Many South African businesses rely on someone else to get their products to market. A manufacturer appoints a regional distributor. An importer supplies a national retailer. A local brand signs up resellers in neighbouring countries. In each case, the relationship is only as strong as the agreement behind it.
When distribution and supply agreements are vague, disputes follow. Who carries the cost of defective stock? Can the supplier sell directly into the distributor’s territory? What happens to unsold stock when the relationship ends? And, increasingly, are the exclusivity and pricing clauses lawful under competition law?
These questions are in the news. During 2026, public disputes between a large South African retailer and long-standing suppliers over exclusivity terms have prompted political calls to amend the Competition Act. Whether or not the law changes, the lesson for businesses on both sides of a supply relationship is the same: agree the terms clearly, and check that they are enforceable.
Distribution, supply, agency or franchise?
The label matters less than the substance, but it helps to know what you are signing.
- Supply agreement: a contract for the ongoing sale of goods, usually setting out ordering, delivery, pricing and quality terms.
- Distribution agreement: the distributor buys goods from the supplier and resells them in its own name, taking the commercial risk and the profit margin.
- Agency agreement: the agent finds customers and concludes sales on the principal’s behalf, usually for a commission, without owning the goods.
- Franchise agreement: if the arrangement includes the use of a brand together with a prescribed business system and ongoing support in exchange for fees, it may be a franchise under the Consumer Protection Act 68 of 2008 (CPA), which brings additional disclosure and contract requirements.
Getting the classification wrong can have tax, liability and regulatory consequences, so it is worth settling at the outset.
The key commercial terms
Appointment, territory and exclusivity
The agreement should state exactly what is being distributed, where, and to whom. Is the appointment exclusive, sole (the supplier may still sell itself) or non-exclusive? Does it cover online sales into the territory? Can the supplier add new products or remove existing ones? Exclusivity is valuable to a distributor, so suppliers often link it to minimum purchase or performance targets and reserve the right to convert it to non-exclusive if those targets are missed.
Ordering, pricing and payment
Set out how orders are placed and accepted, how prices are set and adjusted, payment terms, currency (and who bears exchange rate risk for imported goods), and the consequences of late payment. Suppliers commonly ask for security, such as a suretyship from the distributor’s directors or a guarantee.
Delivery, risk and ownership
The agreement should say when risk of loss or damage passes, which is often on delivery, and when ownership passes. A retention of title clause, under which the supplier remains owner until it is paid in full, gives some protection if the distributor fails, although it has limits once goods are resold or mixed with other stock. For cross-border supply, use a clear delivery term, such as an Incoterm, rather than leaving it to inference.
Quality, warranties and product liability
Under section 61 of the CPA, the producer, importer, distributor and retailer of goods can each be held liable, without proof of negligence, for harm caused by unsafe or defective goods supplied to consumers. The distribution agreement cannot remove that liability to consumers, but it can allocate it between the parties. Typical provisions include product specifications, recall procedures, indemnities, and a requirement for product liability insurance.
Intellectual property and branding
The distributor will usually use the supplier’s trade marks. The agreement should grant a limited licence, set brand guidelines, prohibit registration of confusingly similar marks or domain names, and require the distributor to stop all use when the agreement ends.
Term, termination and exit
Many disputes arise at the end of the relationship. Agree the initial term and renewal mechanism, termination for breach or insolvency, and termination on notice. Then deal with the aftermath: the sell-off period for remaining stock, any buy-back of inventory, the handover of customer information (subject to the Protection of Personal Information Act 4 of 2013), and whether any restraint applies after termination.
Competition law: the clauses that need care
The Competition Act 89 of 1998 applies to agreements between a supplier and its distributors (vertical relationships) as well as to agreements between competitors (horizontal relationships). Three areas regularly cause problems.
Resale price maintenance. Section 5(2) prohibits minimum resale price maintenance outright. A supplier may recommend a resale price, but only if it is clearly not binding. A clause that requires a distributor to sell at or above a set price, or that penalises discounting, is a serious risk.
Other vertical restraints. Exclusivity, territorial restrictions and non-compete obligations are not automatically unlawful. Under section 5(1), they are prohibited only if their anti-competitive effect outweighs any pro-competitive gain. The analysis depends on market shares and the market context. Where a party is dominant, the abuse of dominance provisions in section 8, including the rules on exclusive dealing, also come into play.
Dual distribution. Where a supplier also sells directly to customers in competition with its own distributors, the parties may be competitors at the retail level. Clauses that divide customers or territories between them can then attract the stricter horizontal rules in section 4(1)(b), which prohibit market allocation outright, subject to the established principle that some restraints genuinely ancillary to a legitimate transaction may survive. These clauses should be reviewed carefully, particularly in older agreements that have not been revisited.
Competition law contraventions can lead to administrative penalties, and offending clauses may be unenforceable, so it is better to deal with these issues at the drafting stage.
A practical checklist
- Confirm the true nature of the relationship: supply, distribution, agency or franchise.
- Define the products, territory, channels (including online) and level of exclusivity.
- Link exclusivity to realistic minimum purchase or performance targets.
- Set clear ordering, pricing, payment and security terms.
- Specify when risk and ownership pass, and include a retention of title clause where appropriate.
- Allocate product liability, recall responsibilities and insurance.
- License trade marks narrowly and protect the brand after termination.
- Review pricing, exclusivity and territorial clauses for competition law risk.
- Plan the exit: notice periods, stock, customer data and any restraint.
- Include a workable dispute resolution clause and choose the governing law for cross-border deals.
How O’Reilly Law can help
We draft, review and negotiate distribution, supply and agency agreements for suppliers, importers and distributors, including cross-border arrangements. We identify competition law and consumer protection risks in existing agreements, advise on termination and exit, and assist when supply relationships break down.
Contact us to have your distribution or supply agreement drafted or reviewed.
Related reading: Limitation of liability and indemnity clauses · Dispute resolution clauses in commercial contracts
This article is general information and not legal advice. Correct as at November 2026.