Online Legal Services are “less intimidating, cheaper, quicker and more convenient”

It is good to see a positive report on the benefits of online services such as those offered by ContractStore.  The report entitled “2020 Legal Services – How Regulators Should Prepare for the Future” has reviewed the various offerings online that enable consumers (and businesses) to benefit from the new technology and to obtain a cost-effective solution to some of their problems.  The Legal Services Consumer Panel that issued the report advises the Legal Services Board, the ‘super-regulator’ of legal services in England.

According to the report, their survey data shows strong consumer demand for online services: 47% of consumers polled said online delivery is important to them.

As technology makes legal services simpler to use, involve less effort and cheaper to buy, more people are likely to carry out the sorts of tasks – like writing a will or arranging a power of attorney – which currently they either prefer to put off or cannot afford to do.  The various online services offer many benefits. Among other things, “they may be less intimidating, cheaper, quicker and more convenient.’”

“Self-Lawyering”

‘Self-lawyering’ (sic) is expected to increase as consumers seek alternatives to lawyers through technology enabled DIY solutions. This will enable some consumers to complete common legal tasks without the need to engage a lawyer, or with minimal supervision by a lawyer.

As the report says, historically, lawyers have been a conservative profession which has successfully resisted change.  It is therefore encouraging to see the Legal Services panel acknowledging the beneficial impact for users of the new marketplace when the report says that  “in overall terms, there would seem good grounds for being optimistic about the future. Market liberalisation, technology and other forces should produce innovative and cheaper services that can benefit all consumers and widen access to groups currently excluded from the market.”

Concerns About Regulation

However they do have concerns at the unregulated nature of the online legal market. So they want to encourage and facilitate initiatives to raise standards and extend access to redress in unregulated markets while “continuing to press for modernisation of the wider regulatory framework in the longer term.”

There is something of anomaly in the regulatory framework at present: on the one hand, to practise as a solicitor you first have to train, qualify, be registered with the Solicitors Regulatory Authority and comply with the SRA Code of Conduct and Accounts rules.  But the ‘regulated activities’ which only solicitors can perform are very few – essentially court litigation, handling probate and some property transactions.  As a result, the internet has enabled the proliferation of a wide range of legal or quasi-legal services which are not subject to any professional control and can be provided by people without any training in the law.

Quality Legal Documents

At ContractStore, we have taken steps to ensure that our services meet high professional standards.  All our documents are prepared by qualified, experienced lawyers and we are a founder member of APOD, the Association of Publishers of Online Legal Documents which itself has a Code of Practice that members have to sign up to.

The full report can be found here -  http://www.legalservicesconsumerpanel.org.uk/publications/research_and_reports/documents/2020consumerchallenge.pdf

 

Fine of £300,000 for sending spam is overturned on appeal.

A £300,000 penalty issued by the Information Commissioner (ICO) against a Mr Niebel   for sending unwanted text messages ‘on an industrial scale’ has been cancelled on appeal.

Hundreds of thousands of messages were sent from hundreds of unregistered sim cards seeking out potential claims for mis-selling of PPI loans or for accidents.  And there was no evidence to show that he made any effort to make sure that the recipients consented or that he retained any record of consents. He did not even  bother to register with the ICO under the Data Protection Act (DPA) as a controller of data.

Under the regulations in place since 26 May 2011 the ICO can impose fines of up to £500,000.   But the regulations say the contravention must be serious. It must also be “of a kind likely to cause substantial damage or substantial distress”.

The fine imposed by the ICO covered messages sent before and after these new regulations came into effect. In fact only 286 of the messages were sent after 26 May, a tiny proportion of the total.

In his judgement, Judge NJ Warren said that the effect of the contravention was likely to be widespread irritation but not widespread distress. “Given the scale of the contravention, there is the possibility of some distress in very unusual circumstances but we cannot construct a logical likelihood of substantial distress as a result of the contravention. We conclude that the contravention is not of a kind likely to cause substantial distress. “ So he cancelled the penalty notice.

