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Distribution Agreements in Hong Kong

Distribution Agreements in Hong Kong

distribution agreement in Hong Kong is signed between two partners, one that acts as the manufacturer and one that acts as the distributor of the manufactured goods. When the distribution chain is more complex, this type of agreement can be signed between two different distributors.

The distribution agreement will set forth the responsibilities of the two parties as well as the terms for the distribution which can, in some cases, be selective or exclusive.

Our lawyers in Hong Kong can help you draw up this document and manage existing relations with distributors or manufacturers.

Information included in a Hong Kong distribution agreement

The distribution agreement contains the terms of the relationship between the manufacturer/supplier and the distributor. One manufacturer may have an exclusive distributor or more and distributors may sign subsequent distribution agreements among themselves.

Some of the information that is typically included in a distribution agreement signed by a company in Hong Kong is:

  • – the terms for sale: the conditions that each party has to observe during the duration of the agreement.
  • – the duration: the agreement can have a definite period, as the manufacturer sees fit.
  • – marketing rights: whether or not the seller will also receive the rights to advertise the product.
  • – distribution region: the region in which the manufacturers wishes to allow the distributor to sell the product.
  • – termination: the conditions in which the contract can be terminated by either of the parties.

The clauses included in such an agreement will be largely based on the issues mentioned above, however, they will also cover different other aspects of the manner in which the relationship between the two parties will take place.

Our lawyers in Hong Kong present some of the clauses that can be included below:

  1. Exclusiveness: the agreement can be an exclusive one or a non-exclusive distribution agreement; in the first case, the territory for distribution will be clearly defined.
  2. Pricing: the prices for the products should be indicated, as well as the ones for resale.
  3. Intellectual property: this clause should also be included in a distribution agreement – the distributor is not entitled to these rights.
  4. Compliance with local laws: the rules and laws of the state in which it is drawn up generally govern a distribution agreement.
  5. Confidentiality: the party receiving confidential information can be asked to maintain the character of such data and refrain from using it for other purposes other than specified. 
  6. Breach of contract: those situations that cover limited liability as well as the remedied for the breach of contract.
  7. Force majeure: a common clause in all agreements, unforeseen events, and their consequences shall be dealt with as per the agreement.
  8. Dispute settlement: the manner in which disputes are settled is included in the agreement; arbitration can be presented as a means of settlement. 

Details about distribution agreements, outlined by our lawyers in Hong Kong

The inclusion of the exclusivity clause is particularly important to those manufacturers that want to ensure the fact that a certain distributor is given the sole right to the products within a pre-defined territory. It can also stipulate that the distributor is not allowed to sell similar or competing products in the territory for the duration of the agreement. Likewise, it can include provisions for the interdiction of the resale of the products. The clause can be adapted (or excluded altogether) based on the manufacturer’s business plan and intention to expand to different markets. The exclusivity and the territory clauses can be drawn up in such a manner that will suit the needs of the manufacturer for the purpose of growing the popularity of its products or, alternatively, restrain their availability to a certain area. 

Depending on the type of product that is being produced by the manufacturer, the parties may also use clauses that refer to the storage and the transport of the product, its recall, the provision of repair and maintenance services to the products. 

A clause for the distributor’s warranties will largely stipulate the representations and warranties this party acknowledges when entering into the agreement. These can include that the distributor is a registered and duly organized legal entity that observes the local laws in the jurisdiction in which it operates. Moreover, a precondition for the distributor can be that no lawsuit or arbitration, as well as any other undergoing or pending proceeding, can threat the ability to perform his duties under the agreement. When the distributor fails to provide accurate information concerning these pre-conditions, the manufacturer can consider that the distributor has breached the agreement. One of our lawyers in Hong Kong can give investors additional information about these clauses.

The contract shall state, at its very beginning, the names of the parties, their registered addresses, and the signature date. The agreement is usually concluded for a fixed initial period (most often one year or more) that is expressly stated in a special clause. The contract will also note the manner in which it can be extended (automatic renewal for a pre-determined period or with the option to renew through a notice delivered to the other party within a certain amount of time before the expiration date).

The effects of the termination can be an important clause in the agreement because they will state the manner in which remaining stocks of products will be treated upon the agreement expiration date. It is common for the parties to agree that the distributor is to return the remaining stock to the supplier. Upon request, the distributor should be able to state to the manufacturing company any details related to the products that have been subject to repair (and the clients that have purchased these goods).

International distribution agreements may be subject to different legal terms. Our team of lawyers in Hong Kong can help you settle disagreements or claims through litigation or arbitration as well as include the cause for alternative dispute resolution settlements from the very beginning. 

Distribution agreements and the competition law in Hong Kong

Selective distribution agreements may be signed in certain business fields. The manufacturer can thus ensure the control of the sale process as well as the quality of the services provided to the customers. This practice may conflict with the Hong Kong Competition Law if it harms the existing competition. If a selective distribution process prohibits the entry of more retailers then it will conflict with the competition law.

Business owners in Hong Kong who want to apply a selective distribution criteria can base their selection on qualitative issues and not use this criteria for discriminatory distributor selection.

The distributor agreement is a useful legal tool to establish the relationship between the manufacturer and the distributor. It sets the rights and liabilities of the parties and provides the guidelines for settling possible disputes.

For more information about the competition or the contract law please contact our Hong Kong law firm.