My Distributor Has Breached Their Contract. What Can I Do?

If you are a business that supplies certain products to distributors, you may find that your distributor has breached their contract. In this situation, you may have various remedies available to you under the law. Before you proceed with any action, however, it is important that you understand exactly what type of breach your distributor has committed. This article will offer explanations as to your options in a breach of contract with a distributor. It will also help you identify what type of contractual breach has happened, and what it means for your business.

What is a Distribution Agreement?

If you are dealing with a distributor, it is likely that you have entered into a distribution agreement. A distribution agreement is usually a written agreement with a distributor which amounts to a contract. The agreement will set out the contractual obligations of both parties such as the contract’s terms.

Depending on the term that has been breached in the contract, you may have different remedies available to you. 

Different Terms in a Distributor’s Contract

Any breach of a contractual term is a breach of contract. However, depending on how serious the breached term is, you will have different options available to you. 

Broadly, there are two types of contract breaches. The first is a ‘serious breach’. This is usually where the distributor has breached multiple key terms of the contract. The second is an ‘anticipatory breach’. This is when it is clear that your distributor is not going to meet their contractual obligations as planned within the contract.

Serious Breaches

A serious breach will give you the right to choose whether you want to terminate the contract or not. 

Additionally, a serious breach may be available, for example, if your distributor has:

• performed the contract to a particularly low standard;
• missed deadlines; and
• failed to perform the contract in the time that you agreed. 

However, it is worth keeping in mind that whether a breach is a serious breach will depend very closely on the exact facts of the case. As a result, you should seek professional legal advice, as this will give you an assessment based on the precise context of your situation.

If there is a serious breach, you will have the ability to terminate the contract if you wish. If you feel like continuing the contract would make more business sense, then you can do this instead. In this case, a court may impose specific performance on the breaching party. On top of this, you will be able to get compensation or a costs order for the breach. 

Anticipatory Breach

An anticipatory breach happens if the distributor is clearly unable to meet the contractual obligations within your distribution agreement, but they have not yet fully failed to do so. This may put you in a position to immediately terminate the contract. 

However, you may wish to wait until they actually breach the term to result in what is known as a ‘repudiatory breach’. If this happens, you may terminate the contract. Alternatively, you may choose to carry on with the contract, if it makes business sense to do so.

It is very important that you are certain that a breach has occurred before you consider terminating a contract. If you terminate a contract when you do not have the right to do so, then you will be in breach of the contract yourself. This can be very costly for your business and could mean that you end up in court. As a result, it is important to seek legal advice before terminating a contract.

What Other Remedies are Available?

In any case, for a breach of a contract, you will have the ability to get damages. Damages are the legal terminology for compensation. This is where the court awards you a sum to make up for the loss that you have suffered as a result of the breach. 

In some distribution agreements, there will be terms which outline what will happen if one party is in breach of the contract. This can include paying the agreed sum as compensation. It can also include how the dispute will be resolved, for example, if there will be a mediation process or if you will use arbitration. As a result, you must survey your contract and its terms closely before taking any action against the other party.

Key Takeaways

If you are in a distribution agreement with a distributor who has breached their contract, you will have different remedies available to you. Additionally, if the breach is a serious breach, you will be able to choose between terminating the contract and continuing with the contract. If you choose to continue, then you must serve reasonable notice to the other party which lets them know of your intentions. 

In any case, you are likely to also have damages available as an option. It is advised that you seek professional legal advice if you are taking legal action against your distributor, because if you terminate the contract before you have the right to do so, then you could be in breach of the contract yourself.

If you have an issue with a contractual breach, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today at 0808 196 8584 or visit our membership page.

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