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ICC model selective distribution contract
(with commentary)

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Selective distribution is mainly used for(a)products of a highly technical nature for which specific assistance to the prospective purchaser is appropriate, and (b)roducts with a significant reputation justifying that they are sold in premises having a certain image and offering personal advice and demonstration.

The preamble makes clear that the Supplier is seeking to improve, through the selection of its distributors, the distribution of its products.

THE PARTIES AGREE AS FOLLOWS

ARTICLE 1 – SCOPE OF THE CONTRACT

The Supplier grants by means of the present Contract to the Distributor the right to market the products listed in Annex 1-A including the corresponding accessories and spare parts, if any (hereinafter collectively referred to as the “Products”), in the sales outlet¹indicated in Annex 1-B, that fulfils the requirements defined in Annex 2.

The expression “Selected Distributor” or “Approved Distributor” is often used to indicate that the Distributor fulfils the selection criteria. To simplify, in this model contract, the terms “Distributor” and “Supplier” will be used.

ARTICLE 2 – GOOD FAITH AND FAIR DEALING

2.1 In carrying out their obligations under this Contract the parties will act in accordance with good faith and fair dealing.

2.2 The provisions of this Contract, as well as any statements made by the parties in connection with it, shall be interpreted in good faith.

ARTICLE 3 – MODIFICATION OF THE RANGE OF PRODUCTS

3.1 Any new product added hereafter by the parties to the range of the Supplier’s Products shall be deemed a Product covered by the Contract.

3.2 The Supplier may withdraw from the list of Products any Product that it no longer wishes to include in its range. The Supplier shall, however, inform the Distributor of such decision 30 days in advance.

ARTICLE 4 – LEGAL STATUS OF THE DISTRIBUTOR

4.1 The Distributor shall conduct its activities as an independent business operator in its own name and on its own account. The Distributor is neither an employee, agent, sales representative, nor a partner of the Supplier. [Page17:]

4.2 The Distributor shall not hold itself out as having any power or authority to enter into contracts in the name of the Supplier, to commit the Supplier in any way towards third parties or to incur any obligation on behalf of the Supplier.

4.3 The Distributor shall act in compliance with all applicable laws and regulations and shall apply for, obtain and have renewed all permits, authorizations and licences required for its activity at its own expense².

ARTICLE 5 – DISTRIBUTOR’S OBLIGATION TO PURCHASE

5.1 The Distributor undertakes to purchase directly from the Supplier the quantities of Products provided in Annex 3 during each period indicated therein. For successive periods not considered in the above Annex parties will agree in good faith, taking into account the market conditions, upon reasonable minimum quantities. In case of disagreement, the quantities applicable to the previous period will apply.

5.2 In the event the Distributor fails to fulfil the obligation to purchase set forth in the preceding paragraph, the Supplier may, and at its sole discretion, terminate the Contract, giving 30 days’ prior written notice thereof. Such right must be exercised within 90 days from the end of the period of time to which the minimum turnover refers. Unless the non-attainment of the minimum quantities implies the breach of other contract obligations, the Supplier’s right to terminate the Contract will be the only consequence of not fulfilling the obligation under Article 5.2³.

It is frequent to fix a minimum turnover the Distributor must attain. This clause refers to Annex 3 where the periods of reference (year, semester) and the respective amounts must be indicated.

It should be noted that in Article 5.1 reference is made to products directly purchased from the Supplier, without considering possible products bought from other distributors.

ARTICLE 6 – CONDITIONS OF SUPPLY – PRICES

6.1 The Supplier shall in principle supply all Products ordered, subject to their availability, and provided payment of the Products is adequately warranted. It may not unreasonably reject orders received from the Distributor; in particular, a repeated refusal of orders contrary to good faith (e.g. if made for the purpose of hindering the Distributor’s activity) shall be considered as a breach of contract by the Supplier.

6.2 The Supplier agrees to make its best efforts to fulfil the orders it has accepted.

6.3 Sales of the Products to the Distributor shall be governed by the Supplier’s general conditions of sale, as in force from time to time, the currently applicable version of which is attached to this Contract (Annex 4). In case of conflict between such general conditions and the terms of this Contract, the latter shall prevail. [Page18:]

6.4 The prices payable by the Distributor shall be those set forth in the Supplier’s price-list in force at the time the order is received by the Supplier. Unless otherwise agreed, such prices are subject to change at any time, subject to one month’s notice⁴. The new prices shall not be applied to orders received by the Supplier before the entry into force of the new prices.

