- within Law Department Performance, Insolvency/Bankruptcy/Re-Structuring and Criminal Law topic(s)
In our last post, we explored whether “forever” really means forever in contract law. This time, we’re dealing with another classic contract conundrum: what does “reasonable notice” mean?
From 40 years of business to a dispute over notice
For about 40 years, Anheuser‑Busch supplied its brands to Commonwealth Brewery. There was no written agreement. Anheuser‑Busch shipped the products; Commonwealth Brewery paid the invoices.
Anheuser‑Busch decided to terminate the relationship. It gave three and a half months’ notice. Commonwealth Brewery said the notice was too short, claiming it needed 15 months to adjust. It also stopped paying Anheuser‑Busch’s invoices, arguing it could set off those sums against damages for wrongful termination.
Anheuser‑Busch sued for the unpaid invoices. Commonwealth Brewery counterclaimed for damages. The first instance court in the Bahamas found 15 months was reasonable, but the Bahamian Court of Appeal reversed this and held that three to six months was the correct range. Commonwealth Brewery appealed again to the Privy Council.
It's all about an end to the relationship
The Privy Council dismissed the appeal and confirmed that reasonable notice is about allowing an orderly wind‑down, not protecting profits. Drawing on English and Commonwealth authorities, the court set out a non‑exhaustive list of factors for assessing reasonable notice:
- Formality and stability of the relationship.
- Length of the relationship.
- Importance of the relationship to the recipient’s business – if the terminated business is a small part of the distributor’s turnover, less notice is required.
- Extent of investment in the relationship – only extraordinary, relationship‑specific investment justifies longer notice.
- Other commitments the distributor must unwind.
- Commercial risk-taking – parties who fail to specify notice accept the risk that reasonable notice may be relatively short.
- The obligation to continue performing during the notice period – long notice can be burdensome and commercially unrealistic.
Applied here, those factors pointed to a shorter period. Anheuser‑Busch’s products accounted for only about 10% of Commonwealth Brewery’s turnover, and Commonwealth Brewery both sold competing brands and could redeploy staff without difficulty. There was no extraordinary, Anheuser‑Busch‑specific investment that justified extra time. Both parties were required to keep performing during the notice period, and a long notice period risked reduced commercial motivation – particularly because Commonwealth Brewery also handled competitors’ products.
Judgment: Anheuser‑Busch v Commonwealth Brewery
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
[View Source]