The appointment and termination of international agents/distributors are two of the most regulated, studied and contested areas of international agency and distribution law.

The first Information Paper dealt with issues relevant to distribution agreements for products generally. This Information Paper focuses on various issues relevant to international distribution arrangements where sales are effected in the overseas jurisdiction (Territory) through an independent intermediary: i.e. an overseas representative (OSR).

Issues concerning the manufacture of the product under licence or issues concerning the licensing of technology in association with product distribution or manufacture are dealt with in separate Information Papers. The issues noted in this Information Paper are not exhaustive. Suffice it to say that exotic locations can have unusual laws.

Issue 1: Form of Representation

Business issues often dictate one form of representation over another. This Information Paper assumes that it is not appropriate to market the products through:
• your own permanent establishment overseas;
• the establishment of branches or warehouses overseas;
• joint venturing the manufacture or distribution of the products overseas;
• the establishment of a foreign subsidiary overseas; or
• a representation agreement.

Taxation, intellectual property and competition law issues are likely to also impact on the choice between an agency or distributorship in the Territory.

Whilst each alternative has tax and legal implications your long term business objectives must be identified at the outset if possible as they will be a significant influence on the form of representation selected.

Issue 2: Agent or Distributor?

The distinction between an agent and a distributor in some Territories can be material and should be checked.

An agent generally acts according to the policies and under the supervision of the exporter and:
• acts as an intermediary between its principal (i.e. the exporter) and the purchasing third
party (i.e. the customer);
• should be given, in the contract, a clear authority to bind the exporter as principal (note, however, that this may have taxation implications as to the existence of a permanent establishment) or it should contain a denial of authority; and
• should specify whether the agent will be authorised (or not) to receive payments as in some Territories an agent may establish a contract for its principal but not deal with payments; and
• may or may not be given possession of the exporter’s goods.

On the other hand a distributor:
• purchases products from the exporter and then resells them;
• effects a sale in its own name and for its own account; and
• is usually (though not always) given an exclusive or preferential right in a particular geographic area or other defined market.
• an agreement appointing a distributor will contain the terms that govern the sale of products by the exporter to the distributor. This is not necessary in an agreement appointing an agent as the contract is effected between the exporter and the third party purchaser although the accepted terms of sale can be agreed between the exporter and the agent;
• a distributor has two invoices; one to purchase the products from the exporter and one to sell the products to the customers. Alternatively an agent has one invoice between the exporter and the third party purchaser; and
• an agency agreement should set out the nature and extent of the agent’s authority to bind the exporter and to receive payment on behalf of the exporter, or alternatively the exporter’s right to accept/reject orders.

A person who introduces buyers and sellers but who takes no part in formation of the contract are more correctly described as brokers or representatives.

Once it is determined to appoint an OSR you should consider the following issues as they relate to the nature of the product itself:

• the amount of control that is considered necessary over the OSR;
• your long term objectives in the Territory; and
• your current capacity to fund the establishment of a better option at this time in the Territory.

Issue 3: Specify the Nature of the Relationship


• the relevant protective legislation of Territories is more protective of agents than distributors; and
• the courts of the Territory will:
– look to the substance over form for the true nature of the relationship, focusing on the degree of control exercised over the OSR; and
– strain to apply the relevant protective legislation of the Territory to the arrangements.

Therefore the agreement should explicitly deal with the nature of the relationship between the parties and if the benefits of a distributorship are sought deny the existence of the other relationships.

Once the appointment is made you should communicate with the OSR using consistent terminology as labeling adopted in the agreement and used in communications is likely to impact on a court’s decision as to the nature of the legal relationship between the exporter and the OSR.

Issue 4: Legal System

You should establish the type of legal system applicable in the Territory: i.e. civil or common law. The legal consequences of any given action can vary between civil and common law jurisdictions. Australia is a common law jurisdiction.

Issue 5: Comparative Contract Law Issues

Basic legal principles vary throughout the world. For example:

• some civil law jurisdictions (e.g. Mexico) require an offer to remain open for a minimum statutory period; and
• civil law jurisdictions generally do not recognise the concept of an agent acting for an undisclosed principal so that the agent cannot conclude a contract between the principal and the agent. Many continental commission agents operate in that way so that to bind the principal and the third party a separate agreement is necessary.

Issue 6: Choice of Law and Forum

Historically this has been a notoriously difficult issue. However, with the increase in international trade there is a trend towards respecting exclusive choices of law and forum nominated by parties in their agreement.

The relevant clauses should provide that the nominated jurisdiction is exclusive and one which is substantially related to the agreement and its performance.

Notwithstanding, foreign courts will often assert jurisdiction over a dispute that concerns issues of important public policy.

Choice of law and forum is respected in almost all common law jurisdictions. West European nations also generally accept contractual choices of law and forum.