6.5 The Distributor agrees to comply, with the utmost care, with the terms of payment agreed upon between the parties.

6.6 It is agreed that the Products delivered remain the Supplier’s property until the Supplier has received payment in full.

Article 6.1 tries to make a reasonable compromise between the Distributor’s need to be supplied with all products ordered, and the Supplier’s preoccupation not to be in breach when a refusal to accept orders is justified by objective reasons.

Article 6.3 makes reference to the Supplier’s general conditions of sale, which will regulate the issues regarding the sales contract not treated in the distribution contract. When drafting the general conditions of sale parties may make reference to the “ICC

The effectiveness of Article 6.6 (reservation of title) depends on the law applicable in the country where the goods are, and may therefore be invalid (or ineffective) in certain countries. For further information see ICC Publication no. 467 on reservation of title.

ARTICLE 7 – INFORMATION

7.1 The Distributor shall, at the request of the Supplier, provide information concerning:

1. the sales of the Products and the total turnover inclusive of VAT, as well as a physical inventory of the Products;
2. the invoices regarding resale of the Products to other distributors, if there are clear and serious indications of the resale of Products to non-selected distributors.

7.2 The Distributor shall furthermore, of its own initiative, inform the Supplier about:

1. difficulties encountered, in particular regarding requirements of the customers and the market situation;
2. Requests by customers for delivery of goods of which one may presume that they are likely to be resold;
3. Modifications that have arisen or could arise in the Distributor’s company that could affect the normal continuation of their relations.

The Supplier may need information from the Distributor, in particular regarding the marketing of the products and any changes affecting its company or, even, its financial condition.

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Furthermore, it will require information which is necessary to prevent violations of the prohibition to sell to non-authorized resellers such as, for example, 7.1(b) and 7.2(b). However, these clauses must be reasonable, because an excessive interference in the Distributor’s activity could amount to a violation of the EU competition rules, particularly if it appears that the Supplier actually wishes to prevent lawful “horizontal sales” between distributors (see Introduction, § 8.1).

ARTICLE 8 – MARKETING OF THE PRODUCTS

8.1 The Distributor shall observe the Supplier’s marketing standards with respect to the following matters:

8.1.1 Installation of the sales outlet

The setting of the sales outlet shall not tarnish the brand image of the Products and shall correspond to the good standing of such image; the Distributor may not offer at the sales outlet products or services whose marketing could adversely affect the image of the Supplier’s brand.

The area devoted to the sale of the Products shall be adequate to the importance of the Supplier’s trademark and shall conform to the standards indicated by the Supplier.

Storage of the Products shall take place in suitable conditions with regard to their nature and fully conform to the Supplier’s specifications regarding their preservation⁵.

8.1.2 Advice and demonstration

Advice regarding and demonstration of the Products shall be offered to anyone who requests it, in accordance with the guidelines, recommendations and sales arguments given by the Supplier and/or provided during training courses organized by the Supplier.

The Distributor shall engage a sufficient number of qualified employees, taking into account the area of sales outlet, the opening time and the number of Products marketed.

8.1.3 Sales promotion

The Distributor shall make every effort to apply in the sales outlet sales promotions organized on a national basis by the Supplier, it being understood that this obligation shall not prevent the Distributor from freely establishing resale prices.

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ARTICLE 9 – RESALE OF THE PRODUCTS

9.1 The Distributor may only resell the Products to consumers or to other selected distributors; in the latter case, the Distributor shall take all possible precautions to ensure that Products delivered in such manner do not leave the network of selected distributors and shall retain a copy of the invoices pertaining to such sales for one year and shall forward these to the Supplier if an inspection seems necessary.

