What length of notice to terminate is reasonable if there is no written contract?

What length of notice is it reasonable for a party to give if there is no written contract? That was the question for determination in the recent case of Hamsard –v- Boots.

Background

It is surprising how often substantial commercial organisations enter into significant contracts without recording them in writing. A quick glance at any standard form of commercial contract will show that there are many “standard provisions” within it which do not deal with the substance of the contractual obligations but which provide part of the important mechanism for the way that the contractual relationship should work. One of the areas addressed by such a contract will be the manner in which the contract can be brought to an end.

Different termination provisions

There are different ways of addressing this

  • A written contract may be for a “fixed term”; in other words it will expire automatically at the end of any particular period of time;
  • Sometimes it is for an initial minimum fixed term but it is then designed in such a way that it will roll on automatically after that so that it is capable of being determined by either party giving to the other a certain period of notice;
  • Sometimes such a contract provides that any period of notice has to be of a minimum length and it may or may not have to be given with effect from an anniversary date.

No written contract

However, if there is no written contract how are the parties to decide the length of the notice that should be given in order to bring the contract to an end? The general principle is that the party wishing to terminate the contract must give “reasonable” notice. This begs the question as to what might be regarded “reasonable”.

In the recent High Court decision some principles for determining reasonableness were summarised as follows

  1. A question as to what length of notice is reasonable will always depend on the particular facts of the particular case, so that other cases are of limited assistance;

  2. It may be necessary to consider the general circumstances and practices of the trade in which the parties are involved so as to try and determine what the parties might reasonably understood to have been reasonable notice;

  3. The determination of reasonableness is to be judged at the time when the notice is given (not, for example, at the time when the contract was entered into).

  4. Even so, the circumstances when the parties entered into the contract will be relevant because the notice provision is “intended to serve only the common purpose of the parties” and this common purpose is a matter to be determined as at the date of the contract.

  5. The court must consider what 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.

The case involved the supply by Hamsard of children’s wear to Boots. It had come into existence only in February 2009 but Boots sought to determine the contract by giving 9 months’ notice in November 2009 so as to terminate the contract with effect from August 2010. Trading stopped on the 24th September 2010.

The relationship between the parties was somewhat complicated by the fact that there had been earlier (August 2007) agreement but the contract was regarded as having been made in February 2009 because Boots had, at that stage, made a decision to keep Hamsard on as a supplier. This was a new joint venture which was different in form from the 2007 agreement.

The Judge found that there was no practice or custom of the trade which had any bearing on his decision. Therefore, on the facts of that case as set out in the judgement, and for a number of reasons, the judge concluded that the 9 months’ notice that had been given by Boots was reasonable. It is possible that a shorter notice period would also have been reasonable but the judge did not need to determine that.

In any similar situation, it would be necessary to have a more detailed review of the facts of that case to understand the factors influencing the judge’s decision. Even so, be mindful of the warning given by the judge that each of these cases will fall to be determined on its own particular facts.

Conclusion

This case illustrates the problem surrounding contracts which have not been reduced to writing and in which there is no contractual period of notice which has been agreed between the parties. A party wishing to determine a contract in those circumstances needs to proceed very carefully. If, in their desire to bring unsatisfactory contract to an end, they give notice which is too short, they can find themselves in breach of contract and can be liable in damages to the other party. If the parties cannot agree what is the appropriate notice period to be given then it would prudent for the party bringing the contract to the end to err on the side of giving a slightly longer period for determination so as to avoid the possibility of being found to be in breach.