Regardless of whether the foreign legal system accepts the nominated choice of law and forum, exclusive clauses should be included as if the nomination is ignored by a foreign court an Australian court may be persuaded not to enforce in Australia any foreign judgment obtained on that basis.
Whether this in fact provides any protection will depend on whether any assets of the Australian principal are located in the relevant Territory.

Issue 7: Choice of Language

If the agreement is written in two or more languages it is essential that the agreement specifies a controlling language which is to prevail in interpreting the agreement and for the purpose of future communications, if there is a material variation between the languages used. This can be important where personnel of a party to a contract change over time.

Issue 8: Use Defined Terms

The use of defined terms in an agreement can reduce the risk of the same words being understood differently by the parties.

Clear, precise and complete drafting of the agreement creates predictable outcomes and minimises disputes and the risk of international litigation or arbitration.It also reduces the risk of extrinsic evidence being required later to determine the intention of the parties to the agreement.

Issue 9: Capacity to Appoint

The ability to appoint an OSR in the Territory should be checked to establish whether any custom or legal restraint in the Territory applies.
In some countries:
• the appointment of a foreign representative is not permitted at all or in relation to particular products or contracts with government; and
• it is not unusual for the government to “unofficially” designate an agent for the exporter in relation to government contracts.

This may necessitate direct selling by the exporter which will expose the exporter to the jurisdiction of the courts and taxation regime of the Territory.

Alternatively some Territories require the appointment of a local representative to make sales and thereby prohibit direct selling.

Issue 10: Financial Capacity

The financial capacity of the OSR is relevant to determine:
• the suitability of the OSR as to whether the appointment should be exclusive or not as to time, product or area; and
• the ability of the OSR to meet competition and maintain minimum stock levels and provide necessary product support on a reliable basis in an (hopefully) expanding market.

Issue 11: Alternative Representation

Whilst spending time establishing the relationship with the OSR endeavour to identify a competent alternative representative.

Issue 12: Registration Requirements

You should check if it is necessary in the Territory for:
• the OSR to register;
• notification to be given to the government of the Territory of the form of representation selected;
• the OSR and the relevant agreement to be registered and/or approved.

Issue 13: Legal Status of the OSR

In some Territories it is important that the OSR be incorporated as this may deny the OSR
the benefit of any labour law protection that may extend to business agents and avoid the establishment of a presence in the Territory for tax purposes.

Equally the agreement should provide that any agent appointed must take full responsibility for payment and meeting claims of its employees. This is important as in some Territories a terminated agent (and in some cases a distributor) can pass employment termination liabilities on to the exporter. This right should be negated and an indemnity provided by the OSR.

Issue 14: Duration of Appointment

As a general principle the longer the term agreed to, either as a single term or by virtue of an automatic renewal (evergreen) clause, the more difficult and costly it will be to terminate the arrangement even once that term comes to an end.

If the appointment requires the OSR to invest capital a fixed short term may not encourage the OSR to make the necessary investment.

A compromise between a short term agreement (say 2 years) and the requirement for commitment to investment, may be achieved by the agreement providing for a trial period of (say) two years. If this is done the agreement should state that its terms may (not will) for the basis for further negotiations at the end of the trial period if both parties wish to continue. Whether this is suitable will depend on a number of factors including the nature of the product and the associated level of capital investment required of the OSR and the required timing for the investment.

If an evergreen clause is used the renewal should be subject to conditions: e.g. attainment of performance levels, notice to renew being given within particular time frames.

Issue 15: Objectives Of The OSR

Seek to determine the objectives of and the commitment of the OSR to distribution of the products and whether they are consistent with yours. Does the OSR represent competing products? Will the OSR have the right to represent competing products during the term of your agreement with the OSR?

Issue 16: Compliance With Laws

The OSR should be responsible for:
• obtaining and maintaining government approvals and licences for the importation and delivery of the products in the Territory. As a minimum the OSR should agree to assist in obtaining and maintaining relevant approvals and licences and customs clearance of the products;
• compliance with the laws of the overseas jurisdiction; and
• notifying the exporter of changes to those laws that affect the importation and delivery of the products.

The OSR should indemnify you for losses resulting from non compliance with those obligations.

The agreement should enable you to defer or cancel supply obligations if it becomes unlawful
for you to export to the Territory.


The impact of comparative law variations may be reduced by incorporation in the contract of the United Nations Convention on the International sale of Goods (i.e. INCOTERMS).
However, INCOTERMS should be incorporated with care to avoid unintended results; it is a trap for the unwary.

Note that INCOTERMS :
• deal principally with:
– the apportionment of risk of loss of products in transit;
– the passing of title to the products;
– the costs of transportation, customs duty and insurance;
• do not apply to the sale of services or where the services are a preponderant aspect of a transaction over the sale of products;
• permit oral and written contracts to be enforceable;
• do not require consideration to be provided;
• may result in disputes being resolved in a manner different from common law principles.