Even if it does not cause distress, spamming is still illegal and you need to be sure to obey the rules if you want to send out marketing material.  Direct email marketing to consumers is acceptable if the sender has “obtained the contact details of the recipient of that electronic mail in the course of the sale or negotiations for the sale of a product or service to that recipient”, where the marketing is for “similar products and services only” and providing the recipient can easily unsubscribe  so as to refuse the use of their contact details for that marketing in future.

Are your Website Terms of Business ready for the new Consumer Regulations?

New regulations concerning the sale of goods and services to consumers come into effect in June. The great majority of businesses selling goods or services online as well as door step and other “off-premises” sales will be affected.

The Consumer Contracts (Information, Cancellation and Additional Payments) Regulations 2013 come into effect on 13 June 2014. They replace the existing the Distance Selling Regulations and the Doorstep Regulations.

Although many of the existing regulations will continue, they have been updated in various ways and there are a number of changes that you will need to make to your terms and conditions.

So, be prepared to update your Terms of Business for online sales on your website as well as for off-premises sales. And remember, these Regulations apply to the sale of services as well as goods.

ContractStore’s Terms & Conditions for online sale of goods  (document A179) have been updated and are available to buy and download from our website.

Here are some of the key points in the new Regulations:

 Information     Lots of information must be given by the trader to the consumer before the contract is made.  This pre-contract information will be treated as information forming part of the contract. If this information is not provided, the consumer may not be bound by the contract.

Schedule 2 of the regulations details 24 separate bits of information to be provided. These include:

  • the main characteristics of the goods or services
  • the identity of the trader and his address and contact details
  • if the trader is selling on behalf of someone else, the address and identity of that other trader is also needed
  • the total price of the goods or services including taxes or, if this cannot be calculated in advance, an explanation of how it will be calculated
  • where applicable, any additional delivery charges or  other costs
  • where the contract is open ended or the consumer is paying a subscription, the total monthly or other regular payments
  • arrangements for payment, delivery, performance and timing
  • where there is a cancellation right, details concerning this
  • when applicable, the terms of any after sales service
  • the duration of the contract and if this is open ended, the conditions for terminating and the minimum contract period, if there is one.

Making the Contract.   In the case of online business, the information items in italics above are the minimum that the trader must provide ‘in a clear and prominent manner’ before the consumer places an order.

Also the website must have wording that ensures the consumer, when placing an order, explicitly acknowledges the obligation to pay for the goods or services being ordered.

Unless the trader complies with these requirements, the consumer is not bound by the contract..

Once an order is placed, the trader must confirm the contract within a reasonable time and before the delivery of goods or start of services.  email confirmation is acceptable.

Sales by Phone.  Anyone making a phone call to get a contract must at the beginning of the conversation identify the trader’s identity, the purpose of the call and the identity of any third party on whose behalf the call is being made.   

Delivery.     The contract will automatically contain an implied term requiring retailers to deliver goods and services without delay and in any event within 30 days from the contract date

 Risk.   Until goods come into the physical possession of the consumer, risk of loss or damage remains with the trader. This will not apply if the consumer arranges transportation with a carrier who has not been recommended by the trader.

Cancellation Rights.  Consumers will have 14 days in which to cancel a contract. This period replaces the existing period of 7 working days.  The 14 day period starts the day after the contract is made in the case of a service contract or contract for the supply of digital content online.

In the case of goods, the cancellation period ends at the end of 14 days after the day on which the last of the goods came into the physical possession of the consumer (or someone identified by him – e.g. the person to whom a gift is being delivered).

The Regulations contain a model cancellation form and consumers should be given the option to use this, but any clear statement of cancellation will be effective provided it is given within the 14 day period.

If the trader does not spell out the consumer’s cancellation rights, then the consumer has the right to cancel the contract at any time within 12 months. It is also an offence, punishable by a fine.

Refunds.   If the consumer cancels the contract and returns the goods, the trader must make a full refund within 14 days.  This includes the basic cost of delivery if the consumer paid for the goods to be delivered to him. Where there is no delivery of goods, the refund must be within 14 days after the trader is informed of the cancellation.

