In Jamaica, there are no specific statutes dealing with distribution agreements. Generally, distribution contracts are interpreted and enforced in accordance with common law principles or laws dealing with specific issues addressed in the agreement, such as consumer protection or choice of law. Consequently, there are no peculiar restrictions applicable to termination and termination consequences.
Parties to distribution contracts are oftentimes concerned about the following issues:
1. Governing Law
A large majority of distribution contracts in our region involve foreign parties. The governing law of the contract may be the local law of the place of distribution; it may be the law of the place of origin of the manufacturer or the law of an independent jurisdiction.
Even though parties are free to choose the governing law of their contract, there are some local laws of the place of distribution that the parties are not able to contract out of. Law 173 in the Dominican Republic is an example of such a law. In Jamaica, certain consumer protection laws would be a good example.
2. Termination and Termination Consequences
In Jamaica, there are no special provisions in law regarding how distribution contracts are to be terminated. It is highly recommended that the procedure for termination, as well as, termination consequences be clearly set out in the Distribution Agreement.
In the event that the procedure for termination is not set out in the agreement, the agreement may be terminated by reasonable notice. Reasonable notice periods will vary from arrangement to arrangement. In making an assessment as to what a reasonable period of notice is, the relevant factors include, but are not limited to: the nature of the products being distributed, the length of the relationship, the amount of investment made by the distributor, and the extent to which the distributor organized its systems to accommodate the manufacturer.
On termination, it is not unusual for distributors to negotiate compensation for redundancy, loss of profits and loss on capital investments. There are usually issues related to how trade receivables are to be handled and how risk of non-payment is to be distributed between the parties.
3. Which contract is in force?
It is quite commonplace for manufacturers and distributors to enter into a written agreement for a fixed term at the start of their relationship and when the fixed time period expires no new written arrangement is put in place. The parties often continue to do business on terms that are convenient or are otherwise suitable for them. When one party wishes to terminate and/or either party becomes the subject of a change of ownership, the question of which contract is in force often looms large. The determination of which contract is in force will often be a question of fact. The original written contract may be the contract which continues to be in force, especially if the parties acknowledge the terms of that contract from time to time in their dealings. The original written contract may also be the relevant contract if the express terms indicate that it would continue in force in the event that the parties enter into no new written contract. A new or amended contract may be the relevant contract depending on what is established by the parties’ course of dealings.
4. Non-Compete and Restraint of Trade
Non-compete and restraint of trade clauses in agreements are to be examined carefully. Courts usually take a very restrictive view of these kinds of clauses because the presumption is that they are contrary to public policy. However, if properly drafted, they may be enforceable.
The Consumer Protection Act implies certain warranties in contracts for the sale of goods and services to consumers in Jamaica. Under the Consumer Protection Act, failure to issue a warranty or extend a manufacturer’s warranty to consumers in Jamaica is an offence. The Consumer Protection Act further provides that the following warranties shall not be excluded or restricted by reference to any contract term:
(i) Implied condition that the vendor has the right to sell the goods;
(ii) Implied warranty that the consumer shall have and enjoy quiet possession of the goods;
(iii) Implied warranty that the goods shall be free from incumbrance and any undeclared third party interests; and
(iv) Implied conditions as to quality or fitness.
If the goods are sold on hire purchase arrangement, additional warranties and conditions may be implied.
6. Limitation of Liability – Can a distributor limit his liability to consumers in respect of the goods he distributes?
Under the Consumer Protection Act, providers of goods and services may be held liable for pecuniary loss or bodily injury caused to consumers. It may be possible to limit liability for pecuniary loss, but not for personal injury, as mentioned immediately below. Failure to satisfy the liability to the consumer is a criminal offence. It is not generally possible to exclude or restrict liability for death or personal injury resulting from negligence of the manufacturer or distributor.
7. Refunds & Returns
Under the Consumer Protection Act, where a consumer acquires goods based on the provider’s declaration or description and the consumer subsequently discovers that the goods are defective or different in a material respect from what was declared or described, the consumer is entitled to return the goods and obtain a refund or other monetary compensation as agreed between the consumer and the provider.
Additionally, where any good sold to a consumer fails to provide the “benefit and uninterrupted enjoyment for which it was intended” and the Consumer Affairs Commission determines that the failure of the goods is not due to the negligence or abuse of the consumer within the warranty period, the provider shall be responsible for replacing or repairing the goods at no cost to the consumer.
8. Licensing of Trade Marks
A manufacturer should ensure that all its trade marks that will be used in a foreign jurisdiction are registered in that jurisdiction. The registered trade marks would then be licensed to the distributor. The license should usually be registered. This protects the manufacturer from bad faith registration of the same or similar trade mark by the distributor (either during the distributorship relationship or long after termination) and from infringement by third parties.
For Jamaican law purposes, it is very important to have clear and properly drafted distribution contracts that reflect the intent of the parties. In the Dominican Republic, Law 173 legislates certain consequences for termination of exclusive distributorships and these consequences can be quite unattractive for manufacturers. While there are no similar legislative provisions in Jamaica and many other jurisdictions, it is still very important to address termination procedures and consequences so that the eventual liability of either party will likely be in line with a reasonable position agreed on by both parties early on in the relationship. If there is no such agreement, termination procedure and consequences usually end up being the subject of protracted and expensive negotiation and/or litigation.