The recent High Court case of Hamsard v Boots provides useful guidance for assessing what a reasonable period of notice is when a contract is silent on rights of termination.
Hamsard designed and manufactured children’s clothing which it supplied to Boots. Hamsard inherited this contract after a series of changes to pre-existing trading relationships. There was no written contract between Hamsard and Boots. It was not intended that the two companies would form a long-term trading relationship.
Hamsard first supplied Boots with their goods in February 2009. In November 2009 Boots provided Hamsard with nine months’ notice of termination of their contract. Hamsard submitted that nine months was too short. They argued that eighteen months would be reasonable as it would reflect the maximum length of the design and production cycle of their goods.
The court found in favour of Boots, holding that nine months was reasonable. In coming to this conclusion, five principles for determining ‘reasonable notice’ were identified by the court.
These principles are:
- Each decision will turn on its facts – what is deemed to be reasonable notice of termination will depend on the facts of each case.
- General practices of the trade may be relevant – when considering the facts of each case, the general circumstances of the trade in question may be included. This general background information may provide additional guidance useful to the objective observer.
- The crucial point for determining “reasonable notice” is the time when notice is actually given to the other party.
- Circumstances in existence at the time of formation of the contract are still relevant. The requirement of reasonable notice for termination is to help serve the common purpose of the parties. This common purpose is agreed at the time of formation.
- The degree of formality between the parties is very important. The more formal the relationship between the parties is the longer the required notice period is likely to be.
In reaching his decision, the judge emphasised the informal and interim nature of the contract between Hamsard and Boots.
When a contract can be terminated upon the provision of ‘reasonable notice’, or when it is silent as to termination rights, this case highlights what principles the courts will use to assess reasonableness. These principles will also help contracting parties analyse whether or not their termination notices could be considered reasonable.
Whilst this case provides some much-needed clarity and guidance, there is little substitute for having a clear and well-drafted notice clause within your contract. A webinar entitled “Notice Clauses: when, how and why” is taking place on 12 December 2013. This webinar will cover what notice clauses are as well as why and when they are needed. Please sign up by clicking here.