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Case law: court gives guidance on whether notice to end supply agreement was 'reasonable'

Businesses will welcome useful guidance High Court on when notice to end an agreement is 'reasonable'.

Legal Alert

This update was published in Legal Alert - December 2013

Legal Alert is a monthly checklist from Atom Content Marketing highlighting new and pending laws, regulations, codes of practice and rulings that could have an impact on your business.

Following the ruling, parties to an agreement should make sure it makes specific provision for termination of the agreement on notice. If they don't, they risk uncertainty in applying the 'reasonable' test.

In this case, an agreement for the supply of clothing did not expressly say it could be terminated by giving a specific period of notice. In those circumstances the law says an agreement can be terminated on 'reasonable' notice, whether the agreement is oral or in writing. The customer under the contract purported to terminate the supply agreement on nine months' notice, but the supplier claimed that was too short to be reasonable.

The court ruled that what is 'reasonable' depends on the circumstances, and gave useful guidance on the factors to take into account, including:

  • usual practices in the relevant market;
  • how formal the agreement is: the more formal, the longer the notice period must be before it is 'reasonable';
  • the parties' knowledge of when the relationship was likely to end, and the timing of negotiations leading up to termination.

The court also ruled that the relevant time for assessing whether a notice period is reasonable is when the notice is given. In this case, the court ruled nine months was a reasonable notice period.

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Disclaimer: This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.

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