Court Gives Guidance On Whether Notice To End Supply Agreement Was ‘Reasonable’

Businesses will welcome High Court guidance on when notice to end an agreement is ‘reasonable’, where the agreement makes no express provision for termination on notice.

An agreement for the supply of clothing did not expressly say it could be terminated by giving a specific period of notice. In those circumstances the law says an agreement can be terminated on ‘reasonable’ notice, whether the agreement is oral or in writing. The customer under the contract purported to terminate the supply agreement on nine months’ notice, but the supplier claimed that was too short to be reasonable.

The court said what is ‘reasonable’ depends on the circumstances, and gave useful guidance on the factors to take into account. These included:

• usual practices in the relevant market;
• how formal the agreement is: the more formal, the longer the notice period must be before it is ‘reasonable’;
• the parties’ knowledge of when the relationship was likely to end, and the timing of negotiations leading up to termination (for example, if the relationship was likely to end shortly, a short notice period is more likely to be reasonable).

The court also ruled that the relevant time for assessing whether a notice period is reasonable is when the notice is given. In this case, the court ruled nine months was a reasonable notice period.

Recommendation

Parties to an agreement, whether written or oral, should ensure specific provision is made for termination of the agreement on notice, or risk the uncertainty inherent in applying the ‘reasonable’ test.

Case ref: Hamsard 3147 Ltd (t/a Mini Mode Childrenswear) & Anor v Boots UK Ltd [2013] EWHC 3251