Legal action – alcohol distributors

Alcohol distribution laws and agreements cover a range of rights and obligations and often extend to cross-border and competition issues. Disputes with alcohol distributors, as well as suppliers, manufacturers and producers, can leave you little option but to take legal action.

How distribution agreements vary

Alcohol distribution agreements are commercial agreements that reflect the business needs and expectations of the contractual parties. The parties will be the supplier, often the manufacturer, and the distributor itself and are often used to expand a business into a new market. Under the agreement, the alcohol distributor takes legal title to the beverage and sells them onto a retailer, a wholesaler or direct to consumers.

The agreement may grant exclusive distributorship in a specific area or country; sole distributorship where the supplier also has the right to directly supply goods to end users; or non-exclusive distributorship. The rights and obligations of the parties depend on the nature of the agreement, so it is vital to consider carefully what your specific needs and long-term goals are before finalising terms with your distributor to minimise the risk of a dispute.

If things do go wrong, your business can be at significant risk so it is important to think about whether you can resolve the issues quickly without resorting to expensive court action.

How disputes often arise

Disputes around alcohol distribution agreements, as well as agreements for the sale, purchase and supply of any drink and food products, involve many different issues. For example:

  • Termination clauses: the operation of termination clauses often leads to problems. If, for example, the distributor terminates the agreement but the contractual grounds for doing so are not satisfied, you could face financial losses. In other cases, there may be argument about the validity or the meaning of a termination clause which may be ambiguous, in which case you will need to consider taking specialist legal advice;
  • Notice periods: these are important in distribution agreements so that one party has sufficient notice of the other’s intention to end the relationship. If the distributor does not give you notice in accordance with the contractual notice period and you suffer financial losses, you can claim damages. However, if the agreement is silent as to notice requirements, it can be terminated only on reasonable notice or if there is a major (‘repudiatory’) contractual breach;
  • Specific contract breach: if your distributor has failed to achieve specific contractual requirements, such as providing details of stock levels and marketing spends, so that it is more difficult to protect your reputation, you should be able to take legal action for loss of profit;
  • Confidentiality: your distribution agreement probably sets out obligations and restrictions on the distributor on its use and disclosure of the confidential information it holds. If confidentiality is breached, for example, disclosures are wrongly made to third parties, you may well be entitled to claim damages – and even to end the agreement in serious confidentiality breaches;
  • Management issues: it could be you are dissatisfied with the general management style of the distributor or the conduct of its staff and operations, but any action you wish to take as a result needs careful thought to avoid any allegation of discrimination;
  • Illegal conduct: drink distributors can break UK law by distributing alcohol in breach of strict age restrictions or pricing regulations. A robust distribution agreement will usually allow you bring the agreement to an end and claim damages for breach where this type of illegal conduct takes place. After all, you have a reputation to maintain!
  • Switching suppliers: in some cases, your agreement may not be as solid as you think, and your distributor could decide to switch to a supplier who promises a more lucrative deal. If this happens, you may need to take legal action for damages and a possible injunction; and
  • Competition law: competition issues sometimes arise, as some arrangements are prohibited if they breach competition rules. This means that you may be unable to enforce a restriction imposed on a distributor, and the distributor may even rely on competition law to defend any action you bring. You could also face fines and damages claims for competition breaches, so where a competition issue arises you should take specialist advice as soon as you can.

What action you can take

If your attempts to settle the dispute are unsuccessful, legal action may be the only way to protect your business and its reputation. The terms of the distribution agreement and any pre-contractual discussions will be vital in helping us determine on what basis you can take action against the distributor.

We will discuss what remedies you are seeking before we apply to court. For instance, we may be able to ask the court to enforce the contract, ensuring continued supply under the terms agreed. If you have suffered financial losses as a result of a contract breach, you can claim damages as well as or instead of enforcement of the contract.

There are also ancillary matters to think about when your commercial relationship is irreconcilable. For example, whether the distributor still has any intellectual property for your business, how you can secure the return or repurchase of alcohol products from the distributor – and the important matter of finding a new distributor.

For further information, please contact our litigation team on 01732 770660, [email protected] Warners Solicitors has offices in Sevenoaks and Tonbridge, Kent.

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.

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