Sole Distribution Rights UK from China.

[Brettski30]

Hi,

We have been successfully purchasing a range of products from a Chinese company for the past 4 years and have now grown big enough in the UK market to obtain UK sole distribution rights of their items.

We are due to fly out at the end of July and are looking to discuss prior to this other peoples experience of this type of contract.

Having not done this before we are looking for advice on;

*Should we seek solicitors help on doing a contract before we leave?
*Should we have our own paperwork for them to sign?

And any other help / advice you may have for us?

Thanks for all your help in advance.

Brett

 

[moduslegal]

You should definitely take the advice of a solicitor and I would be happy to chat about it if you want to PM me or give me a call.

The first thing I would say is that you have to bear in mind that whatever contract you get signed isn't likely to cut much ice with the Chinese company. I mean - for example - are you seriously going to try to sue them if they breach it? Unless you had plenty of cash and the right contacts in China it would be a waste of time.

Therefore the main benefit of getting a contract would be have something you can show to people here to demonstrate that you hold the sole distribution rights - for example people you wish to distribute to.

I would think it would be worth getting a proper contract drawn up - even if it would be very difficult to enforce against the Chinese company - to demonstrate to all concerned that the relationship has been professionally set up and that you expect it to operate in that way.

There are plenty of benefits to you getting it drawn up - first and foremost that it will be under UK law rather than Chinese law. Why not talk to them and see whether they would be receptive to you taking a contract out to them - they may want their lawyers to look at it before signing anything.

I would be pretty wary of anything involving an upfront payment to secure these rights.

Something I should also mention is that EU law on parallel imports means that even if you held the sole distribution rights for the UK, you could not, for example, prevent the holder of the French distribution rights importing into the UK.

Anyway, as I say, give me a call if you want to chat it through.

 

[terryashraf]

I would very much have a lawyer or solicitor involved in drawing up a contract.

In fact when I was reading you post it occurred to me that you ought to investigate whether or not there is a european distributor. Naturally that would be much bigger and therefore more profitable a venture for you.

It is all the more reason to have a professional involved as you could in the contract ask the company to sign a contract which restricts the rights of other companies seeking to obtain distributorship rights...

i.e. to borrow Moduslegal's example, the Chinese co will contract with you to say all european enquiries will be passed on to you etc.

The important thing with a contract has got to be it's enforceability. If which you are, based in England, you would want English courts to interpret / enforce your contract in your favour and not vice versa.

There are nowadays UK law firms with offices/associations in Shanghai hong kong etc and the legal market is slowly opening up. I do believe that it is worth getting a lawyer involved as soon as you can would be a wise move as it could potentially save you a heck of a lot of time and money in what too often turns out to be a damage limitation exercise when lawyers have to be called in upon things going pear-shaped.

I hope this helps and wish you all the best.

Terry

 

[Paul Kelly ICHYB]

Brett,

as mentioned, a UK contract is pointless, as it is unenforceable in China. A Chinese contract isn't much more effctive, as things are not as straightforward if you have to invoke it.

Draw up a simple agreement, which commits both parties to trading levels, pricing, volumes etc. Bth of you sign it and go have dinner/drinks. Depending on the factory/business owner, this is one of the best ways to develop the business.

Sadly, in most cases, if you get stiffed by the supplier, there is little you can either do or should do. Make sure that you keep a hands on approach; always speak to their competitiors and let them know you are speaking to them (be friendly - share some of the competitors secrets). Unless it is a big multinational, you will find that people and personalities are very important, moreso than pieces of paper.

 

[BLintl.]

Your relations with the supplier are more important than the contract unless you make it bulletproof and know how to enforce it. If the supplier wants to breach the contract they will always find the way.

"consultant" is right in this sence.

 

[davek17]

Hi There

I'll add this word of advice as we see it our industry so often. You might have the "UK" rights, but legally anyone in Europe can buy and sell anywhere in Europe now so we see so many people who proudly sign contracts with Eastern manufacturers, spend loads on marketing and then find that everyone buys from a European distributor anyway as they're cheaper due to exchange rates. Just watch for that, as in reality its so hard to enforce even if you have thought about it first.

Also just be aware of the Chinese laws, UK law doesn't stand a chance here. Especially refer to Chinese patent and copyright laws which are all but non-existant. The factory will sign with you, but will then be selling the same or very similiar product on Alibaba along with all the other factories in the district and there's nothing you can do about it. I know this is nore to do with product development but it is so easy to come unstuck with this too.

Davek17

 

[BLintl.]

The Chinese company can sign with you but if they find somebody who can offer a better price in your area or take larger quantities they can easily breach the contract. For example, sell the product to a Chinese trading company that will sell it further to any interested party. It may also happen that they control this trader themselves.

Davek17 gave a good example. They can sell to another distributor (in France, Ireland, Germany etc) who will sell it further to the UK market.

I think a basic contract will be enough for you both. Your cooperation will work fine until both parties are happy with each other.

 

[davek17]

I'm passing back the compliment here! Blint is also right. My experience of Chinese companies is that they always Panda to the numbers. We work with lots of Chinese, Taiwanese and Korean manufacturers here and they love you when you're selling in numbers, when you don't but are trying to convince them about brand building and all the work you do they just don't care.

Just be careful to dot the i's and cross the T's.