Accordingly an international contract for the sale of goods must contain many provisions additional to those incorporated by the adoption of INCOTERMS. Those additional terms must be consistent with INCOTERMS.

Issue 18: Exporter’s Goodwill

To establish/maintain/enhance the exporter’s goodwill for supply and service of the products the agreement should provide (as appropriate) for the OSR to:
• maintain adequate stock levels to fill projected orders;
• establish quality assurance procedures for the installation and servicing of the products;
• maintain adequate levels of adequately skilled personnel;
• acquire and maintain necessary/specified tools, machinery and equipment for demonstration products or service requirements;
• permit the exporter to access the premises of the OSR or any customer to verify compliance with the obligations of the OSR;
• report periodically to and consult with the exporter on various issues (see Issue 19).

Issue 19: Reporting Obligations

The agreement may require the OSR to report on:
• the financial strength of the OSR;
• sales volumes (past and projected);
• customer complaints;
• the efforts of the OSR to promote the products and develop the market;
• resale prices (if a distributor);
• the activities of competitors in the Territory;
• post sale servicing (difficulties) of the product;
• stock levels;
• changes to laws affecting insurance, importation, delivery or product liability relating to the product;
• the manner of advertising the products.

Issue 20: Direct Sales

Are you to have the right to sell direct in the Territory either generally or to nominated accounts?

Generally direct sales into the Territory increase the likelihood that you will be exposed to the courts and taxation regime of the Territory.

If you wish to make direct sales into the Territory:
• generally or to specific customers, those rights must be clearly reserved in the agreement; and
• you should note that in some Territories where an (otherwise) exclusive agency is granted, you may have to pay commissions to the agent in relation to any direct sales you may make.

Issue 21: Local Expectations

Is the product of a type where the appointment of an OSR is usual/customary or expected in the Territory so as to enhance the market penetration of the product?

Issue 22: Government Assistance

Is any Government assistance available to you or the OSR.

Issue 23: Product Complexity & Personnel

What is the complexity of the product and the need for education of the personnel of the OSR and the potential customer base in the Territory?

What are the strengths weaknesses of the OSR’s personnel to market and provide required technical back-up for the product in the Territory?

What is the capacity/willingness of the OSR to upgrade existing or recruit new personnel? How available are skilled personnel in the Territory?

Issue 24: Post Sale Support Services

What is the capacity of the OSR to provide post sale support services?

Should sales and post sale support services be provided by different organisations?

These issues should be checked in the Territory.

Issue 25: Express Warranties

The agreement should:

• define the scope of the warranties that the OSR provides for the products (including as to use or tolerances) to ensure that they are commercially reasonable;
• contain an indemnity for warranty liability that exceeds that authorised by the exporter;
• to the extent permitted by law exclude all implied warranties.

Issue 26: Implied Warranties

Implied warranties (e.g. merchantability and fitness for purpose) are terms of art in the context of national legal systems and have no international generic meaning. They should be checked in the Territory. The law that is chosen to regulate the contract (choice of law) affects the warranties that may be implied into the agreement. The warranties implied in civil law jurisdictions are broader than common law jurisdictions.

Issue 27: Force Majeure

A ‘force majeure event’ is an event or circumstances which suspends the obligation of a party to perform its obligations during the subsistence of the event or circumstances: e.g. war, strike etc.

The scope of the force majeure concept, and its effect, varies between national legal systems. Therefore it should not be incorporated in contracts without specifying:
• what constitutes an event of force majeure; and
• the consequences of a force majeure event occurring.

In some civil jurisdictions a force majeure clause which gives parties a discretion to assert the existence of a force majeure event may not be enforceable.

Issue 28: Remedies

The remedies under a contract are affected by the “choice of law” and “choice of forum” nominated under the agreement. This is because many legal systems treat contractual remedies as procedural issues governed by the chosen forum’s law rather than the substantive law of the contract.

As a consequence civil law concepts of damages, rescission and restitution can be relevant. Generally common law jurisdictions prefer to award damages instead of specific performance of a contract whereas civil jurisdiction tend to the opposite.

Issue 29: Right To Terminate

Many jurisdictions restrict an exporter’s right to terminate an OSR.
Generally an agreement that has been renewed a number of times or contains an evergreen clause is more difficult to terminate. Some jurisdictions provide that two renewals of a distributorship creates a contract of indefinite duration; whilst others confer on the OSR the right to terminate.
The exporter’s position may be protected if the renewal clause specifies particular acts that must be done to renew the agreement

As a general point termination clauses in the agreement should reflect the requirements of the (statute) law of the Territory.

Those restrictions generally have two key aspects:
• minimum notice requirements; and

• compensation requirements.

