There were three Australian wineries in the portfolio of a UK distributor. The Distributor had given them each its template distribution agreement for consideration and signing. The Agreement contemplated a five-year term and a “compensation payment”, payable to the Distributor upon the winery’s exit.
Winery A never signed any Agreement. Winery B signed the Distributor’s standard Agreement. Winery C signed a negotiated Agreement.
Three years later, each of them wanted to terminate their distribution relationship because the Distributor had under-performed. Each of the wineries had a new distributor wanting to start distributing its wines in the UK as soon as possible.
Each of the wineries asked their lawyer as to whether it could exit the distributorship.
Winery A’s lawyer said that, since there was no written contract, the law required it to give “reasonable” notice of termination. What period of notice was “reasonable” would be determined by a court in the particular circumstances of the distributorship, but it would likely be somewhere between three and 24 months. In this case, the lawyer thought the required notice was probably about 12 months.
Winery B’s lawyer said that it had no right to terminate for the Distributor’s under-performance and it was in the middle of the five-year term and, therefore, could not exit for another two years. Even if it declined to renew the Agreement at the end of the term, it would be required to pay the Distributor substantial compensation.
Winery C had negotiated the terms of the Agreement, with the assistance of its wine lawyer, and had ultimately signed a fair and balanced contract protecting the rights of both parties. Its lawyer said that, since the Distributor had failed to meet 80 percent of its sales budget for the most recent year, the winery had the right to terminate the Agreement with one month’s notice. Alternatively, it could wait for another two years until the end of the initial term and decline to renew the Agreement with no compensation payable.
These are very common scenarios. Attend Finlaysons Wine Roadshow 29 and hear many other “tips and traps” in relation to doing wine business in the UK and the USA.
Will Taylor is a Wine Partner with Finlaysons.
PS: This is not legal advice. You should not apply this article to any actual fact situation without seeking advice from a lawyer qualified to practise law in the UK.