UK: Exclusive Distributors - Do They Have To Go The Extra Mile?

Last Updated: 21 June 2010

This recent case provides helpful guidance as to what is required of an exclusive distributor whose agreement requires him to "use all reasonable endeavours" to promote and sell his supplier's products in the territory.

A company called Steni appointed CEP Holdings as its exclusive distributor in the UK, the Channel Islands, the Isle of Man and Eire. The products to be sold were exterior and interior cladding panels for use in building construction. The agreement was to last for at least 20 years. CEP Holdings was required to use all reasonable endeavours to promote and sell the products in the territory.

Steni claimed that CEP Holdings was in breach of this obligation. The question for the court was what did "all reasonable endeavours" mean in this context?

The judge said that this obligation required CEP Holdings to do everything that a reasonably competent and energetic distributor would do to promote the marketing and sales of Steni's products in the relevant territory, knowing that Steni was entirely dependent upon the distributor's efforts to achieve sales in that territory over a period of many years. CEP Holdings was, however, to be afforded a reasonable margin of appreciation or discretion in deciding how best to market and promote the sale of the products in the territory.

On the evidence, the judge found that CEP Holdings was in breach of this obligation. Although no particular aspect of the evidence was conclusive, when taken together they provided ample evidence of a failure to discharge the "all reasonable endeavours" obligation.

Key factors were:

  • Declining sales figures when there had been substantial growth in the rest of the UK claddings market.
  • Lack of an adequately structured and directed sales and marketing organisation within the distributor including lack of written marketing or sales plans or means to monitor performance against targets.
  • Inadequate systems for the preparation of (a) rolling forecasts and (b) logs of specifications and quotations for the supply of the products.
  • Failure to cooperate or share information with the supplier.
  • No production or dissemination of supplier's marketing materials.
  • Failure to attend trade fairs and seminars.

The judge also considered the following factors, but found that they did not provide evidence that the distributor had failed to meet its obligations:

  • Failure to obtain certificates and approvals (although the distributor was criticised for not consulting with the supplier beforehand).
  • Comparing sales figures in other territories.
  • The pricing of the products. The judge did not accept Steni's submission that a reasonably competent and energetic distributor of the products would have ensured that they were priced below those of its principal competitor. He noted that CEP Holdings could have reduced its margins to be more competitive but said this was a commercial decision for CEP Holdings.

CEP Holdings also argued that long lead times and increases in the supplier's pricing relative to competitors caused the decline in the sales and impacted its ability to promote the products. The judge found that the evidence did not support these arguments.

The decision, though fact-specific, is useful to suppliers and distributors alike because it gives guidance on how the court will interpret the common obligation in distribution agreements to use all reasonable endeavours to promote and sell products. The scope of the obligation will, of course, always depend on the factual context. In this case, the distribution agreement was an exclusive one, with a long term, and did not contain specific sales targets.

Case: CEP Holdings Ltd and CEP Claddings Ltd v Steni AS [2009] EWHC 2447 (QB)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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