Other Publications

1. A UNIFORM MODEL FORM FOR INTERNATIONAL TRADE

When negotiating distribution agreements abroad, one of the main difficulties faced by parties engaged in international trade is the lack of uniform rules for agreements of this type. In most countries, distribution agreements are not governed by specific statutory provisions;¹ where such rules are established by the courts, their decisions often refer to distributors acting as retailers at a local level, which implies that they are not always adequate for international distributors-importers.

Some principles are established at the international level, but they refer mainly to antitrust aspects of the contract (i.e. validity of certain restrictive clauses regarding exclusivity, territorial restrictions etc.) and do not cover the rights and obligations of the parties.

This means that parties must refer primarily to the rules they establish in their contracts, so these rules must be set out carefully.

The ICC hereby puts at the disposal of parties engaged in international trade a set of uniform contractual rules which incorporate the prevailing practice in international trade.

In preparing this model form, the ICC task force which drafted this model form has sought to strike a fair balance between the interests of the supplier and those of the distributor-importer. In other words, this model form does not favour the position of one of the parties, but aims at protecting and balancing the legitimate interests of both.

For this reason, parties looking for stronger protection of their interests should use models prepared for the constituencies they belong to (i.e. suppliers-exporters or, respectively, distributors-importers).

2. SCOPE OF APPLICATION

This model form is intended in principle to apply only to international agreements where distributors act as buyers-resellers and as importers who organize distribution in the country they are responsible for.

2.1. International agreements

Since this model form is intended for international contracts, it will, in principle, not be appropriate for domestic contracts, i.e. contracts between parties having their place of business in the same country.

The parties are therefore advised to use this model form for domestic contracts only after having checked what amendments may be necessary in order to comply with local laws and practices.

2.2 Buyer-reseller

The model form does not deal with transactions between principals and commercial agents.² The distributor is not an intermediary or broker but rather a dealer who buys goods in order to resell them in its own name and on its own behalf, even if the distributor is often called “agent” in business practice.

A different problem arises when, within the context of a “real” distribution contract, the distributor also acts as an intermediary for certain business, thus combining the functions of distributor and agent: this situation has been envisaged under Article 3.4.

2.3 Distributor-wholesaler/importer

This model form is designed to cover the situation of a distributor who acts at the wholesale level (being responsible for organizing the distribution of the supplier’s products within a country or part of it). It therefore does not apply in principle to dealers selling at the retail level, although many provisions of the model may be compatible with that situation.

[Page8:]

2.4 Product liability

The task force has decided not to include in the model form clauses on product liability.³ In fact, the problems arising in connection with this issue (particularly as concerns the possibility of reducing or increasing the responsibility in the relationship between supplier and distributor through exemption clauses or “hold harmless” provisions) are complex and depend on the applicable law (which may differ substantially from country to country on the matter).

The parties should give serious consideration to the need for product liability insurance.

3. WHAT IS A DISTRIBUTOR?

The most commonly used terms for the type of contract which is the subject matter of this model form are “distributorship” in English, “concession commerciale” or “concession de vente” in French, and “Vertragshändlervertrag” or “Eigenhändlervertrag” in German. However, in practice, the terms “agent”, or “general agent” are often used, although these terms may have a different meaning in law (since a commercial agent does not normally act as a reseller). The words “importer” or “general importer” are sometimes used to define a distributor responsible for organising distribution in a given country.

The distributor is not simply a reseller;⁴ it is linked to the supplier by a closer tie. In particular, the following characteristics should be noted:

1. in its capacity as reseller, the distributor deals with the promotion and/or organisation of distribution in the assigned territory ;
2. the supplier confers a privileged position in the territory on the distributor: generally the exclusive right to purchase the products from the supplier;
3. the relationship must be for a certain duration and sets conditions for collaboration that, by definition, cannot be episodic;
4. the relationship creates a fairly close tie of loyalty between the parties, which usually implies that the distributor refrains from distributing competing products; and
5. the distributor is virtually always distributing brand name products.

4. DISTRIBUTION CONTRACT AND SALES CONTRACTS

Since the distribution contract implies by definition that the parties conclude sales contracts between them, they need to agree on certain points relating to their seller-purchaser relationship: prices, conditions of payment, warranties, etc. This is normally dealt with by making reference to the general conditions of sale of one of the parties (generally those of the supplier: see Article 7.3).