If the value of the goods has been reduced by the consumer’s handling, the trader can deduct an appropriate amount from the refund.

Return of Goods.  The trader is responsible for collecting the goods if:

  • he has offered to collect them or
  • the goods were delivered to the consumer’s home and they cannot, by their nature, normally be returned by post.

In other cases, the consumer is responsible for sending the goods back to the address specified by the trader. The consumer is responsible for the cost of returning goods unless either the trader has agreed to meet those costs or he failed to tell the consumer about the consumer bearing the cost in the information provided at the beginning.

Services in Cancellation Period.   The trader must not start services within the cancellation period unless he is asked to by the consumer. If services are then performed in full, the consumer’s cancellation right is lost. If services are partly performed and the consumer cancels within the 14 day period, the trader is entitled to payment on a proportionate basis for those services.

Supply of Digital Content.    Where there is a contract online for the supply of digital content, the trader should not supply the content before the end of the cancellation period unless the consumer has given express consent for early delivery and the consumer has acknowledged that the right to cancel the contract will not apply.  So, if you are selling downloads of music or maps, you need wording to ensure that the consumer agree to waive his cancellation rights as he goes through the buying process on your website.

Helpline Charges.    If it trader operates a helpline, this must not involve the consumer in phone charges above the basic rate. If it does, the trader is obliged to refund the extra cost to the consumer.

 Excluded Contracts.   These Regulations do not apply to certain contracts including: financial services and insurance; leases of property and contracts for the sale of land; contracts for construction of new buildings or conversion of existing buildings.

 Exclusion of Cancellation Rights.   The right to cancel a contract does not apply in some circumstances including:

  • goods that are tailor-made for the consumer or personalised in some other way;
  • goods that are liable to deteriorate or expire rapidly, such as fresh food;
  • goods or services where the price is dependent on fluctuations in the financial markets;
  • newspapers and magazines;
  • sealed goods which, after delivery, are unsealed and are no longer suitable for  return due to health or hygiene reasons – e.g. underwear;
  • audio or computer software that is supplied sealed and then unsealed after delivery;
  • goods that become inseparably mixed after delivery – e.g. sand mixed with cement.

For ContractStore’s template Terms of Business for the Sale of Goods Online click here

For more detailed information, the Regulations are available online and are quite easy to read.  Also there is Guidance published by the Department of Business Innovation & Skills.

 

 

Consumer takes Bank to the Supreme Court and wins

The case of Durkin v. DSG Retail that was decided in the Supreme Court last week has the elements of a David and Goliath battle – in this case a consumer winning against a bank.

In 1998 Mr Durkin bought a laptop computer from PC World in Aberdeen. He wanted an internal modem and made this clear to the salesman. He paid a £50 deposit and signed a credit agreement for the balance of £1449 with HFC Bank. When he got home he found that there was no internal modem so he returned the laptop to the shop the next day when he asked for the return of his deposit and cancellation of the credit agreement. The shop refused.

Because Mr Durkin did not pay any money to the credit company, HFC, and they refused to cancel their agreement, they issued a default notice and indicated to the credit reference agencies that Mr Durkin was in default.  As a result, he found he could not get credit elsewhere. In 2004 he brought proceedings claiming £250,000 damages from HFC for negligence in claiming that he had defaulted on a contract which he was entitled to cancel. The court awarded him a total of nearly £120,000 which included £8000 for injury to his credit status and £102, 000 on the loss of a capital gain on a Spanish property on which he had been unable to pay a deposit because of his poor credit rating.

HFC won when they appealed against this decision in Scotland but on 25 March the Supreme Court in London unanimously held that Mr Durkin was entitled to rescind the credit agreement and validly did so. They made it clear that the purpose of a credit agreement of this type is to finance a transaction between the consumer and the supplier. Mr Durkin was entitled to cancel the purchase because the laptop was not what he required and in consequence he was excused from obligations under the credit agreement.

The original award of £8000 for damages to credit was upheld although Mr Durkin’s attempt to have the damages for loss of a capital gain on his Spanish property was not.