According to the EU antitrust rules the Distributor must remain free to sell the products to any other member of the network. This clause aims at facilitating the Supplier’s control over such sales, in order to make sure that the products are not sold to nonmembers of the network. A very special problem arises when the Supplier wishes to limit the sale of certain products to a certain area (and thus to forbid the distributors of such area to resell them elsewhere). In cases where the Supplier wishes to launch certain new products in one area only, exceptions to the freedom of horizontal sales are possible for a limited period of time. In this case the advice of an expert is recommended.

9.2 The Distributor is free to fix the resale prices of the Products. However, the Supplier may indicate “non binding” resale prices, provided this in no way limits the Distributor’s right to grant lower prices.

ARTICLE 10 – ASSISTANCE AND TRAINING

10.1 To the extent needed for the correct marketing of the Products the Supplier shall provide technical assistance to the Distributor and its personnel, in particular through the training of such personnel, in order to provide the end user with the services necessary to ensure the correct choice and the correct use of the Products.

10.2 The travel and lodging expenses of the Supplier’s employees involved in the above shall be paid by the Supplier. The Distributor shall attend and shall have the relevant personnel attend the training courses provided by the Supplier. The travel and lodging expenses of the Distributor’s employees shall be paid by the Distributor.

ARTICLE 11 – AFTER-SALES SERVICE6

11.1 The Distributor and its personnel shall provide after-sales service, i.e. the maintenance, repair and warranty of all Products sold through the selective distribution system, in compliance with the Supplier’s standards and in a manner consistent with the brand image of the Products.

11.2 The characteristics of the service as well as the allocation of cost of such after-sales service (particularly for repairs made during the warranty period) are set out in Annex 5.

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ARTICLE 12 – STOCK OF PRODUCTS

12.1 The Distributor shall continuously maintain a stock of the Products, in accordance with the provisions of Annex 6, in order to fulfil the customers’ requirements in the most satisfactory manner.

12.2 If Annex 6 has not been completed, the Distributor shall continuously maintain an adequate stock of the Products to supply the market normally.

ARTICLE 13 – PRESENTATION OF THE PRODUCTS

The Distributor may not, without the consent of the Supplier, change or alter, in any manner whatsoever, the Product, its packaging or any information thereon, except as required by the law.

The Supplier will usually seek to have a standard presentation and quality for its products in all markets where they are sold. Any modification or alteration of the products by the Distributor, without the Supplier’s authorization, could disrupt this requirement and possibly confuse customers.

ARTICLE 14 – INTELLECTUAL PROPERTY RIGHTS

14.1 The Distributor shall use the Supplier’s trademarks, trade names or any other symbols. However, the Distributor may do so only for the purpose of identifying and advertising the Products within the scope of this Contract and in the Supplier’s sole interest.

14.2 Any use of the Supplier’s trademarks or other trade names or symbols shall be submitted for prior approval to the Supplier, who will check if it conforms to its image and marketing strategies.

14.3 The Distributor’s right to use the Supplier’s trademarks, trade names or symbols, as provided for under the first paragraph of this Article, shall cease immediately upon the expiration or termination, for any reason, of the present contract. This does not preclude the Distributor’s right to sell the Products in stock at the date of expiration of the Contract which bear the Supplier’s trademarks.

14.4 The Distributor shall notify the Supplier of any infringement of the Supplier’s trademarks, trade names or symbols, or other industrial property rights, that comes to its attention.

The Selected Distributor does not as a rule operate its business under the Supplier’s trademark, since it also sells competing products. However, it may be to its advantage to advertise itself as a distributor selected by the Supplier and to use, for such purpose, the trademark and other distinctive marks and trade names of the Supplier.

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ARTICLE 15 – INSPECTIONS

15.1 The Distributor shall grant the Supplier access to its sales outlet in order to inspect whether the standards stipulated by the Contract are being observed.

15.2 For such purposes, the Supplier may have recourse to the services of representatives or specialists (accountants, technicians, lawyers, etc.).

15.3 Such inspections, however, may only take place during normal business hours, and following at least 7 days’ written notice before the date desired.

ARTICLE 16 – CONFIDENTIALITY

16.1 Each party shall refrain from disclosing confidential information concerning the other party or using such information for purposes other than for the proper performance of the Contract. Information that is already in the public domain shall not be deemed confidential.

