It’s a given that the timely delivery of goods is important for the performance of many contracts. But do contracting parties ever give thought to the consequences of deliveries being delayed? According to Stephen Sidkin, this question is pertinent for many contracts – not least, agency and distributorship contracts – following the release last month of the Ever Given from the Suez Canal, where the Suez Canal Authority had held it (and its 18,000 containers, which held, among other things, products being supplied to IKEA) since March …
The contractual relationship between many suppliers and distributors will be formally documented. The contract should set out the terms on which the distributor will develop and service a particular market.
It should also set out the terms on which the supplier and distributor will sell and buy the goods which are the subject of the distributorship contract. Failure to do so will, at best, result in the supplier relying on the Sale of Goods Act. But the act does not: limit the seller’s liability for late or non-delivery of the goods; or provide for force majeure.
For the distributor, late or non-delivery of the goods invariably will place it in a difficult position. First, it has contracted to buy the goods so as to resell them to its customers. No goods, no resale, no profit! But by not supplying customers, the distributor may be in breach of contracts with these customers and exposed to damages claims.
Second, can the distributor look to the supplier to cover the distributor’s liability to its customers? Where the supplier-distributor relationship is poor, late or non-delivery of the contracted goods may give the distributor the opportunity to assert that the distributorship contract is at an end.
This may interest a distributor: faced with a declining market for the supplier’s goods; or wanting to exit from contractual commitments to purchase minimum quantities of goods from the supplier going forward; or where the law of the distributor’s country provides the distributor with mandatory rights to compensation on the ending of the distributorship contract.
Principals and agents
Whilst the contractual relationship between many principals and agents will be formally documented, often there will be overarching legal protection given to the agent (in the UK by the Commercial Agents Regulations, and in the EU by the EU Agents Directive). Further afield, the protection of agents can be found in the laws of many countries in Africa, Asia, the Gulf and South America.
But, for protection to arise, the agency contract must be ended either by: the principal; or the agent, on the basis that such termination is justified by circumstances attributable to the principal.
In an Ever Given-type situation, the late or non-delivery of goods by the principal to a customer in respect of an order obtained by the agent is unlikely to justify the agent terminating the agency contract by circumstances attributable to the principal.
But late or non-delivery may find that the customer accepts delivery only if the price is reduced – or simply refuses delivery. In this situation, can the principal reduce the commission payable or pay no commission to the agent?
Contractual certainty is a good vaccine against conflict. So, hopefully the agency contract expressly allows the principal to reduce the commission in this situation. If not, where the principal has agreed to reduce the price payable by the customer, a disproportionate reduction in commission may entitle the agent to claim that the termination of the agency contract is justified by circumstances attributable to the principal.
Where termination of the contract occurs, the agent will usually claim: damages for failure to give proper notice; commission accrued but unpaid at the time of termination; commission in respect of orders received by the principal after termination, where those orders resulted from the agent’s activities before termination; and commission in respect of orders accepted but unfulfilled by the principal, where the principal is to blame.
But the fact that the principal was not paid by the customer does not void the principal’s liability to pay the agent commission!
Whether discussing agency or distributorship contracts, 200,000 tons is an Ever Given reason to consider the impact of late or non-delivery of goods.
Stephen Sidkin is a partner at Fox Williams LLP.