This case is an important one in linking the consumer’s rights under supply agreement with those under a related credit agreement.

For the full report http://www.supremecourt.uk/current-cases/case_2012_0135.html

Murder in South Africa – a legal perspective

The televised trial of Oscar Pistorius for the murder of his girlfriend Reeva Steenkamp in South Africa has attracted a lot of attention around the World.

For anyone who is interested in legal aspects, in particular the essential elements of the crime of murder, we  have received a very clear summary from Walkers,  attorneys in Cape Town.

Their item is in two parts, first defining the crime of murder and then dealing with a lesser known defence of non-pathological criminal incapacity. It begins:

“Murder is the unlawful and intentional causing of the death of another human being. The essential elements that the State must prove for a conviction are:

• that the perpetrator caused the death (killing) of another human being;

• that such killing was unlawful; and

• that such killing was intentional.”

 For the full article, click here

 

 

 

Pre-Nuptial Agreements to become legally enforceable?

In a report issued today, the Law Commission recommends that prenuptial agreements should become legally enforceable.  Up to now, although in some cases a ‘pre-nup’ has been upheld by the English courts in a divorce, there has been uncertainty as to their precise status.

The Law Commission is therefore recommending a change in the law and has published a draft bill which, if adopted, would make prenuptial agreements legally enforceable but subject to certain safeguards.

Aside from high-net-worth individuals who wish to protect wealth from sharing, the Law Commission believes that pre-nups may be suitable for couples who are each independently able to meet their own needs; for example, couples marrying later in life. They may also be attractive where one party has specific assets to protect. That might be inherited property; equally, couples who have children from a previous relationship might be particularly keen to ensure that property is passed to those children.

The proposed safeguards include the following:

(a) The agreement must be contractually valid (and able to withstand challenge on the basis of undue influence or misrepresentation, for example)

(b) The agreement must have been made by deed and must contain a statement signed by both parties that he or she understands that the agreement is a qualifying nuptial agreement that will partially remove the court’s discretion to make financial orders

(c) The agreement must not have been made within the 28 days immediately before the wedding or the celebration of civil partnership

(d) Both parties to the agreement must have received, at the time of the making of the agreement, disclosure of material information about the other party’s financial situation.

(e) Both parties must have received legal advice at the time that the agreement was formed.

The Law Commission has also recommended that it should not be possible for a party to waive their rights to disclosure and legal advice.

Also, they recommend that spouses and engaged couples should not be able to make contractually enforceable agreements that deal irrevocably with their future needs for housing, childcare, an income, or any other aspects of “financial needs”.

If you are thinking of entering into a pre-nup, ContractStore has some templates that you can find here

The Law Commission report can be found here

 

Validity of Wills – an important decision of the Supreme Court

Until now there have been limited circumstances in which a will can be ‘rectified’ by the court to make it valid when it would not have been otherwise.  But in the case of Marley v. Rawlings, decided on 22 January,  the Supreme Court decided to allow a will to be rectified so that a couple’s intended heir should not be disinherited despite the fact that the couple erroneously signed each other’s wills.

In the decision Lord Neuberger said ‘When interpreting a contract, the court is concerned to find the intention of the party or parties … When it comes to interpreting wills, it seems to me that the approach should be the same.’

In 1999 Mr and Mrs Rawlings wrote and signed identical wills. However, by mistake they signed each other’s will. This did not come to light until after both parties had died.  Mrs Rawlings died in 2003 and Mr Rawlings died in 2006.  Under the will that he signed, Mr Marley, who was not a relative, would have inherited Mr. Rawlings’ entire estate, worth £70,000.  The couple’s two sons challenged the validity of the will because they stood to lose the £70,000.

In 2012 the Court of Appeal upheld the decision of the High Court that Mr Rawlings had not intended to give effect to the will which he signed and that in any event the court does not have the relevant power to rectify the will.

