This week’s blog post is a guest post from Ali Tabari of St Philips Chambers. Ali discusses contract notice periods and the best ways in which to terminate them.
Imagine you’re a distributor in a business relationship with a supplier based on an unwritten, or partially written, contract. One day, the supplier decides that they’ve had enough and they wish to terminate. They give you the commercial equivalent of a ‘Dear John’ letter, and immediately move onto pastures new, while you try to salvage the wreckage of what’s been left behind. Are you left high and dry, or is there something you can do about it?
The first point to bear in mind is that, just because a contractual term isn’t written down, doesn’t mean that it doesn’t exist. Terms can be implied into a contractual relationship when business efficacy requires it, and that can include a term requiring reasonable notice of the termination of a contract. The breach of a contractual term potentially gives rise to a claim in damages for the losses suffered, as long as those losses were caused by the breach.
So, what notice period would a Court find to be ‘reasonable’? That depends on the circumstances of the case, and on a number of factors which were discussed in a 2013 case :
- The general practice of the trade in which the parties were involved, i.e. what is an acceptable termination period for the rest of the industry?
- What constitutes ‘reasonable notice’ is to be judged at the time that the notice of termination is given, although the circumstances at the time the contract was formed could also be relevant;
- The more formal a relationship, the more a Court will be inclined to impose a longer notice period;
- If the parties knew about or discussed termination before the contract was brought to an end, it may affect what is deemed ‘reasonable’.
It is important to think about how long a trade ‘cycle’ lasted within the relationship: if you had annual meetings with the supplier and planned for the next 12 months on the basis of what was agreed, the reasonable notice period may well be until that 12-month cycle ends. However, if you’d already spoken about the possibility of breaking off the relationship, or if trade was conducted ad hoc or in an informal and irregular manner, then a shorter period might be found to be ‘reasonable’. It should be clear that defining what is ‘reasonable’ is not a clear-cut exercise, and depends on the factual and commercial realities of the business relationship.
So, what do you do if you are left in the lurch like this?
You can sue for damages, though you will have to ensure that you continue to mitigate any losses in the meantime, you can sue for specific performance of the contract, although it there is questionable value in forcibly keeping a relationship alive when the other party wants to leave; in certain circumstances, you may be able to obtain an injunction to prevent the supplier from carrying on their new relationship. It is crucial to move quickly, not only to secure your legal position but also to stem the losses arising from disruption to your business and the potential damage to your client relationships. In a situation like this, an early call to a trusted legal advisor could be an invaluable investment for your business.
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 Hamsard 3147 Ltd v Boots UK plc  EWHC 3251 (Pat)