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Distribution agreements are a common business tool used by manufacturers to establish relationships with distributors and expand their reach in different markets. A distribution agreement is a legal agreement that outlines the terms and conditions of the distribution relationship, including the rights and responsibilities of both parties, the scope of the distribution, and the compensation structure. These agreements can take many forms, from exclusive agreements with a single distributor to non-exclusive agreements with multiple distributors. While distribution agreements can be a valuable tool for manufacturers, they can also be complex and time-consuming to negotiate and draft. This is where using a pre-drafted model form, such as the Orgalim Model Form of an Exclusive Contract with a Distributor Abroad (“Orgalim Form”), can offer significant advantages.

As per official page, then General Conditions are an updated version of the S 2012 General Conditions (originally the S 92 General Conditions). Recent change (officially released on 24 March 2023) reflect legal developments and experience with supply contracts in the technology industries. Among the main changes, one can mention an adapted definition of “Gross Negligence”, a specific clause on intellectual property, a simplification of payment terms and a clarification of the liability for infringement of intellectual property rights.

Orgalim Model Form

Although the Orgalim Form is primarily intended for use in international contracts for sale and delivery of engineering industry products in general, but they can also be used for national contracts, but they are not suitable for use in consumer contracts.

The Orgalim Form is a pre-drafted distribution agreement that provides a standardized framework for manufacturers to establish and maintain relationships with distributors in foreign markets. This model form is designed to save time and resources while ensuring a fair and balanced agreement between the parties. The Orgalim Form is typically used as a set of general terms and conditions within a distribution agreement. It is usually concluded in conjunction with the main agreement, which provides information on the parties involved, a description of the subject of the agreement, the purchase price, late payment interest, and other significant clauses that form the basis of the cooperation. The main agreement will further define the specific terms of the distribution agreement and serve to supplement and clarify the Orgalim Form.

Advantages

One of the key advantages of using the Orgalim Form is that it has been developed by a team of legal experts with extensive experience in international business law. This means that the agreement has been carefully crafted to address common issues and potential risks that manufacturers may encounter when engaging with foreign distributors. As a result, the model form provides a comprehensive and reliable template for a distribution agreement that covers all relevant legal aspects.

Another benefit of using the Orgalim Form is that it offers flexibility to adapt to specific business needs. The model form includes optional clauses that can be added or removed depending on the particular circumstances of the business relationship. This allows manufacturers to tailor the agreement to their specific requirements, while still ensuring compliance with legal and regulatory frameworks in different jurisdictions.

In addition, the Orgalim Form provides clear and concise language that is easily understandable for both parties. This can help to reduce the likelihood of misunderstandings or disputes that can arise from unclear or ambiguous agreement language. The agreement is also designed to foster a collaborative and long-term relationship between the manufacturer and distributor, with provisions for regular communication and performance evaluation.

Using the Orgalim Form can also help to save time and resources in the negotiation and drafting process. Since the model form provides a pre-drafted framework, parties can focus on negotiating the specific terms and conditions of the agreement, rather than spending time and resources drafting the entire agreement from scratch. This can help to speed up the negotiation process, reduce legal fees, and minimize the risk of errors or oversights.

Challenges

The Orgalim Form provides that any disputes arising from or relating to the agreement shall be resolved under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with those rules. It is advisable to further specify in which arbitration the dispute will be settled, such as the Arbitration Institute of the Stockholm Chamber of Commerce. Due to potential delays and lack of competence, it is not recommended to choose the Latvian arbitration courts. By selecting a more efficient and competent arbitration institution, the dispute resolution process can be expedited and ensure a fair resolution.

The original Orgalim Form stipulates that payments must be made within 30 days of the invoice date and be divided into three installments, which is not a standard arrangement. Therefore, the payment clause of the Orgalim Form may be modified to fit the specific situation and cooperation model. Since the Orgalim Form is typically used as a set of general terms and conditions, the purchase price payment may be further detailed in the main agreement.

Orgalim Model Form vs. ICC model agreements

The Orgalim Form and the ICC (International Chamber of Commerce) model agreements are both pre-drafted agreements that serve as a starting point for drafting distribution agreements. However, there are some differences between the two.

Firstly, the ICC model agreements cover a wider range of agreements while the Orgalim Form specifically focuses on exclusive distribution agreements. Secondly, the ICC model agreements are designed to be more flexible and adaptable to various jurisdictions and industries, while the Orgalim Form is tailored towards European companies and is designed to comply with European Union law. Finally, the ICC model agreements are regularly updated to reflect changes in the law and best practices, while the Orgalim Form is updated less frequently.

Ultimately, the choice between using the Orgalim Form or ICC model agreements will depend on the specific needs of the business and the jurisdiction in which the distribution agreement will be implemented. It is important to consult with legal professionals to determine which model form is best suited for the business’s needs.

Main Conclusions

Overall, the Orgalim Form offers a number of benefits for manufacturers looking to establish relationships with foreign distributors. By providing a standardized and comprehensive framework that is flexible and adaptable to specific business needs, the model form can help to ensure a fair and balanced agreement that promotes collaboration and long-term success.

There are two key points to consider. If you are an exporter based in Latvia or any other country, it is advisable not to waste your resources on developing your own distribution contract. For exports within the European Union (EU), it is recommended to use the Orgalim Form, which includes a dispute resolution clause offering the option of expedited arbitration. For non-EU trade, the use of the ICC Model form (available at https://2go.iccwbo.org/icc-model-distributorship-contract-config+book_version-Book/) is recommended, along with the same dispute resolution clause that provides for expedited arbitration.

Furthermore, it is essential to use well-established laws as applicable, particularly in regions with young jurisdictions, such as Eastern Europe. These jurisdictions often lack sufficient court precedents to ensure fair dispute resolution. Therefore, relying on established legal frameworks will contribute to a more reliable and equitable resolution process. Please note that under Orgalim Form, the law of the supplier’s country will be the applicable law, unless otherwise agreed.