You will often find the phrase ‘reasonable notice’ in termination clauses of contracts. Additionally, where a contract is silent (either due to the fact that a contract doesn’t exist, or that one does exist but it doesn’t specify what period of notice needs to be provided to terminate) it is implied into the contract that the period of notice given must be reasonable.
Despite this being entrenched into English law, cases concerning what period of time reasonable notice actually equates to in real life are relatively infrequent. It is therefore always interesting to hear what Courts have to say about this issue when a case does come along, such as in the matter of Hamsard v Boots, which was considered in December.
Hamsard designed, manufactured and supplied children’s clothing to Boots. This position arose as a result of Hamsard taking over a previous agreement between Boots and a former supplier who had ran into financial difficulty. Boots and the previous supplier entered a formal agreement in 2002 which led to a long term venture agreement in July 2007. This provided for a notice period of 18 months. However, when this company went into administration Hamsard inherited the contract. There was no formal written contract between Hamsard and Boots however, and when Hamsard also ran into financial difficulties Boots gave the company 9 months’ notice of termination in November 2009.
Hamsard issued a claim for damages against Boots, seeking to rely on the terms of the 2007 contract between Boots and the previous company, which provided for 18 months’ notice of termination. Boots defended the claim, claiming that 9 months’ notice was sufficient and that the 2007 contract simply provided a background to relations between the two. 2 main issues arose during the case, these being whether 9 months’ notice was reasonable and whether there was an implied term that the parties should at all times act in good faith towards each other, following a previous case – Yam Seng.
Mr Justice Norris found in favour of Boots and ordered that 9 months’ notice was indeed reasonable. He set out 5 principles as to what constitutes reasonable notice:
- What length of notice is reasonable depends on the particular facts of the particular case;
- The particular facts may involve a consideration of the general circumstances and practices of the trade in which the parties are involved;
- What is “reasonable notice” must be judged at the time when the notice is given;
- The circumstances pertaining at the time of the contract are also relevant; and
- An important consideration in determining what notice period is “reasonable” is the degree of formality in the relationship: the more relaxed the relationship the less likely it is that the law will imply a lengthy notice period.
Applying these principles to the matter being considered, Mr Justice Norris found that the parties contract into which a term of reasonable notice was implied was a short term, informal arrangement which had been put in place to ensure supply continued. He stated that there was no practice or custom of the trade to follow and that the 18 month notice period in the 2007 contract was irrelevant, as it had been negotiated in return for an extended payment period.
Further, Mr Justice Norris stated that Boots had a contractual right to terminate the contract on reasonable notice without consideration of any good faith obligations. It was stated that these could not be implied into the type of arrangement in place and did not reflect the intention of the parties.
The main position in relation to termination provisions remains unchanged, this being that it is always better to have clear clauses in any contract. Interestingly however, this case provides helpful clarity on the amount of notice to terminate that will be deemed reasonable and the relevant factors which need to be taken into consideration. This will be helpful for parties wishing to negotiate the length of time that a notice to terminate must be.