08/02/2005 - 21:00

Selling agreements – retailers beware

08/02/2005 - 21:00

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Selling agreements – retailers beware

Retailers, especially those whom have recently acquired a business, should carefully read the contents of any documents they sign with suppliers.

It is not uncommon for supplier companies to incorporate terms into their selling agreements requiring a retailer to stock their products exclusively, for a defined period (usually between three to five years). 

Once a retailer signs a document containing such terms, or alternatively, signs a document incorporating these terms by reference, he or she is legally bound to purchase and stock the supplier’s product, exclusively for the period provided for in the selling agreement.

Essentially, a selling agreement containing an exclusivity term means that the retailer is precluded from stocking any of the supplier’s competitors' products for the period proscribed in the agreement. 

It is not uncommon for retailers, during the term of an exclusive selling agreement with a particular supplier, to be approached by a sales representative of the supplier’s competitor and asked if they would like to switch to stocking the competitor’s product. 

In these situations, if a retailer does in fact switch to the competitor’s product then they are likely to be in breach of their current exclusive selling agreement, which is likely to entitle the supplier to sue the retailer for damages for lost profits.

In situations where there is a considerable amount of time left to run on the breached selling agreement, the damages claim for lost profits is likely to be substantial, which for most small businesses could have dire consequences. 

As the competition gets tougher between suppliers, it is likely that the amount of poaching will increase and consequently the number of exclusive selling agreements being prematurely terminated is also likely to increase. 

As this occurs it is perceivable that suppliers will look more vigorously to enforce their legal rights against suppliers whom have illegitimately terminated exclusive selling agreements.

It is therefore imperative for retailers to ensure that they thoroughly read the terms of any selling agreements they are presented with prior to signing them and to always be aware of their obligations under such agreements.  Once the agreement is signed, then in the absence of any extenuating circumstances, the retailer will be presumed at law as having read the agreement, understood its terms and to have agreed to be bound by them.

Any retailer that is not comfortable with, or does not understand, the terms of any selling agreement they are asked to sign should consult a solicitor prior to signing the agreement.

Similarly, any retailer bound by an exclusive supply agreement to one supplier should seriously consider the ramifications of switching to the supplier’s competitor, and if uncertain as to what they are, before doing so should consult a solicitor.

Wayne Zappia, solicitor - 9288 6931

Alison Robertson, partner - 9288 6872

Phillips Fox

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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