JMW has a wealth of expertise in drafting commercial contracts and can draft a suite of documents that are bespoke and suited to your business, which can potentially reduce the risk of future disputes.