How exclusive are you?

Commercial contracts such as agency, distributor and franchise agreements can offer different levels of exclusivity. It is common to hear the terms exclusive, non-exclusive and sole when negotiating the terms of such agreements.

However, while parties may assume that the meanings of these words are generally understood, they are not always given the same meaning and it is best to agree what rights the principal is granting in respect of a territory or customers explicitly in the agreement.

When a principal grants an “exclusive” territory to a distributor, this typically means that no person (including the principal itself) other than the distributor will have the right to sell the contract goods in that territory. If the principal wishes to appoint a single distributor in the territory, but still reserve the right to make direct sales, this type of appointment is often called a “sole” distributorship and where the principal wishes to be able to have several distributors in the Territory and make direct sales in the Territory this type of appointment is a “non-exclusive” distributorship.

However, despite these commonly used terms, they are not used universally and in some countries the expression “sole and exclusive” is used to mean an exclusive appointment of the type described above.  In many cases it is advisable that the contract sets out what the term means and does not rely on use of the term alone. This is particularly important where the principal may wish to sell in the same Territory goods that are similar to those that the distributor is appointed to sell or wishes to appoint the distributor for a limited class of customers, for example, sales to foodservice customers, and reserve to itself the right to sell the same goods to other classes of customer in the Territory.

In a recent High Court decision of London Business House Ltd & Anor v Pitman Training Ltd & Anor [2023] EWHC 1077 (Comm) which concerned the grant of a franchise to London Business House to sell Pitman Training’s Pitman branded training materials in the Nottingham area the Judge could not identify clear terms in the agreement that set out the scope of the exclusivity granted to London Business House. The Court held that Pitman Training licensing its materials to another training provider in the same area, but not under the Pitman brand, was not a breach of the agreement. The franchisee had bought only the right to sell training materials under the Pitman Brand.

The case highlights the importance of including terms in the contract that clearly set out the respective rights of the principal and the distributor, agent or franchisee to make sales in the Territory including, where appropriate, the goods and classes of customers that are included in the contract and those that are excluded.