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Explanatory Notes
Supply Manufacture & Sale Agreement
EXPLANATORY NOTES This Agreement contemplates an arrangement where company enters into an arrangement with a manufacturer in another country to supply materials to the manufacturer and then buy the finished products for resale in an agreed territory. The Agreement contemplates a fixed initial period which may be subject to renewal. A Buyer buys for resale and each order placed by the Buyer will constitute a separate contract. Unlike an agent, a Buyer is selling on his own account and not on behalf of the Manufacturer. Both parties will nonetheless want to be sure that the Buyer has adequate information and literature concerning the products as well as having a workforce capable of handling sales and any after sales or maintenance which may be required. In the case of a cross-border agreement - i.e. each of the parties is in a different territory with different laws - it is important that the Manufacturer has the agreement checked by lawyers in the Buyer's country - and vice versa Specific comments on the model form are set out below: DATE This is the date upon which the Agreement is signed - not necessarily the date upon which it comes into effect - which is dealt with in clause 2.2. PARTIES Here set out the full name of each of the parties and the official address of that party - if it is an English limited company, this will be the registered office. INTRODUCTION This is self-explanatory and briefly introduces the Agreement. 1. INTERPRETATION We have inserted 5 definitions including that of the territory which needs to be defined. The territory may cover a complete country, part of a country or more than one country, but whatever the case, be sure to define it properly - do not, for example, say "any country in South East Asia" since there could be an argument as to what is meant by the South East Asia. The materials to be supplied by the Buyer need to be very clearly specified in the Appendix because if an argument arises on whether the quality of the products is acceptable or if the Manufacturer has problems in the manufacturing process, it may be argued that the material is outside the agreed specification. Preliminary testing before the Agreement is signed at all is recommended, and if this is not possible, the Agreement could have a preliminary testing period. Products also need to be clearly defined 2. APPOINTMENT OF BUYER The Agreement sets out the appointment of the manufacturer to make the products and the Manufacturer then appoints the Buyer as its sole customer and exclusive distributor in the Territory. In 2.3 the date upon which the Agreement comes into effect should be stated as well as the initial period - say 2 years. If notice of renewal is required, clause 2.3 might say that it will expire at the end of the initial period "unless it is renewed by agreement between the parties at least 3 months before the expiry date". 3. ORDERS FOR PRODUCTS This clause sets out the arrangements for ordering and for the supply of the materials and includes provision for the Buyer to give the Manufacturer estimated requirements in advance so that he can plan accordingly. Clearly, the precise details of this clause will need to be tailored to the particular arrangements in place within the relevant organisations. 3.3 makes is clear that each sale constitutes a separate order for goods. Each order may be governed by Manufacturer's standard Terms & Conditions of Sale or (as stated here) Buyer's Terms & Conditions of Purchase, or perhaps an agreed set of terms & conditions will be developed. It may be sensible to state that a copy of the agreed terms is annexed to the Agreement so that there is no doubt as to terms which are to be incorporated. 3.4 and 3.5 deal with the shipment of materials by the Buyer and their collection and inspection by the Manufacturer. More detailed or different terms may be needed depending on particular circumstances. 4. PRICES & PAYMENT 4.1 refers to the prices to be paid by the Buyer for the products. Our agreement contemplates that the Buyer will supply materials free of charge – and this will be reflected in the price he pays for the finished products but if the materials are also to be paid for by the Manufacturer, this clause would also refer to the pricing and payment terms of the materials. 4.2 deals with additional payments over and above the list price which may be payable. 4.3 provides for payment to be within a specified period. (A Manufacturer is likely to require payment on a letter of credit but we have not specified this in this version of the Agreement. See, by contrast, Document A117). 4.4 deals with currency and this need to be specified here. 4.5 makes it clear that the Buyer is responsible for all charges and customs clearances at the port of arrival. 5. BUYER'S OBLIGATIONS The list of obligations is fairly short and reasonably self-explanatory. 6. MANUFACTURER'S OBLIGATIONS This clause contains a number of obligations on Manufacturer with respect to manufacture, marketing literature, training, technical support etc. 7. PATENTS & INTELLECTUAL PROPERTY It is usual for a Manufacturer to try to protect its IP rights and such a clause has been included here. The main purpose of 7.3 is to ensure that the Manufacturer is notified by the Buyer if, for example, counterfeit goods appear in the territory. 8. CONFIDENTIALITY To the extent that information passing between the Manufacturer and the Buyer is confidential, this clause imposes confidentiality obligations on both parties. 9. TERMINATION Clause 9.1 sets out the grounds on which either party can terminate the Agreement. It is drafted so as to be fairly balanced. It is useful to specify the consequences of termination and these are dealt with in 9.2 to 9.5.
10. GENERAL This covers a number of issues: 10.1 Assignment. The relationship is one which would not normally be assignable and an express prohibition on assignment is included. 10.2 Sub-contracting. This is drafted so as to make it clear that the Buyer has the right to subcontract its role to others. 10.3 Notices. This is a mechanism for giving formal notices under the Agreement and is usually advisable. 10.4 Language. This specifies the ruling language. Where the Agreement is translated into another language and both versions are signed, it is advisable to specify which is the ruling version, in case of any discrepancy. Equally important, when this happens, an independent check of the translation should be made to ensure that it is an accurate translation. 10.5 Entire Agreement. Quite often a Buyership agreement is only entered into after a course of dealings and/or an exchange of letters. The purpose of this clause is to make it clear that the Agreement replaces those earlier arrangements. 10.6 Resolution of Disputes. The Manufacturer objective of this clause is to have any disputes which may arise resolved by an independent tribunal, not necessarily in the territory of either Manufacturer or Buyer. This clause proposes arbitration in accordance with the UNCITRAL (United National Commission on International Trade) Rules. See our separate notes on Dispute Resolution – a free download on our website, under Miscellaneous Documents. 10.7 Governing Law. The law of the Buyer's territory would normally be selected by the Buyer as the most appropriate.
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