In a recent decision, the High Court has provided useful insight into the types of obligations an "all reasonable endeavours" clause will impose on a distributor, and a practical guide to the steps a distributor is likely to be required to take to fulfil the requirements of such a clause. Such steps include the preparation of marketing and promotional plans, co-operation and engagement with the supplier, and the maintenance of an adequately structured and directed sales and marketing organisation.
While in this case no single failing by the distributor was held to be sufficient to constitute a breach of the clause, the Court held that a number of minor failings, when viewed together, were sufficient to be considered a breach.
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In a recent decision, the High Court has provided useful insight into the types of obligations an "all reasonable endeavours" clause will impose on a distributor, and a practical guide to the steps a distributor is likely to be required to take to fulfil the requirements of such a clause. Such steps include the preparation of marketing and promotional plans, co-operation and engagement with the supplier, and the maintenance of an adequately structured and directed sales and marketing organisation.
While in this case no single failing by the distributor was held to be sufficient to constitute a breach of the clause, the Court held that a number of minor failings, when viewed together, were sufficient to be considered a breach.
In the case of case of CEP Holdings Ltd & CEP Claddings Ltd v Steni AS, the High Court has provided a useful guide to some of the practical steps that should be expected of a reasonably competent and energetic distributor in the fulfilment of an all reasonable endeavours obligation.
The claimants in this case (CEP Holdings and CEP Claddings) are part of a group of companies which supply claddings and other building materials to construction companies. The defendant, Steni AS, is a cladding manufacturer. In 1999, the parties entered into a distribution agreement appointing the CEP group as the exclusive distributors of Steni products in the UK. This agreement required CEP Holdings to use all reasonable endeavours to promote and sell Steni's products. In 2005, Steni sent notice to CEP terminating the agreement due to certain breaches, including CEP's failure to use all reasonable endeavours to promote and sell Steni's products in the territory.
In its judgment, the Court held that, while no one particular act or omission of CEP could be considered a breach of the requirement to use all reasonable endeavours, "taken together, they provide ... ample evidence of a failure on Holdings' part to discharge its all reasonable endeavours obligation".
The Court identified a number of failings of CEP that, when considered together, amounted to a breach. Several of these related to declining sales figures for the Steni products distributed by CEP, and the ways in which CEP reacted, or failed to react, to these declines. In the 2002-2004 period, sales volumes in the relevant UK claddings market generally enjoyed a cumulative growth of 18%. Over the same period, the sales volumes of Steni's products achieved by CEP fell by 62%. The court held that:
"On its own, the decline in sales factor is not determinative. But it raises the question of why, when the rest of the comparable UK claddings market was experiencing substantial growth over the period 2002-2004, Holdings/Claddings sales of Steni products were declining."
The Court attributed much of the blame for this drop in sales figures to the "lack of an adequately structured, and directed, sales and marketing organisation" within CEP. During the period in question, the sales and marketing activities of CEP were overseen by, and largely dependent upon, one man. In the Court's opinion, this one man was given far too much responsibility, particularly in view of the fact that for three days a week he was on the road, and difficult to contact. In addition, the Court felt that the internal communications practice of CEP when it came to the promotion and sale of Steni products was too unstructured and informal.
The Court also noted that CEP had no written marketing or sales plan, and found that the lack of a requirement under the distribution agreement to produce such a plan did not obviate the need to produce one. The Court understood that perhaps no such plan was required before 2001, but once a poor sales performance led to an underachievement in terms of forecast sales, a plan should have been produced.
The Court also drew attention to CEP's multiple failures to cooperate and communicate with Steni - in terms of the preparation of rolling forecasts and logs of specifications and quotations; discussing the negative sales trend with Steni in order to reverse it; and working together to market the products through promotional literature and marketing materials, and attendance at trade fairs and seminars.
In the abstract, the court provided guidance as to some of the lengths to which a 'reasonably competent and energetic distributor' is expected to go to discharge an 'all reasonable endeavours' obligation:
1. to prepare and utilise a detailed written marketing or promotional plan to assist in its sales and promotion of the supplier's products;
2. to monitor, and take timely steps to improve, the quality of its sales team;
3. to have in place a system in relation to information flows and procedures for forecasting future sales;
4. to engage in positive dialogue with the supplier, in order to maximise the promotion of sales of the supplier's product; and
5. to make use of all the materials provided to it by the supplier in order to promote and market the sale of the supplier's products.
CEP Holdings Ltd & CEP Claddings Ltd v Steni AS [2009] EWHC 2447 (QB). To link to a full copy of the judgment please click here.
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 27/10/2009.
