All too often, businesses believe that they have secured a valuable commitment to exclusivity – only to discover that, when they come to enforce it, the relevant contractual provisions aren't watertight. In this briefing, we look at how to avoid the most common pitfalls and ensure that your exclusivity provisions achieve your commercial objectives.
Who is allowed to do what?
It is often assumed that terms such as "exclusive", "sole" or "preferred supplier" have clearly understood legal meanings and will override any other, potentially conflicting wording. In practice, however, the courts can often interpret them differently, depending on the contractual context and the precise words used. The text box below outlines the most common interpretations. The key point is not to rely solely on these terms, but to spell out exactly what activities are intended to be permitted and/or prohibited.
For example, in Honeyrose Bakery v Lola's Kitchen (2015), Honeyrose was appointed to be Lola's "exclusive" supplier of cupcakes. But the agreement also contained a clear carve-out allowing Lola's to manufacture the products itself. The court therefore concluded that Lola's had not agreed to withdraw from this activity altogether. Honeyrose may have drawn undue comfort from the fact that the word "exclusive" was used – when in fact, its appointment might more accurately have been described as "sole" (see text box below).