Governing law and jurisdiction – the key issues for any distributorship agreement – Part I

Following on from my last blog, playing away from home can have various consequences – some of which may be enjoyable! But being forced to play away from home when it comes to resolving a dispute concerning a distributorship agreement can have consequences which are both unexpected and unwelcome.

It is not unheard of for a distributorship to come into existence by stealth – the periodic sale of goods by a UK supplier to an overseas customer becomes more regular in nature and the activities of the customer expand from being simply a reseller of goods to those commonly associated with a distributor. Could it not happen to you? Don’t bet on it. The case law of the European Court of Justice can provide examples where you would have lost your bet.

Similarly, in a situation where the UK supplier appoints a distributor in another country and, at the time of appointment of the distributor, the parties have not entered into a formal agreement. Often this will be the case.

In either situation, the accidental distributor or the informal distributor – the UK supplier will be at risk in the event of a dispute.

Why?

There are fundamental differences between English law and the laws of most other countries both within and outside the EU.

In the event of a dispute with an EU distributor, if the parties have not agreed that English law is to govern their relationship then EU law will provide that the distributorship agreement (unwritten or poorly drafted) will be governed by the law of the member states where the distributor performs its activities as distributor. Whilst the UK supplier may think that this is not much of a problem, that thought is likely to change if, on termination of the distributorship agreement, the distributor claims compensation for the loss of the distributorship in a way analogous to that of a commercial agent which is entitled to a statutory protection under EU law.

What is then a bad situation for the UK supplier may become worse when it is remembered that if thought has not been given (whether intentionally or unintentionally) to what is to be the law of the distributorship agreement, the chances are that the same will be the case in respect of provisions setting out how disputes are to be resolved.