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Najma Dunnett Other Consultant
Last edited 25 May 2014

Hamsard 3147 Limited & others v Boots UK Limited

Hamsard 3147 Limited & others v Boots UK Limited [2013] EWHC 3251 (Pat)

Contents

[edit] Introduction

Breaking up is never easy, but made more complicated when no clear provisions exist for termination or the length of notice to terminate.......or for that matter a written contract.

In this case the claimant, Hamsard 3147 Limited (“Hamsard”) brought a claim for damages for wrongful termination of the supply contract with Boots UK Limited (“Boots”), the defendant. One of the issues that arose was the amount of notice that would constitute a reasonable notice to terminate the contract. Where a contract is silent as to its term and does not provide termination provisions, it can be terminated by either party giving reasonable notice. This case helps to clarify what factors constitute a reasonable notice period.

[edit] Background

Boots engaged Hamsard through its predecessor company for the design, manufacture and exclusive supply of childrenswear to its high street stores. There was no formal contract governing the relationship between the parties but there was a supply contract (“the 2007 contract”) between Hamsard’s predecessor company and Boots that included terms on which the predecessor company was engaged in an exclusive supply agreement with Boots, the payment terms and termination provisions.

When the 2007 contract had been entered into, a longer term joint venture was contemplated but due to the precarious financial status of Hamsard’s predecessor company (which had gone into administration) variations were made to that contract in terms of longer payment terms in return for an 18 month notice period. Further changes were agreed to the 2007 contract to accommodate the continuing precarious state of Hamsard’s finances, with the 2007 agreement forming a backdrop to relations between Boots and Hamsard but with no formal written contract actually governing their legal relations.

[edit] The court’s findings

Negotiations between the parties regarding longer term supply dealings broke down and both recognised there was no real prospect of a long term arrangement between them when Boots finally gave 9 months notice to terminate. Hamsard objected on the basis that the 2007 contract provided for 18 months.

The issue came before Mr Justice Norris who decided that based on the facts of the case 9 months notice was sufficient to constitute “reasonable” notice. He set out the following 5 principles as to what constitutes reasonable notice:

  1. What length of notice is reasonable depends on the particular facts of the particular case;
  2. The particular facts may involve a consideration of the general circumstances and practices of the trade in which the parties are involved;
  3. What is “reasonable notice” must be judged at the time when the notice is given;
  4. The circumstances pertaining at the time of the contract are also relevant and
  5. 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 facts the judge found that the parties’ contract into which a term of reasonable notice was implied was a short term, informal arrangement brought about by necessity to continue to supply the current season’s stock and subject to constant temporary adjustment to accommodate Hamsard’s deteriorating finances. The notice provision on an objective assessment would be related to the interim nature of the ‘contract’ rather than any long term arrangement.

The court found there was no practice or custom of the trade bearing on the notice period; this was a matter for agreement by the parties. It also found that the 18 month notice in the 2007 contract was of no relevance at the time notice of termination was served by Boots. That notice period was negotiated in return for extended payment terms and was irrelevant to “reasonableness”.

The 9 month notice period exceeded what Hamsard had itself proposed for terminating the relationship.

Other relevant factors to determine the question of reasonableness were the breakdown of relations and communications between the parties at the time of termination. The fact that notice did not come as a surprise to the parties is another important consideration.

Hamsard argued that the parties were bound by an implied obligation of good faith, included in the 2007 contract and that should influence the termination provisions. Mr Justice Norris decided that Boots had a contractual right to terminate the contract on reasonable notice unfettered by any good faith obligation that, on the facts, could not be implied into such a transitory arrangement and which did not reflect the intention of the parties.

[edit] Conclusion

Whilst this case again demonstrates the necessity of written contract terms clearly setting out the intentions of the parties as to relevant issues including termination of the relationship, it is helpful in providing clarity to influence parties’ negotiations as to the amount of notice considered to be reasonable to end their contract.


This article was created by construction lawyer --Najma Dunnett as part of an ongoing series of legal articles. Follow Najma on Twitter to keep up to date with the latest changes in construction law @NDunnett_Cons.

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