Should You Have An Exclusivity Clause?

Whether you are a supplier or purchaser, an exclusivity clause within a contract can be used to protect the best interests of all the entities involved.

An exclusivity clause between two parties requires one party to exclusively partake in business dealings with the other. Also known as a non-compete provision, an exclusivity clause will provide security for a business by mitigating the risk of the other party purchasing goods or services from competitors.

What Is An Exclusivity Clause?

Exclusivity clauses restrict a signatory from engaging in business with competing companies. These clauses are frequently employed in business dealings between supplier and purchaser.

For instance, a buyer might sign a supply agreement with a particular vendor because that vendor has a commodity that is crucial to them. The two may want to ensure that they only do business with each other during the term of the contract. This could be accomplished by including an exclusive condition in the supply contract which either:

  • Restricts the channels and areas in which the provider may market their products to other buyers (area clause);
  • Prohibits the buyer from purchasing the same products from a different source (product clause).

Why Do We Use Exclusivity Clauses?

Exclusivity agreements are employed to safeguard vendors and protect enterprises. An exclusivity condition might prevent a company from looking for similar goods from another provider at a reduced rate.

The purchasing industry is no different. A company would suffer if its supplier began doing business with someone else instead of them. Therefore, if properly written, an exclusivity agreement protects both entities legally.

What Is A Supply Agreement?

A supply agreement refers to a pact between two parties whereby one entity (the provider) agrees to give the other entity (the buyer) certain goods or services for the duration of the contract.

Typically, a supply agreement would contain the following details:

  • The goods that will be delivered;
  • ’The quality of the goods;
  • The dates that the contract will begin and finish;
  • Delivery procedures and rates; and
  • Dispute resolution.

What Is An Exclusivity Clause In A Supply Agreement?

According to the written contract, an exclusivity declaration in supply contracts would:

  • Stop the vendor from selling the same goods to another company.
  • Stop the customer from promoting your business to a different provider.
  • Unless stated otherwise in the term itself, these provisions would apply throughout the length of the contract.

Restrictions On Exclusivity Clauses

Exclusivity agreements may cause financial hardship for the company being held. They cannot benefit from any pay or other advantages that may come with greater opportunities. This disadvantage is detrimental if the project you are working on is lengthy. Exclusivity clauses can be detrimental to a business if the term of the contract is lengthy, as it prevents the parties from trading with other entities that may propose a better offer. As such, it is essential to be weary of signing any legally binding contract containing an exclusivity clause if you are considering upcoming opportunities that may be more fruitful for your business. Be sure to explore your options and seek the opinion of a solicitor.

Legal limitations to exclusive dealing in trade or commerce can be found in section 47 of the Competition and Consumer Act 2010. In order to avoid monopolisation, the law regulates the use of exclusivity clauses where there is an intent to remove all competitors.

Three crucial considerations will be taken into account when determining whether and exclusivity clause is lawful:

  • If there are changes in the level of competitiveness for that product category;
  • Whether a failure to deliver would result in the reduction of that commodity;
  • If it adversely affects that product’s availability to other customers.

Exclusivity Clauses For A Supplier

A provider in a contract can pick from a variety of popular exclusivity clause variants, including:

  • Dealing restrictions
  • Clauses in a channel
  • Products clauses
  • Pricing provisions

Key Takeaways

  • Exclusivity clauses safeguard your company and can lessen market rivalry
  • Any exclusivity provision you draft or consent to can not be used only to create a monopoly. Exclusivity clauses help guarantee protection for stakeholders, but this requires careful wording of the provision.
  • To ensure that an exclusion clause is legally binding and to avoid future disputes, consult a solicitor to draft the supply agreement for you.

Hire An Expert

Our solicitors can assist you in crafting a supply agreement containing an exclusivity clause that is both legitimate and in line with your company’s goals. With Lazarus Legal’s packages, you can consult with one of our knowledgeable lawyers for the best course of action for your company.

