Perfume Distribution Contract Terminated by Conduct

September 4, 2014

Perfume Distribution Contract Terminated by Conduct

A substantial contract for the worldwide distribution of luxury perfumes was terminated by cumulative instances of unreasonable and high-handed conduct by the distributor, including excessive and unnecessary ordering of stock and a refusal to share relevant information with the manufacturer, the High Court has ruled.

The contractual relationship, pursuant to an oral agreement between the manufacturer and the distributor, was extremely successful prior to a mutual loss of trust and confidence. The distributor argued that the manufacturer had wrongfully failed to satisfy orders for stock and purported to accept that as a repudiation of the contract. However, the manufacturer denied breaching the agreement and submitted that it had been entitled to refuse to fulfil the orders by reason of the distributor’s serious breaches of contract. Both parties claimed damages against the other.

Ruling in favour of the manufacturer, the Court found that the distributor had failed, over a three-year period, to spend a reasonable percentage of its margin on marketing the perfumes. It had also failed to provide reasonably requested information on its stock levels and had delayed payment of invoices. It had permitted substantially discounted sales without the manufacturer’s consent and had generally acted in a ‘high-handed manner’ so as to reduce the level of trust and confidence between the parties. The manufacturer had expressed concern that the distributor’s actions were threatening the reputation of its brand and the latter’s final stock orders were excessive and not reasonably required.

The manufacturer had been entitled to reject those orders and the contract had been terminated by reason of the distributor’s conduct, the Court concluded. Arguments as to the appropriate relief to be granted to the manufacturer pursuant to the Court’s decision will be heard at a later date.