Resolving a Dispute Between a Manufacturer and Distributor Over Faulty Equipment

Quick Summary

A distributor received faulty equipment from a manufacturer, threatening its commercial reputation and customer relationships. By analyzing the contract, initiating structured negotiations, and offering a commercially viable solution, we secured a refund, preserved the client’s relationship with end-users, and strengthened their future supply chain contracts.

Background / The Situation in Resolving a Dispute Between a Manufacturer and Distributor

Our client, a regional distributor based in North Africa, specializes in supplying medical-grade sterilization equipment to private hospitals and clinics. The distributor recently expanded its product line through an exclusive arrangement with a mid-sized European manufacturer of autoclaves and decontamination systems. The new partnership launched with a shipment of 15 units valued at over $400,000.

Upon installation, five hospitals reported that the units failed within weeks. Our client’s service engineers flagged critical performance issues linked to manufacturing defects. This created an urgent problem: not only were key contracts at risk, but reputational damage and financial losses loomed. The distributor needed a legal strategy that preserved customer trust while recovering the losses from the supplier.

The Problem

The core problem was twofold. First, the equipment defects jeopardized multiple B2B customer relationships — including a key public hospital account. Second, the distributor had prepaid for the units and lacked leverage beyond contractual rights.

The manufacturer initially blamed improper installation and delayed investigating the claims. The contract included a warranty clause, but it lacked specifics on turnaround times or remedies beyond repair or replacement — neither of which was viable in the eyes of hospital procurement departments under pressure to maintain uptime.

There was also the risk that the manufacturer would delay or deny responsibility indefinitely, forcing litigation. Given the cross-border nature of the contract (European supplier and North African buyer), litigation would be slow and costly. Resolving a dispute between a manufacturer and distributor in a more efficient and cost-effective manner was critical. A proactive legal-commercial solution was needed.

The Strategy or Solution

Contract Review and Leverage Identification for Resolving a Dispute Between a Manufacturer and Distributor

We began with a thorough review of the supply agreement. Although the warranty clause was vague, the contract contained a general obligation for the goods to be “fit for the intended purpose” and compliant with “specifications agreed upon in Annex I.” We obtained the specification annex and linked the performance failures directly to non-conformity.

The contract also had a dispute resolution clause requiring mediation before arbitration. This created an opportunity to initiate resolving a dispute between a manufacturer and distributor without going straight to costly proceedings.

Gathering Evidence and Framing the Narrative for Resolving a Dispute Between a Manufacturer and Distributor

We worked with the client’s service team to gather photo evidence, internal diagnostic logs, and signed reports from hospital engineers. These were translated and compiled into a professionally formatted briefing pack for the manufacturer.

The framing of the case was critical in resolving a dispute between a manufacturer and distributor: rather than blame-shifting or escalating, we adopted a firm but commercial tone. Our message emphasized the damage to mutual reputation, potential breach of exclusivity, and long-term opportunity loss — while signaling our willingness to resolve the matter amicably.

Opening the Negotiation Window for Resolving a Dispute Between a Manufacturer and Distributor

We sent a formal notice of non-compliance, invoking the warranty and fitness-for-purpose clauses. We requested a refund for the defective units, citing their unrepairable state, and offered the option of future unit replacement if that was easier for the supplier to fund.

Rather than go straight to legal threats, we proposed a 14-day timeline for joint technical investigation and mediation, in line with the dispute resolution clause. The supplier responded within five days, agreeing to assess the situation via an independent technical reviewer.

Mediation-Inspired Resolution for Resolving a Dispute Between a Manufacturer and Distributor

Once the review confirmed manufacturing faults, we proposed a settlement: the client would keep seven working units, return the rest, and receive a partial refund (70% of total value). The supplier accepted this on condition of releasing them from future liability on this batch.

To protect our client’s interests, we inserted a carve-out clause stating that the release did not affect future claims under the warranty in case similar issues emerged.

We also advised our client to amend their future contracts to include:

• A precise definition of “non-conformity” with reference to technical standards

• Time-bound obligations for investigation and remedies

• An obligation to maintain spare parts and remote diagnostics access

The Outcome

The refund was received within 30 days. Our client was able to repair its reputation with affected hospitals by offering immediate replacements from another supplier and a written assurance of supplier upgrade.

The manufacturer relationship, surprisingly, remained intact — albeit on revised terms. New batches were subject to third-party inspection before shipment, and a new annex was added to clarify expected performance metrics.

This case allowed the client to recover 70% of its financial exposure while retaining commercial continuity and avoiding litigation. It also led to stronger contract controls for future shipments.

Key Takeaways

3 Lessons from This Case:

✅ Don’t rely on general warranty language — define non-conformity and remedies clearly
✅ Use your dispute resolution clauses to buy time and frame negotiations
✅ Always gather objective technical evidence before alleging breach

Best Practices to Learn:

• Maintain installation reports and field diagnostics logs for high-value equipment
• Negotiate pre-shipment inspection rights for exclusive distribution agreements
• Translate contracts into practical steps your operations team can follow

Call-to-Action

Are you managing international supply contracts and worried about quality risks? A well-drafted contract isn’t just legal insurance — it’s your first line of defense.

If you’d like help reviewing your warranty clauses or resolving a dispute between a manufacturer and distributor, [book a consultation with our team]. We help clients turn legal pressure into commercial clarity.