The parties may also make use of the General Conditions contained in the ICC Model International Sale Contract (ICC Publication n° 738).

However, the parties may wish to determine certain aspects of the sales contracts within the distribution contract itself, particularly with reference to points which require special rules when the buyer is a distributor (e.g. prices and/or discounts; conditions of payment). In this case the special rules contained in the distribution contract will prevail in the event of conflict with the general conditions of sale (see Article 7.3).

5. THE APPLICABLE LAW

This model contract has been based on the assumption that it will not be governed by a specific national law, but only by the provisions of the contract itself and the principles of law generally recognised in international trade as applicable to distributorship contracts (also called “lex mercatoria”). The purpose of this solution is to ensure that the rules of this model form can be applied in a uniform way to principals and distributors of different countries, without giving one party the advantage, and the other party the disadvantage, of applying one party’s national law.

Of course this solution, while avoiding the particularities of national laws, implies (at least for matters not expressly governed by the contract clauses) the recourse to less precise (and predictable) rules than those contained in the domestic laws (although most countries do not have specific rules governing distributorship contracts).

[Page9:]

The drafting group is of the opinion that this can be overcome by making a reference to the Unidroit Principles of International Commercial Contracts,⁵ which offer a reasonably foreseeable legal framework for most issues which may arise.

In fact, the Unidroit Principles offer adequate solutions to the majority of contractual problems of a more general nature (e.g. formation of contract, validity, performance, non-performance, damages, etc.). Only in some very exceptional cases the provisions of the Unidroit Principles may not actually reflect the expectations of international trade:⁶ however, when this happens, the general principles of international trade and the trade usages will prevail over such particular provisions of the Unidroit Principles on the basis of Article 24.1. A, which puts the various sources incorporated by reference in the following hierarchical order: contract clauses, general principles of law, trade usages, Unidroit Principles.

For more detailed information about the choice of a-national rules to govern the contract and in particular the model clause provided in the ICC model contracts, see the study published by the ICC and drafted by a special task force of the CLP Commission: “Developing neutral legal standards for international contracts. A-national rules as the applicable law in international commercial contracts with particular reference to the ICC Model Contracts”. The publication in question is available for free download on the ICC store homepage: http://store.iccwbo.org/ In any case, if the parties wish to have their contract governed by a specific national law, they can use the alternative set forth in Article 24.1. B. In such case they should carefully check if this model form conforms to the provisions and/or judicial precedents of the national law they have chosen.⁷ This alternative (national law) is preferable if parties submit the contract to the jurisdiction of ordinary courts (see Article 23) instead of arbitration.

When choosing a law other that the law of the distributor, parties should check whether this choice is fully effective.⁸

In any case, whenever disputes are not submitted to arbitration, it is recommended to submit the contract to a national law, by choosing the Alternative B of Article 24.1, since it is very unlikely that national courts may accept that the contract be governed by a-national rules instead of a domestic law.

6. COUNTRIES IN WHICH SPECIAL PRECAUTIONS SHOULD BE TAKEN

This model form, although written with the purpose of giving a balanced solution to the issues arising out of a distribution, may, however — in exceptional cases — conflict with national laws protecting the distributor.

In such cases the parties should seek the advice of an expert before using this contract.

7. THE NEED TO COMPLY WITH ANTITRUST RULES

Distribution contracts normally contain clauses which may restrict competition, such as exclusivity, non-competition obligations, resale price maintenance, etc., and which may consequently conflict with antitrust rules. It is therefore recommended to check if all clauses are in accordance with such rules. Since it is impossible to consider the provisions contained in the various national antitrust laws, we will mainly consider the rules of the European Union and only make some short reference to national laws regarding this subject.

Clauses which are likely to be inconsistent with antitrust rules have been put under the title “CHECK ANTITRUST COM PLIANCE”. This does not mean that other clauses cannot conflict with antitrust rules.

[Page10:]

7.1 EU Rules: Article 101 and Regulation 330/2010

The European Commission enacted on 20 April 2010 Regulation n. 330/2010 which replaces Regulation 2790/99 and which came into force on the 1st of June 2010.⁹ Such Regulation exempts certain vertical agreements from the prohibition of Article 101 of the Treaty on the Functioning of the European Union (TFEU).

