The High Court Considers The Correct Approach To Assessing What Is 'Reasonable Notice' To Terminate Where The Contract Is Silent

The High Court has found that nine months was the correct notice period to terminate a supply contract where the agreement was silent on the point. The decision does not create any new law, but it does provide useful guidance on the application of the law to particular situations, as the judge laid down five principles for assessing what constitutes "reasonable notice" in such circumstances.

The law

Where a contract has no fixed term and there are no termination rights, it can be terminated by reasonable notice by one or both of the parties1. What constitutes "reasonable notice" will be determined in accordance with the ordinary principles applicable to implying terms into contracts, and the sufficient period will be largely dependent on the individual circumstances of each case.

The facts

The claimant in the case before the High Court was Hamsard 3174 Ltd ("Hamsard"). Hamsard designed, manufactured and supplied children's clothing to the defendant, Boots UK Ltd ("Boots"). The unwritten agreement between the parties had arisen out of various earlier trading relationships. In summary:

(i) In July 2007, an agreement between Mini Mode Childrenswear ("Mini Mode") and Boots Company Plc provided for termination at will by either party on 12 months' notice.

(ii) In April 2008, Boots Company Plc assigned the agreement with Mini Mode to Boots and later that year the notice period for termination at will of the agreement was extended to 18 months in return for Mini Mode accepting longer payment terms.

(iii) Mini Mode then went into administration and the business was hived off into the claimant, Hamsard. Hamsard began supplying Boots in February 2009. The parties subsequently considered entering into a joint venture by no agreement was reached and, in November of the same year, Boots gave Hamsard nine months' notice of termination.

Was nine months "reasonable notice"?

Hamsard's view

Hamsard claimed that nine months' notice was unreasonable in the circumstances and sued Boots for wrongful termination of the agreement. It argued that the correct notice period was 18 months on the basis that the agreement entered into in July 2007 governed the relationship between the parties, and that 18 months reflected the maximum life of a design and production cycle and was therefore an appropriate period in the circumstances.

Boots' view

In its defence, Boots argued that its relationship with Hamsard was born purely out of necessity. Hamsard had taken over the...