16.2 The obligation provided above shall survive termination of the Contract.

ARTICLE 17 – ASSIGNMENT AND TRANSFER OF THE CONTRACT

17.1 The Distributor may request the Supplier to be authorized to assign the Contract to a third party which fulfils the selection criteria established by the Supplier.

17.2 The Supplier shall notify its acceptance or rejection within a maximum period of 30 days, by means of communication ensuring evidence and date of receipt (e.g. registered mail with return receipt, special courier); lack of response within such period shall be deemed to be an acceptance.

17.3 Any assignment that takes place despite the Supplier’s refusal to approve shall entitle the Supplier to terminate this Contract with immediate effect in conformity with Article 19.

A selective distribution contract is not necessarily a contract entered into “intuitu personae”. However, the Distributor must meet certain requirements in order to be selected. It is thus preferable to provide for an approval clause, allowing the Supplier to reject a potential assign which does not fulfil such conditions even before the assignment or transfer.

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ARTICLE 18 – DURATION

18 A.

18.1 This Contract is concluded for an indefinite period and enters into force on the date of signature.

18.2 This Contract may be terminated by either party by notice given in writing by means of communication ensuring evidence and date of receipt (e.g. registered mail with return receipt, special courier), not less than 4 months in advance. The parties may agree in writing on longer periods of notice.

18 B.

18.1 This Contract enters into force on the date of signature and shall remain in force for a period of one year.

18.2 This Contract shall be automatically renewed for successive periods of one year, unless terminated by either party by notice given in writing by means of communication ensuring evidence and date of receipt (e.g. registered mail with return receipt, special courier), not less than 2 months before the date of expiry. The parties may agree in writing on longer periods of notice.

ARTICLE 19 – EARLIER TERMINATION

19.1 Each party may terminate this Contract with immediate effect, by notice given in writing by means of communication ensuring evidence and date of receipt (e.g. registered mail with return receipt, special courier, telex), in case of a substantial breach by the other party of the obligations arising out of the Contract, or in case of exceptional circumstances justifying the earlier termination.

19.2 Any failure by a party to carry out all or part of its obligations under the Contract resulting in such detriment to the other party as to substantially deprive him of what it is entitled to expect under the Contract, shall be considered as a substantial breach for the purpose of Article 19.1. above. Circumstances in which it would be unreasonable to require the terminating party to continue to be bound by this contract shall be considered as exceptional circumstances for the purpose of Article 19.1. above.

19.3 The parties hereby agree that the violation of the provisions under Articles ..................⁷of the present Contract is to be considered in principle, unless the contrary is proved, as a substantial breach of the Contract. Moreover, any violation of the contractual obligations may be considered as a substantial breach, if such violation is repeated notwithstanding a request by the other party to fulfil the contract obligations.[Page24:]

19.4 The Supplier may furthermore terminate the Contract with immediate effect if the Distributor no longer fulfils, for any reason whatsoever, the selection criteria set forth in Annex 2 or commits a breach of Contract that severely compromises the brand image of the Products, in particular:

– the failure to provide adequate services to consumers,

– the incompetence, absence or shortage of the staff required to satisfy the customer’s needs,

– in the event of the sale of the Products to purchasers other than consumers or authorized distributors, selected by the Supplier.

19.5 Furthermore, the parties agree that the following situations shall be considered as exceptional circumstances which justify the earlier termination by the other party: bankruptcy, moratorium, receivership, liquidation or any kind of composition between the debtor and the creditors, or any circumstances which are likely to affect substantially one party’s ability to carry out its obligations under this Contract.

ARTICLE 20 – EFFECTS OF TERMINATION

20.1 Upon termination of the Contract, the Supplier shall, if a minimum stock is required under Annex 6 or has been otherwise agreed, take back the entire stock of Products in good condition remaining in the Distributor’s possession, at the price paid by the Distributor. Any excess stock of Products may be repurchased by the Supplier at its discretion.

20.2 The Distributor shall return to the Supplier all commercial documents and other advertising or promotional materials regarding the Products that are in its possession. The Distributor shall also return the shop sign (if any) and remove any reference identifying him as a distributor of the Supplier’s Products.