The clauses contained in this model form are in principle in accordance with the above EU Regulation. However, since some of these clauses may be inappropriate when dealing with distributors outside the common market, in certain cases (Articles 11, 12, 16.2) alternative solutions (which do not comply with the EU antitrust rules) have been proposed; in these cases it has been stated very clearly that such alternatives are not meant for use within the EU.¹⁰,¹¹

A particular problem arises with respect to the clause prohibiting the distributor to sell competing products (or to purchase such products exclusively from the supplier). According to Regulation 330/2010 such obligation should not last more than 5 years, i.e. after such period the clause should be considered as ineffective. Now, since such clause is essential within the distribution agreement (because a supplier will normally not accept that its distributor markets competing products), the model form provides in the alternative of Article 19 to be applied within the EU, (i.e. alternative A) that the duration of the contract is limited to 5 years. Of course, this does not prevent the parties to enter into a new contract after the previous contract has expired.

In this connection it should be noted that the block exemption under Regulation 330/2010 does not apply if the supplier’s share of its sales market or the distributor’s share of its purchasing market relating to the products in question exceeds 30%. It should also be noted that, as a rule, the block exemption under Regulation 330/2010 does not apply to distributorship contracts between competing undertakings (e.g. where the supplier sells a competing product of a different brand at the wholesale level). In these cases parties should seek expert advice.

7.2 National legislation

It is likely that the clause whereby the distributor is to respect the minimum resale prices fixed by the supplier is prohibited under most national antitrust laws.

As to the other clauses (exclusivity, non-competition, export prohibition) parties should seek expert advice, since the solutions may vary from country to country.

8. RECOURSE TO INTERNATIONAL ARBITRATION

Since the model form is a set of uniform contractual rules, avoiding (as far as possible) the direct application of conflicting domestic legislation, it is appropriate that possible disputes be solved by a uniform resolution system organised on an international level.

From this point of view the best solution appears to be international commercial arbitration (see particularly Article 23), which permits a truly international approach and avoids the risk of differentiation which would arise in case of recourse to domestic courts.

Since arbitration is recommended in the framework of this model, this ICC model contract should be adapted in cases where the dispute may be considered as non-arbitrable (i.e. “not capable of settlement by arbitration”) according to the New York Convention of 1958. The above risk exists in particular under national laws which protect the local distributor (see above, § 6), whenever this implies an exclusive jurisdiction of the national courts.¹²

9. PRECAUTIONS FOR USE OF THE MODEL FORM

Any model contract should, to the extent possible, be adapted to the circumstances of a specific case.

Of course, in theory the best solution consists of drafting an individual contract based on existing model forms in order to take account of all the specific requirements of the parties.

However, the parties are often not in a position to prepare a specific contract and prefer to have recourse to a ready-to-use balanced model form: in this case they will ask for a model which can be used as it stands, without any need to make modifications or additions.

[Page11:]

The present model is an attempt to achieve a balance between these two possibilities.

The ICC has tried to work out a single solution on every issue. However, where this has not been possible (see e.g. Articles 12, 16.2, 16.3, 19, 21, 23.2 and 24), alternatives have been suggested.

Such alternative solutions have been presented side-by-side under the letters A and B, in order to point out that only one of them can apply.

Therefore, before signing the contract, the parties must decide which of the alternative solutions they choose, and then cancel the alternative they do not want to apply.

In any event, the model form provides (Article 25.1) that, if the parties do not make a choice by cancelling one alternative, one of them will automatically apply.

There are also a number of points where the parties must insert their requirements: definition of the territory and the products, non-competing products marketed by the distributor, reimbursement of advertising expenses, discounts, guaranteed minimum target, minimum stock, commission on direct sales, etc.

All such points have been incorporated in the Annexes to this document, so that the parties can complete and (where necessary), by mutual agreement modify such Annexes during the life of the contract, without making changes to the basic text of the agreement.

Before signing the contract the parties should complete the Annexes and, if appropriate, delete the parts they do not need.

In order to avoid misunderstandings the parties should, when signing the contract, put their initials on each page, in order to check and make completely clear which amendments they have agreed upon or which alternative solutions they have chosen.

---

---