The Supreme Court reversed this decision and allowed the will to be rectified to contain the typed part of the will corresponding to the correct signature. This is to interpret the will in accordance with the intention of the testator, in the same way as a contract is interpreted under the Administration of Justice Act 1982, s 21. There was no doubt from the face of the will, or the evidence, that it was the intention of the will maker at the time of signing the will that it should have effect.

Lord Hodge, in his decision, made it clear that he considered the decision of the Supreme Court could also apply in Scotland, where the law is different from England.

ContractStore has some standard wills both for England & Scotland, but don’t make the same mistake as Mr & Mrs Rawlings!

 

Exclusion Clauses – Ensure Explicit Drafting

Exclusion clauses in contracts need to be drafted very specifically and all limits on liability must be set out explicitly. The recent case of Markerstudy Insurance Co. Ltd v Endsleigh Insurance Services Ltd [2010] EWHC 281 (Comm) is a stark reminder of those principles.

Brief summary of the facts

The defendants, Endsleigh, were engaged by Markerstudy to provide claims handling services concerning a number of agreements. Markerstudy alleged numerous breaches of these agreements which whilst individually may not have been significant, collectively they amounted to losses of £14m. In its defence, Endsleigh sought to rely on numerous limitation and exclusion clauses contained in the contracts.

The court was required to determine two points of construction:

Firstly in relation to the exclusion of liability where the clause provided as follows: “Neither party shall be liable to the other for any indirect consequential loss (including but not limited to loss of goodwill, loss of business, loss of anticipated profit or savings and all other pure economic loss) arising out of or in connection with this Agreement.”  The claimant maintained that by virtue of this clause the defendant was exempted from liability for indirect and consequential losses only. The defendant submitted that it was also exempted from direct losses falling under the heads of loss specified in the clause.

Secondly in respect of the cap on liability; the clause provided that Endsleigh’s total liability in contract, tort, misrepresentation, restitution or otherwise, be limited to the aggregate amount of fees received under the contract. The defendant maintained that this cap of approximately £3.9m included any claims for interest.

The decision

On the interpretation of the exclusion clause, the court found in favour of the claimant, stating: “The use of the phrase ‘including but not limited to’ is a strong pointer that the specified heads of loss are but examples of the excluded indirect loss.” In respect of the cap on liability; the court found in the defendant’s favour in respect of contractual claims for interest.

What are the commercial implications?

This case clearly highlights the need to be explicit and to draft in express terms whenever you are seeking to exclude or cap liability under a contract. If you want to include specific exclusion then parties must consider the specific structure of the clause. Parties need to understand the risks they are accepting and that this allocation is reflected in the contract. SO

1 Consider the commercial negotiations as preparation for any contract;

2 Consider risk allocation – parties should consider how the allocation of risk should be apportioned appropriately between the parties and this allocation needs to be reflected in the contract in express and explicit terms;

3 Ensure that any limitation or exclusion in an agreement does not invalidate your insurance.

4 Know the heads of loss that you want to exclude and the precise nature of the cap on liability which should be stated explicitly in the contract.

5 The term indirect or consequential loss is not a precise term; it should only be used at the end of an exclusion clause as a final catch all precaution and to avoid the potential contamination of the entire clause.

Example of an exclusion clause

1. Neither party shall be liable to the other for any:

a) loss of goodwill

b) loss of business

c) loss of anticipated profit or savings

d) pure economic loss; or

e) any indirect or consequential losses arising out of or in connection with this Agreement.

With respect to any cap on liability, clearly state the precise nature of the cap on liability or a specific figure.

Contributed by Sharonjeev Benning-Prince

 

2013/4 Round up – Part 1. Some legal points from recent cases and a look into 2014

Acting in good faith

It is perhaps surprising, but English law does not generally require the parties to a contract to act in good faith in the performance of the contractual terms.  The parties are on the whole free to behave in accordance with the terms rather than the spirit of the agreement.  The concept of “good faith” is far too vague and it will be difficult for the courts to say exactly what the parties meant.  An express clause in a contract saying that one or other of the parties should act in good faith will be interpreted restrictively so that it will only be applied to the specific point covered by the clause.

