In order to sell goods in Bermuda an overseas supplier (?OS?) will normally appoint an agent or distributor to assist him.

An agent is some one who represents the OS but who does not buy for re-sale, while the distributor is some one who buys the goods for re-sale.

Today, I will explore aspects which agents and distributors should consider when working with an OS.

Whether an agent or a distributor, the Bermudian party should always seek to negotiate an ?exclusive? arrangement ? that is, the OS will not be permitted to appoint another person to represent him in Bermuda.

By doing so the agent or distributor will know his or her efforts in promoting the goods in Bermuda will not be wasted by allowing the potential customer to go elsewhere on the island to buy the product.

Hopefully, having agreed upon exclusivity, one of the next questions to consider is the length of the relationship.

Ideally, it may be a definite period of years with the right for the Bermudian party to extend the relationship, or it may be for an indefinite duration with a period of notice required to bring the relationship to an end.

The Bermudian party must consider the notice period which suits him best ? a short period will enable him to move on quickly to pastures new while a long period will give him time to make alternative arrangements.

When acting as a distributor the selling price in Bermuda will be decided by the Bermudian party, who will need to ensure that the difference between the price at which he buys and sells is sufficient to cover his costs and provide a profit margin.

On the other hand, when acting as an agent the selling price in Bermuda will be established by the OS with the Bermudian agent receiving as his reward a percentage (or commission) of the sale price.

Though it may be resisted by the OS the Bermudian agent should seek to receive his commission following acceptance of an order and not be obliged to wait until the OS has received the purchase price.

As an agent the Bermudian party is not responsible for collecting the purchase price from the customer in the absence of an express contractual provision to this effect.

A distributor, however, buying for re-sale, must satisfy himself about the purchaser?s ability to pay.

A purchaser from a distributor will look to the distributor if anything goes wrong with the products purchased. An agent, however, is not responsible for defects that occur in the purchased products.

In the agency situation the Bermudian purchaser must look to the OS for the defective product to be repaired or replaced.

The Bermudian distributor is also responsible to his customer for the delivery of products on time whereas a Bermudian purchaser buying through an agent must look to the OS for timely delivery.

Whether an agent or a distributor the Bermudian party will require the OS to provide product literature (in English) in quantities decided by him and for such literature to be kept up to date.

The Bermudian party will also require that if there are any patent, trade mark or copyright problems they will be sorted out by the OS at the OS?s expense.

The OS will prefer that the Bermudian party does not handle competitive products. This is a subject on which at least initially the Bermudian party remains silent.

Some of the more interesting aspects, at least to a lawyer but perhaps not to anyone else, are the consequences in an agency/distributor relationship of the choice of law governing the contract.

Normally I would advise a Bermudian party to insist upon Bermuda law governing the contract (whether he succeeds is a different story).

But in an agency/distributor situation there are laws in some countries, particularly in Europe, which require the OS to pay compensation or an indemnity on termination of the relationship.

Therefore, the Bermudian party may wish to carefully consider whether it is more advantageous to accept the application of a foreign system of law with the prospect of receiving a lump sum payment on termination.

Linked to the law governing the contract is the method of dispute resolution. The parties may prefer arbitration to the law courts of one of the parties.

My preference is arbitration in Bermuda before a single arbitrator. A single arbitrator is less expensive than three.

To avoid problems arising in the areas discussed in this article, it is essential for the relationship to be clearly expressed in a legally enforceable document, be it an exchange of letters or an agreement signed by both parties.

@EDITRULE:

Attorney John Evans is an associate with A.S.&K. Services Ltd., which provides corporate administration and resident representative services to client companies of Appleby Spurling & Kempe. Copies of Mr. Evans? columns can be obtained on the Appleby Spurling & Kempe web site at www.ask.bm.

This column should not be used as a substitute for professional legal advice. Before proceeding with any matters discussed here, persons are advised to consult with a lawyer.