ARTICLE 21 – PREVIOUS AGREEMENTS – MODIFICATIONS – NULLITY

21.1 This Contract replaces any other preceding agreement between the parties on the subject.

21.2 No addition or modification to this contract shall be valid unless made in writing. However, a party may be precluded by its conduct from asserting the invalidity of additions or modifications not made in writing to the extent that the other party has relied on such conduct.

The second sentence of this clause is meant to protect a party against the other party using the clause in bad faith. When a party accepts a modification made orally and gives the other party reasons to rely upon the validity of such modification, it cannot thereafter argue that the modification was invalid because not made in writing

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21.3 If any provision or clause of this Contract is found to be null or unenforceable, the Contract will be construed as a whole to effect as closely as practicable the original intent of the parties; however if, for good cause, either party would not have entered into the Contract knowing the interpretation of the Contract resulting from the foregoing, the Contract itself shall be null.

ARTICLE 22 – NO WAIVER

22.1 No delay or failure to act, whether express or implied, on the part of one of the parties when faced with a failure by the other party to perform any obligation, shall be interpreted or deemed approval or acceptance of such a breach or any other breach of the same or a different nature committed by the offending party.

22.2 The failure, on the part of one of the parties, to exercise any of its rights may in no way hamper the exercise of such right at a later time.

In general, it is provided that the tolerance of one of the parties, confronted with a breach of duty by the other, or the failure of one of the parties to exercise a right it has, must not be deemed a waiver of the right to take action or to use the unexercised right at a later date.

It should be noted that clauses of this type may be ineffective in certain jurisdictions, particularly where their strict application may conflict with the principle of good faith.

ARTICLE 23 – APPLICABLE LAW

23.1 A

Any questions relating to this Contract which are not expressly or implicitly settled by the provisions contained in this Contract shall be governed, in the following order:

1. by the principles of law generally recognized in international trade as applicable to selective distribution contracts,
2. by the relevant trade usages, and
3. by the Unidroit Principles of International Commercial Contracts, with the exclusion – subject to Article 23.2. hereunder – of national laws.

23.1 B

This Contract is governed by the laws of ........... (name of the country the law of which is to apply)⁸.

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23.2 In any event consideration shall be given to mandatory provisions of the law of the country where the Distributor is established which would be applicable even if the Contract is governed by a foreign law. Any such provisions will be taken into account to the extent they embody principles which are universally recognized and provided their application appears reasonable in the context of international trade.

23.3 Unless otherwise agreed in writing, the sale contracts concluded between the Supplier and the Distributor within this selective distribution Contract will be governed by the United Nations Convention on Contracts for the International Sale of Goods (Vienna Convention of 1980, hereafter referred to as CISG), and to the extent that such questions are not covered by CISG, by reference to the rules and principles of law generally recognized in international trade as applicable to international contracts of sale.

For the choice between alternative A and B see Introduction, § 6.

ARTICLE 24 – RESOLUTION OF DISPUTES

24.1 In the event of any dispute arising out of or in connection with this selective distribution Contract, the parties agree to submit the matter to settlement proceedings under the ICC ADR Rules. If the dispute has not been settled within 45 days following the filing of a Request of ADR or within such other period as the parties may agree in writing, the parties will have recourse to the means of resolution of disputes set out in Article 24.2 hereunder.

24.2 A

Arbitration

All disputes arising out of or in connection with this distributorship contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.

24.2 B

Litigation (ordinary courts)

In case of dispute the courts of .................. (place) ........................... (country) shall have jurisdiction.

ARTICLE 25 – AUTOMATIC INCLUSION UNDER THE PRESENT CONTRACT

25.1 If the parties have not made a choice between the alternative solutions provided in Articles 18, 23.1 and 24.2 under the letters A and B, by deleting one of the alternatives, and provided they have not expressly made a choice by other means, alternative A shall be considered applicable.

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25.2 The Annexes attached to this Contract form an integral part of the Contract. Annexes or parts of Annexes, which have not been completed, will be effective only to the extent and under the conditions indicated in this Contract.

ARTICLE 26 – AUTHENTIC TEXT

The English text of this contract is the only authentic text⁹.

Made in ……………………………… on the ………………………

The Supplier

……………….

The Distributor

……………..

ENDNOTES

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