Key takeaways
Notice period for termination of contract
Parties should state an express period of notice in their agreements.
Reasonable period of notice
Where the contract is oral or is written but does not specify a notice period, the Court will impose a reasonable notice period.
Loss resulting from termination
Reasonable notice of termination is not intended to protect receiving party from all resulting loss but to allow the parties to adjust to the changed circumstances.
Anheuser-Busch International -v- Commonwealth Brewery Ltd [2026] UKPC 8
Termination provisions in commercial contracts will often expressly provide for formal notice of termination to be given and specify the length of notice period before the contract is deemed at an end. Where the contract does not expressly specify the notice period, a term will normally be implied that a reasonable notice period must be given.
What a reasonable notice period will be will depend on the circumstances of the case, including the type of contract, the market in which the parties are operating and their commercial relationship.
A recent Privy Council decision, on appeal from the Court of Appeal of the Commonwealth of the Bahamas, determined the reasonable notice period for the termination of a long-term exclusive Distribution Agreement, a relationship which had never been committed to writing, but which nonetheless persisted for almost 40 years before one party purported to terminate it.
The Privy Council agreed with the Bahamian Court of Appeal that a 3 ½ month notice period was not unreasonable in the circumstances of this case. Where parties to an agreement have not committed it to writing or have not expressly agreed a notice period for termination, they must be taken to have agreed to what is deemed reasonable. That is a risk of commercial life.
The background facts
In 1975, a Bahamian company, Commonwealth Brewery Ltd (CBL) entered into an oral contract with Anheuser-Busch International (ABI) for the sale and distribution of beer in the Bahamas (Distribution Agreement). ABI is the wholly owned American subsidiary of Anheuser Busch Inbev NV (AB Inbev), a Belgian company producing various beers. In 2018, CBL merged with Burns House Ltd (BHL), both companies being subsidiaries in the Heineken group of companies and they became jointly known as BHL.
The Distribution Agreement gave BHL the exclusive right to distribute AB InBev's products in the Bahamas. Under the Distribution Agreement which continued until 2015, ABI provided BHL with shipments of AB InBev products and marketing material. The shipments were provided through a company related to AB InBev, Cerveceria Nacional Dominicana SA (CND).
The Distribution Agreement was never set out in writing and may have developed over time. In December 2014, AB InBev assigned and novated the Distribution Agreement to CND, transferring both its rights and liabilities.
On 4 August 2015, BHL learned that ABI intended to terminate the Distribution Agreement. On 12 August 2015, ABI/CND’s lawyers issued a termination letter giving BHL about three months' notice of the termination of the Distribution Agreement. This period was said in the letter to represent reasonable notice in circumstances where there was no formal, written contract and no express notice provision governing the parties’ relationship. The reason for termination was due to BHL being owned by Heineken, a competitor, and not due to BHL’s performance as a distributor.
BHL believed that a reasonable period of notice would be 3 ½ years, namely one month for each year of the Distribution Agreement. BHL did not pay the invoices in respect of goods supplied to them after the purported notice of termination and, on 9 September 2015, CND/ ABI stopped supplying BHL with goods on the grounds of non-payment of invoices.
In court proceedings in the Bahamas, CND and ABI sought to claim against BHL in respect of the unpaid invoices. BHL’s defence was that its counterparties were in repudiatory breach of the Distribution Agreement and BHL was entitled to refuse to pay the invoices in mitigation of its losses from the unlawful termination of the Agreement. BHL asserted that the loss of the right to distribute the Budweiser brand, because of its brand prestige, would cause commercial harm to its business and that it would take a period of years to make comparable arrangements.
The judgments of the Bahamian courts
At first instance, the Court decided that a reasonable period of notice would have been 15 months. Specifically:
the parties had had a 'fixed and formal' commercial relationship for nearly 40 years,
the parties must have intended that in the event of termination, each side would be given enough time and compensation to make alternative arrangements without damage to the other's business interests,
BHL had invested in the ABI brands through investment in improving its refrigeration facilities and exclusive allocation of staff, and
BHL suffered lost business from the termination of the Distribution Agreement from late 2015 and during 2016.
On appeal, the Bahamian Court of Appeal decided that three to six months was reasonable notice and the 3 ½ months’ notice given fell within that range.
The Court of Appeal said that, contrary to the judge’s view, this was an informal agreement, which was significant. Furthermore, BHL was allowed to sell its own products in competition with ABI and while the relationship between ABI and BHL had continued for many years, it was a small proportion of BHL's business and BHL was able to reallocate staff to promote its own brands.
The law
The applicable principles, as set out by the Privy Council, are as follows:
Whether a term that reasonable notice must be given before a party terminates an agreement is to be implied into a contract is answered in the light of the circumstances existing when the contract is made.
The implication of a reasonable period of notice serves the common purpose of the parties as at the date of the contract. The parties’ common purpose will usually be to protect themselves against sudden change, allow the party receiving the notice of termination time to adjust its businesses to the termination of the contract and for there to be an orderly winding up of the commercial relationship.
Where there is an obligation to give reasonable notice, the Court will assess the length of time which is reasonable in the light of the circumstances existing at the time at which the notice is given.
The factors which are relevant to the assessment of what is reasonable notice will depend upon the circumstances of the parties and the markets in which they are operating.
The Privy Council decision
Applying the above principles, the Privy Council decided that the Bahamian Court of Appeal had been right to overturn the first instance decision.
Among other things, the Court in assessing reasonableness must bear in mind both that commercial relationships involve risk-taking and that the period of notice is designed not to protect the recipient of the notice from all financial loss caused by the termination of the relationship, but to give a period for adjustment to the change in business circumstances caused by the impending termination. A commercial organisation which agrees to take part in a commercial arrangement without expressly providing for a fixed period of notice and in reliance on receiving a reasonable period of notice takes the risk that it may suffer adverse financial consequences. That is a risk of commercial life.
On the evidence, the lost expenditure relied on by BHL was nothing other than normal expenditure in a distributorship business. Furthermore,
under the Distribution Agreement, BHL was allowed to distribute its own products and products of other producers which were in competition with ABI,
the business generated by the Distribution Agreement amounted to only about 10% of BHL's turnover,
BHL traded in competing products, and
ABI had to find an alternative distributor.
The Privy Council highlighted that it was necessary to consider the interests of both parties when fixing the reasonable period of notice.
The fact that the contract was not in writing did not mean this was not an established commercial relationship. However, it did mean that the parties had not fixed an express period of notice and had to be content with what was considered to be reasonable in light of the circumstances. Had the business generated by the Distribution Agreement made up a large proportion of BHL's turnover, the fact that it was an established and relatively unchanging business arrangement would have been a factor which, other things being equal, pointed towards a longer period of notice.
In conclusion, the Bahamian Court of Appeal was entitled to conclude that ABI had given a reasonable period of notice. The balance of the relevant factors pointed towards a relatively short period of notice as being sufficient to cushion the effect on BHL of the termination of the Distribution Agreement.
Comment
The decision illustrates the importance of putting agreements in writing and making express provision for important matters such as termination and periods of notice. It is somewhat surprising that the parties’ relationship in this case continued for almost 40 years without formal documentation being drafted.
