What Is An Exclusivity Agreement In Australia?

An exclusivity agreement is part of a business agreement that essentially restricts your supply of products or services to just that client, industry or geographical area for a specified time period. Before accepting the agreement, it’s crucial to understand what you’re getting yourself into.

While it might sound limiting, an exclusivity agreement can offer peace of mind to buyers and sellers. However, engaging a lawyer to review the terms is recommended before signing an exclusivity agreement. Contact our commercial legal experts for comprehensive advice if you are considering agreeing to exclusivity terms.

Read this article to learn more about exclusivity agreements in Australia. You’ll discover when to use an exclusive clause and how it can benefit your business.

What Is An Exclusivity Agreement In Australia?

An exclusivity agreement is a partnership where the parties limit how, who, and where the goods/service provider offers their products or services. In a business setup, the exclusive agreement limits the supplier from providing their products to certain clients or in a given location.

For example, a hotel owner may enter an exclusivity agreement with a vegetable supplier. The agreement terms could limit the supplier from selling their vegetables to other competitor hotels in that area.

When Can You Use An Exclusivity Agreement In Australia?

Exclusivity agreements don’t always apply in businesses. They can also be used when forming other partnerships. One common use of the exclusivity clause is in employment contracts. The employer can use the clause to restrict employees or contractors from offering their services to competitors.

You can also use an exclusivity agreement as a supplier to limit your client(s) from purchasing similar goods from other suppliers. The vice versa is true, where a company can restrict its suppliers from selling to competitors.

Other uses of an exclusivity agreement in Australia include sales of goods contracts, joint ventures, tenders, and service agreements. How the exclusivity agreement works depends on the type of agreement and the terms used.

Types Of Exclusivity Agreements In Australia

In contracts, a supplier and the purchaser can agree to sign a supply contract. In the contract’s terms, the parties may include an exclusive clause restricting the buyer from purchasing from others or the supplier from selling to other companies.

This distinction creates two types of exclusivity agreements: one in favour of the supplier and another in favour of the purchaser. Let’s look at both.

Exclusive Clauses A Supplier Can Use

Suppliers can use exclusivity clauses to govern how they conduct the supplier business with the purchaser. Here are the types of exclusivity clauses you can use as a supplier:

  • Exclusive product clause: This clause would limit the purchaser(s) from buying similar products from other suppliers.
  • Exclusive channel clause: As a supplier, you can use the exclusive channel clause to limit the purchaser from selling your product through specified channels, like online marketplaces.
  • Exclusive dealing clause: This clause restricts who the purchasing party does business with, the type, and where it does business.

Exclusive Clauses A Purchaser Can Use

As a purchaser, you can include an exclusive clause in your supply agreement to prevent the supplier from selling to your competitors. The clauses you can use are:

  • Exclusive product clause: This agreement would mean that the supplier only sells their products to you.
  • Exclusive area clause: Under this clause, the supplier would be limited from selling their products to other parties in a specified geographical area.

What Benefits Can An Exclusivity Agreement Bring To Your Business?

When done correctly, an exclusive agreement can be beneficial to your business. However, ensure you understand the terms before you agree to an exclusivity clause. The benefits could include:

  • Certainty of supply: As a business owner, an exclusivity agreement can offer certainty that the supplier will consistently deliver products/services as agreed upon in the contract.
  • Certainty of income: As a supplier, having purchasers who’ve agreed to buy your products exclusively can offer a guarantee of consistent income. However, ensure the agreement is worded correctly to avoid limiting your market.
  • Gives you a competitive edge: When you receive an exclusive product from a company, it can give you a competitive edge in your business area.

How To Draft An Exclusivity Agreement

You must be knowledgeable of commercial law to draft an exclusivity clause that works to your benefit without legal implications. Therefore, you should work with an expert contract lawyer to draft the right agreement for the best outcome.

The exclusivity agreement should contain the essential terms of the contract, including:

  • The exclusive products or services to be provided
  • Which parties have exclusive rights to purchase or supply a specific product
  • The restrictions on where the purchaser/supplier can buy/sell the products
  • The steps to take if one party breaches the agreement

When Can An Exclusivity Agreement Be Illegal In Australia?

An exclusive agreement or dealing is illegal when its intention is purposely or likely to cause substantially lessening competition. This situation can occur when the affected businesses can’t buy the products elsewhere or when the party making the conditions is more powerful.

For example, if an electric company tells its supplier not to supply certain equipment to its competitors, yet the specific equipment isn’t available for purchase elsewhere. This agreement would substantially lessen the competition, making it illegal and punishable by law.

Deal With Exclusivity Agreements The Right Way

Whether you’re a supplier or purchaser in Australia, an exclusivity agreement can offer various benefits. However, the clause must be worded correctly to ensure it provides the benefits you wish without causing legal problems.

That’s why it’s highly recommended to consult expert commercial lawyers like Aditum Lawyers. Our team has years of experience helping clients draft contracts and agreements that serve their best interests. Contact us today for a free consultation on exclusivity agreements.

Resources & Further Reading

  1. https://lawpath.com.au/blog/what-are-exclusivity-clauses-in-employment-contracts
  2. https://www.accc.gov.au/business/competition-and-exemptions/exclusive-dealing
  3. https://www.smallbusiness.wa.gov.au/blog/should-you-agree-exclusivity-clause

Disclaimer: The information provided in this article is for general informational purposes only and should not be construed as legal advice. Consult with a qualified commercial lawyer for personalised advice regarding your specific situation.