Contract Termination - Court decides on Reasonable Notice Period
The decision of the High Court of England and Wales in Jackson Distribution Limited v Tum Yeto Inc. (2009) is a useful illustration of the factors that a court will consider in determining the period of reasonable notice required to terminate a contract which does not expressly provide for termination.
In this distribution case the parties had met a trade show, exchanged emails regarding a potential distribution arrangement and on foot of the emails commenced trading together. Both parties subsequently sent their own draft distribution agreement to the other but neither draft was executed. Two and half years into the relationship Tum Yeto purported to terminate the distribution arrangement. Jackson Distribution sued.
The court held that it was an implied term of the agreement that either party was entitled to terminate the agreement on reasonable notice to the other party and that in the circumstances 9 months would have been a reasonable notice period. In determining the period of reasonable notice, the court considered various factors including (i) the length of the relationship between the parties and the extent of investment made by the distributor; (ii) the percentage of the distributor's turnover made up by sales of the supplier's products; and (iii) the distributor's voluntary agreement not to sell competing products. Other factors which a court might consider include the time that would be required by the terminated party to replace the lost business and the commitments of the parties which exist at the date of notice to terminate.