Wine industry law firm, Finlaysons, warns that it continues to see problems for wineries due to poor distribution agreements.
Smaller distributors tend to table very short, poorly worded contracts. Although the larger distributors can have quite comprehensive standard distribution agreements, they are often heavily weighted in favour of the distributor. An example is the common “compensation clause” (sometimes dressed up as a loan accruing to the distributor) that has the effect of locking the winery into the contract against their will because they cannot afford to pay the substantial so-called “compensation“ to the distributor at the end of the term. This problem is exacerbated by the bargaining power being very much in favour of distributors in the current economic circumstances of the wine sector.
Finlaysons sees the problems this causes for wineries when their distributor is under‑performing and/or they want to exit the distribution relationship. They do not have the rights they should have in those situations.
Clearly the best protection wineries can have against these issues is to invest in a sound, comprehensive contract at the outset. They should negotiate appropriate terms and conditions and write them all down in proper legal form.
However, if a winery has not done that, all is not necessarily lost. Often onerous clauses in standard distribution agreements will be so-called “unfair contract terms”, which are void under the Competition and Consumer Act 2010 (and also expose the distributor to substantial monetary penalties).
It is far easier to have a sound contract from the start, though.
If you need help with this, you can contact Finlaysons Wine Partner, Will Taylor, on 0414 712 717 or will.taylor@finlaysons.com.au