These generally compensate an OSR for a lack of reasonable termination notice given by the exporter and can include a measure of the net profits that the OSR would have obtained had proper notice been given, the fixed costs to the OSR of the distributorship, and an estimate of the goodwill which can be calculated by reference to the trend in gross sales of the OSR.

In some Territories damages can be awarded to compensate the OSR for its subjective expectations of a continuing relationship. These can vary from concrete to speculative expectations.

Such damages can apply even where reasonable termination notice is given and can relate to:

• any increase in customers developed by the OSR to the benefit of the exporter after termination;
• expenses incurred by the OSR in operation of the distributorship that benefit the exporter after termination: e.g. marketing the exporter’s trademark or costs of terminating employees engaged in the distributorship: and
• will cover the unexpired part of the contract term and any likely renewals.

Termination rights should be considered in relation to:
• termination of the agreement as a whole;
• termination of the (exclusive) right to market a particular product (due to failure to meet sales targets or otherwise in the discretion of the exporter but in good faith);
• the reversion of exclusive rights to non-exclusive rights due to lack of performance.

Termination problems may be reduced if the agreement provides:
• a generous notice period;
• the method for giving the termination notice which should be strictly followed;
• for an initial limited term as a trial period during which the exporter can evaluate the OSR and decide (on proper notice) to extend the agreement or not;
• reasonable provisions defining the scope of compensation in the event of termination;
• a non-exhaustive list of the events when the exporter will be entitled to terminate the agreement which may extend to performance matters or ownership of the OSR.

Issue 30: Consequences of Termination

In some jurisdictions the consequences of termination can vary depending on whether the termination is for just cause or for the convenience of the exporter. Whilst most jurisdictions permit the parties to agree what constitutes “just cause” some civil law jurisdictions can have statutory lists of acceptable reasons for termination.

Issue 31: Arbitration and Conciliation

The contract should provide for consultation where disputes arise so as to promote the commercial settlement of the dispute. As an alternative to resolving disputes through the courts it may be useful to provide for disputes to be the subject of arbitration or conciliation.

Whether it is appropriate should be checked in the Territory. Generally in most common law jurisdictions a contract cannot compel the parties to a contract be obliged to arbitrate the matter so as to exclude the jurisdiction of the courts. It is, however, permissible to provide that the dispute must first be arbitrated before court proceedings are commenced. Whether arbitration awards of the Territory can be enforced in the exporter’s jurisdiction and vice versa should be checked. Arbitration clause should specify which set of arbitration rules applicable to international transactions is to apply and contain a choice of forum.

Issue 32: Government Controls on Remittances

Generally you should check if the Territory imposes any foreign exchange control or withholding tax on the payment of money by the OSR to you.

Issue 33: Agent’s Payment Clauses

Where the OSR is an agent the agreement should clearly specify when the agent becomes entitled to payment of its commission: e.g. on payment by the customer. This will ensure that the agent remains interested in collecting the purchase price from the customer which should be an explicit requirement of the agreement. If the agent is to undertake post sales service of the products you should clearly provide the basis for its remuneration for those services, especially when the service is to be undertaken under a post sale service warranty as opposed to an ongoing service agreement with the customer.

Issue 34: Confidentiality

Confidentiality obligations can be a two edged sword and their appropriateness must be carefully considered during and after the term of the appointment of the OSR.
The nature of the confidential information that will arise under the relationship between you and the OSR should be identified: e.g. your trade secrets as opposed to customer profile information acquired by the OSR.

Generally the OSR should undertake itself, and on behalf of its employees, etc, not to disclose your confidential information during and for a reasonable period after termination of the agreement.

This clause should:
• explicitly state that it survives termination of the agreement; and
• provide clear procedures for approval of permitted disclosure to third parties/affiliates of the OSR.

Issue 35: Third Party Benefits

Generally only parties to the agreement can enforce its terms. Some exceptions exist to this principle: e.g. New Zealand.

Issue 36: Other Documentation

Whilst it is common for agreements to include “entire agreement” clauses they should not be used without acknowledging the existence of other relevant terms that may be included in the exporter’s order or invoice forms or incorporating other terms: e.g. INCOTERMS.

Issue 37: Good Faith

Most local laws throughout the world and some international conventions (e.g. Uniform Commercial Code) impose a requirement of good faith in relation to performance, interpretation and enforcement of the contract.

Issue 38: Who Pays?

Many of the relevant issues have an associated cost implication. This may be significant in international transactions. The obligation to perform will not necessarily coincide with the responsibility to pay.
The question of who is to pay for associated compliance costs needs to be considered in relation to each issue.
Precedent Documentation
Bamford Lawyers has on-system precedents for preparation of product distribution agreements that address the above issues.

Disclaimer: You should not rely on the information in this Information Paper without first obtaining advice from a qualified professional on the purpose to which you intend to put the information. This publication is distributed on the terms and understanding that the authors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication.