Demand Media Ltd v Koch Media Ltd
Demand was the licensor of a product and Koch was the manufacturer/distributor of that product.
Under the terms of a distribution agreement, Demand supplied product ideas and licensing rights to Koch. Koch was then responsible for manufacturing the products for distribution and sale.
Following the termination of a distribution agreement a number of issues arose and Demand argued that the following terms were implied:
- The stock sold to third parties by Koch on behalf of Demand would be sold at a price determined by Demand.
- During the term of the distribution agreement, Koch would not produce and offer for sale to customers of Demand products that were copies of and/or were substantially similar to those that Koch had agreed to sell on behalf of Demand.
- In the alternative that Demand would be entitled, within a reasonable period following such a request being made to regain possession of stock to which it held title.
- Upon receipt of the notice set out in sub-paragraph (3) above, Koch would not take any further steps to dispose of or otherwise deal with that stock save as required to bring about its return to Demand.
The Court rejected Demand’s argument to imply such terms. The Judge said that if a term had such a potential impact, then he would expect the terms to be expressly agreed between the parties.
This case serves as a reminder that when drafting contracts, ensure that the contract includes all express provisions covering all issues that might arise during or on termination of the contract. Furthermore, it highlights the Court’s reluctance to imply terms into a comprehensively written contract. Any terms that would have a potential impact on a party, would be expected to be expressed in the contract and not left to be implied at the Court’s discretion.
It is therefore important that you ensure that on entering into a contract, you do so with a full understanding of the agreed terms and their wider implications.
How can Nelsons help?
At Nelsons, our Commerce and Technology team are able to advise when contract terms are being established. However, if you do find yourself in a situation where there is a dispute, our commercial litigation solicitors are able to effectively guide you through the Court process.