The courts will also be reluctant to say that a clause should be implied into a contract that the parties should act in good faith unless the particular circumstances make it essential.  Contracts relating to trust matters usually fall into this category.

The position of the parties before they enter into a contract is much the same. There should, of course, be no misrepresentation or any attempt to mislead or hide the facts, but there is no duty to be fully open about matters and disclose everything.  Again, there is no legal duty to act in good faith in the negotiations.  It is up to each party to investigate the situation and ask questions and for the other to answer fully and accurately. There is one important exception to this rule.  A person wanting to take out an insurance policy should act with the utmost good faith towards the insurer, and disclose all matters which may be relevant, and even if not asked the direct question on the proposal form.

The courts will not, of course, allow an injustice and there are a number of principles which may be applied to ensure that justice is done.

With thanks to Paul Fowler http://www.pcbsolicitors.co.uk

Time to end the lease 

Most commercial leases contain a “break clause”.  This gives the tenant an option of ending the lease before the full term has expired.   It is essential that the tenant complies with the detailed provisions set out in the clause.  Most clauses say that the option should be exercised by the tenant serving a notice upon the landlord within a specified time frame.  The clause will probably say that there should be no breaches of any of the tenant’s covenants by the time the tenant wants the lease to end.  So, for example, there should be no rent arrears and the tenant should have paid all service charges up-to-date.  Payments have or have not been made, and so there should be no quarrel on that factual point.  However, it may be more difficult to say whether or not the tenant has complied with the repairing or decorating covenants, as opinions may differ. Was the right paint used and was the work carried out to a good standard?  Most break clauses provide that the tenant should give vacant possession on the last day and so no furniture should be left in the property and the keys should be handed over promptly.

 The clause may also stipulate what the notice should contain and how it should be served.  So, do not print the notice on blue paper and send it by email if the clause says that it should be printed on red paper and delivered by hand.

The landlord may reject the notice if the tenant fails to comply strictly with the provisions of the break clause.  If the tenant is in any doubt, the landlord should be approached and asked for clarification before the notice takes effect on the last day.

The courts will be reluctant to say that a notice is effective if the tenant fails to comply with the detailed requirements of the break clause.  Basic errors in the notice may not be fatal, if a reasonable landlord knew that the notice was clear.  However, a non-compliant notice may well be ineffective and the tenant will end up with the lease continuing and a huge costs bill for a failed legal case.

With thanks to Paul Fowler http://www.pcbsolicitors.co.uk

Commercial Rent Arrears Recovery – New Regulations in 2014 

One of the most effective remedies for a landlord, where a commercial tenant does not pay its rent on time, has been to exercise distress.  Distress is the common law right to recover rent arrears by seizing and selling a tenant’s goods.  This right will be abolished on 6 April 2014 when the Tribunals Courts and Enforcement Act 2007 is fully enacted and replaced with a new system of commercial rent arrears recovery (CRAR).

CRAR is a ‘self- help’ remedy that does not generally require the intervention of the courts.  The court retains power to intervene if the tenant applies for an order to prevent any abuse of the process or a potential breach of the European Convention on Human Rights.  CRAR can only be used to recover rent in relation to commercial premises not mixed use or residential premises.  The lease has to be in writing.

CRAR can only be exercised against basic rent together with VAT and interest payable on that amount.  It does not include payments such as service charge, business rates, repairs, maintenance or insurance even where they are reserved as rent.

For the right to apply, there will be a threshold rent test being a minimum of 7 days’ unpaid rent.  This is the minimum both when the notice is given and when control is taken.  The landlord must recalculate the net unpaid amount immediately before taking control of any goods.

When exercising CRAR, a minimum notice period of 7 days must be given to allow the debtor to seek legal advice before the enforcement agent is allowed to enter the premises.  The notice has to contain certain prescribed information including details of who the arrears are owed to and why, any court judgment if applicable, how the payment may be made, contact information for the enforcement agent including opening hours and what will happen if payment is not received.

There are also prescribed rules concerning the taking and sale of goods.