There are additional strategies to control your market rivalry. Our business lawyers also provide solutions for non-compete contracts, which forbid individuals from joining your rivals and, if properly structured, can continue to be in force long after they leave your employment.

Our team at Lazarus Legal is able to assist with a variety of exclusivity clauses, specialized laws, and corporate services. Contact us on +61 (02) 8644 6000 to discuss how we can assist you with your legal needs.

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Mark Lazarus

Mark Lazarus, the visionary behind the business and the fresh blood of the Lazarus Legal team, Mark (or Laz as he is often known) owes much of his success to his past experiences. And he’s made it his personal goal to bring that wisdom and formula to the firm.

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Should You Have An Exclusivity Clause?

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Barry Lazarus

CEO & Notary Public

barry@lazaruslegal.com.au 

We’d be lying if we told you that this bloke isn’t the big honcho of our team, but his name is a dead give-away. The founder of Lazarus Legal, Barry is an old school, tough as nails lawyer. They don’t forge litigators like this anymore.

With decades of experience in both Australia and South Africa, his wisdom is as renowned as his name. Back in the days when Schwarzenegger and Van Damme were kicking ass on VHS, Barry was kicking ass in the courtroom. And after all these years, he still has a reputation for refusing to back down.Barry is definitely the badass you’d want in a fight – in court or otherwise. But really, he’s a big softie. Just don’t let him know you know that (although he probably won’t read this anyway – navigating the Internet is not his strong point).

Aside from putting other lawyers in their place, taking long walks on the beach and spending time with his family, Barry enjoys seeing others succeed. Not only is Barry a staunch and unmoving litigator, he has sharp business and commercial acumen having started up ventures from scratch and growing them into full-blown franchises – from real estate to creating ice cream, to making pasta. With his experience on both sides of the commercial and legal equation, you want this guy to be on your side, whether you’re the next Zuckerberg realising your genius, or the next Zuckerberg taking on your opponents in court.

When Barry is not busy lawyering about, he is a part-time lawn bowler and a wannabe comedian, but never took both as a day job, because let’s face it, he’s a lot better at his day job.

If someone ever threatens you to lawyer up…relax, call Barry and he’ll handle the rest. 

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Mark Lazarus Director

Mark Lazarus

Director

mark@lazaruslegal.com.au 

The visionary behind the business and the fresh blood of the Lazarus Legal team, Mark (or Laz as he is often known) owes much of his success to his past stories and experiences. And he’s made it his personal goal to bring that wisdom and formula to the firm.

He’s a bit of jet setter, splitting his time between Australia and the UK, maximising every hour of his professional life. He thrives on this adrenalin. It allowed him to work in private practice in Sydney, act for a host of famous celebrities in London, do a two year stint as a NSW barrister (and not the pretentious coffee type in the Melbourne laneways) and more recently did a gig as the Legal Director covering Europe, the Middle East and Africa for one of the world’s coolest fast-moving consumer good brands!  

As an Aussie and UK lawyer and former barrister, Mark not only has the gift of the gab but he’ll walk the walk to prove it too. He likes to think he’s a bit like Harvey Specter or Michael Corleone, the main difference is you can actually retain him as your lawyer and consigliere. He’ll tell you how it really is and will take on any challenge head on. Although litigation and court advocacy comes naturally to him, commercial and IP is what gets his blood pumping! 

When Mark is not out there doing his thing, you will probably catch him chilling at home with his family, on the sidelines of the soccer (football) pitch cheering on his two boys, crawling through mud obstacles, or training hard at the gym. Passion and commitment is what drives Mark to succeed, along with his burning desire to disrupt the legal profession by finding new ways to change the game.

He has sights on the future. So if you’re breaking new ground, ahead of the times, and on the verge of something big, but you need someone who’s got your back and who can give you straight up advice, this is the guy you will want on speed dial.

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