We often get approached by clients wondering whether a key contract can be terminated or how they can stop a contract being terminated. The basic legal principle is that where a contract does not have a defined term and is silent on termination rights, it can be terminated by reasonable notice on the part of one or both of the parties. What is regarded as reasonable notice will depend on the individual circumstances of each case.
A High Court judge has recently provided a useful list of five principles for assessing what is a reasonable notice period when a contract is silent on term and termination rights. The judge had to consider what a reasonable notice period was to terminate a contract for the supply of children’s clothing. He found that a nine month notice period was reasonable in the circumstances.
The five principles were:
Each decision turns on its facts.
General circumstances and practices of the trade may be relevant.
What is “reasonable notice” is to be judged as at the time when the notice is given.
The circumstances pertaining at the time of the contract are still relevant.
The degree of formality in the relationship is a very important consideration.
Factors that may be relevant
When assessing what notice period would be reasonable, a court might also consider the following factors:
The length of the contract term and the type of contract (what rights are granted).
The degree of financial dependence of the terminated party on the contract.
The common intention of the parties at the time when they entered into the contract.
The commitments of the parties which exist at the date of notice to terminate.
The time that would be required by the terminated party to replace the lost business represented by the contract.
If you would like to discuss this further then please contact Cathy Cook at [email protected]