 With thanks to Judith M. Long, solicitor

What You Need to Know about Distributor & Reseller Agreements

 If you want to increase sales in a new area whether in your own country or overseas, there are two principal methods, apart from setting up a branch of your business there.  One is to appoint an agent who will promote your goods and find buyers for you.  The other is to appoint a distributor or reseller who will buy your products and then resell them in his territory.

 Once you have decided on the territory that you want to cover, you will need to find a suitable candidate to resell your products.  This is not an easy task and it certainly needs to be undertaken with care, and plenty of due diligence. There is advice on how to go about this in Exporting Made Easy , a book that I have co-written and it is available online at www.exporting-made-easy.com

Once you have selected your distributor, be sure to have a written agreement with him setting out the terms of the deal which allows you to bring the arrangement to an end if things do not work out satisfactorily. You should also get local legal advice before signing an agreement because there could be local laws which you need to take into account – for example, it might be necessary for a distributor to be owned by nationals of the country.

 Set out below are some of the main issues that you need to consider and to cover in your distributorship agreement.

Specify the products and the territory

if you have more than one product line, it may be sensible to restrict the agreement to one or two lines initially to see how things go. You can always add more products later. As for the territory, this needs to be clearly defined. 

Exclusive or Non-exclusive

Are you going to appoint the distributor on an exclusive or non-exclusive basis – i.e.will he be the only person in that territory who is entitled to sell your products. Even if you agree to an exclusive arrangement, you might want to reserve some existing customers to deal with direct, in which case cover this in the agreement.

Duration

What is the initial term of the agreement?   Make it long enough to give the distributor time to get established and into the market with your products, but no longer. It can then be renewable yearly if things work out.

Orders, Prices and Payment

The agreement should set out the arrangements for ordering products as well as prices and payment terms.   Depending on the nature of your business, it can be useful to have forward estimates of orders so that you will have sufficient stock to meet the distributor’s requirements.

It is usual to specify that each order which is accepted constitutes a separate contract between the two parties and that the sales are made on your standard terms and conditions.  You might want to attach a copy of these to the agreement.

There will probably be a schedule setting out the prices of the various products and this could include some trade discounts depending on volume etc.

As for payment terms, you do not want any more exposure than is necessary. Payment prior to shipment is one possibility and another is to have the distributor set up a confirmed irrevocable letter of credit.

It is not normally lawful to fix the resale prices that your distributor will charge so there is always a risk that he will offer your products at a lower price than another distributor.

  Sales Targets. 

You should certainly include some agreed sales targets in the agreement because this allows you to monitor the distributor’s performance. Coupled with the sales targets should be a provision that not only allows you to revise the targets but also entitles you to bring the contract to an end if, for example, minimum targets are not achieved for two or three consecutive quarters.

 General Obligations

It is sensible to identify what marketing material and technical data you will provide and if training of the distributor’s sales staff is needed.  You may also want to have terms that require the distributor to have a marketing budget, to report on sales on a regular basis etc.

 Intellectual property

Make sure that you protect your copyright, patents and trademarks. Your distributor should only be allowed to use them while the agreement remains in place and it is sensible to have a clause which requires him to notify you and to act to protect your interests if, for example, counterfeit goods appear in the market in his territory.

Termination

Always include a clause that allows you to bring the contract to an end if the distributor fails to meet his targets or commits some other breach of contract or becomes insolvent.   Terminating an agreement of this type in some countries might  lead to substantial compensation claims so you need to take legal advice before finalising the wording.

Non-competition and Confidentiality

You may want a clause that prevents the distributor from selling any products that compete with your own both during the agreement and, perhaps, for a period after it has come to an end. In addition, you will probably want to be sure that the terms of the agreement are kept confidential.

Dispute resolution and Governing Law

While you might want English law to apply and any disputes to be dealt with in the English courts, if the distributor is based overseas and has no assets in this country, getting a judgement and then enforcing it against him might prove rather difficult.  An international arbitration clause could well be preferable and we have some free information on our website concerning this topic.

Our template for appointing a distributor can be found here http://www.contractstore.com/A117-distributorship-agreement