Termination of commercial contracts – notice period

A recent decision of the Privy Council provides new guidance on the appropriate notice to be given to terminate a commercial contract in the absence of express termination notice provisions in the contract.

Anheuser-Busch International Inc and another (Respondents) v Commonwealth Brewery Ltd (Appellant) [2026] UKPC 8.

The facts

In or around 1975, Anheuser-Busch, a subsidiary of AB InBev, and Burns House Ltd “BHL” entered into an oral distribution agreement whereby BHL had the exclusive right to distribute certain AB InBev products in the Bahamas. The agreement was never put in writing, but the parties performed it for over 40 years. In 2015, the Respondents sought to terminate the agreement and gave BHL approximately 3.5 months’ notice. Notwithstanding the notice period, the Respondents ceased to supply products to BHL within one month of that notice.

In 2018 Commonwealth Brewery Ltd merged with BHI and took over its liabilities.

This case was originally the subject of a decision in the Bahamas court which found that a notice period of 15 months was appropriate. On appeal to the Court of Appeal overturned this decision and upheld the original 3.5 months notice. The decision was the subject of further appeal to Judicial Committee of the Privy Council being the final court of appeal.

The law relating to reasonable periods of notice of termination

In giving judgment the Privy Council commented on the law as regards reasonable periods of notice to be given to terminate agreements in the absence of express termination provisions.

Implied term

Whether a term is to be implied into a contract that reasonable notice must be given before a party terminates is answered in the light of the circumstances existing when the contract is made.

Purpose of notice

The implication of a reasonable period of notice serves the common purpose of the parties. That purpose is to be determined as at the date of the contract. Absent evidence of other considerations, the court will infer that the common purpose of a reasonable period of notice is to cushion the party receiving the notice of termination from a sudden loss of business and to enable that party to adjust its business arrangements in response.

It is not the purpose of the reasonable period of notice to protect the recipient of the notice from all loss of profit resulting from the termination of the relationship.

Length of notice

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.

Assessment of notice period

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. A non exhaustive list of relevant factors included the following.

Factors

Formality of the contract

A business relationship which is conducted on established terms and on a regular basis is likely to be more significant to the recipient of notice than a relationship conducted on an ad hoc or occasional basis.

Length of the relationship

The length of time during which the relationship has been in operation is a factor in the assessment of a reasonable period of notice. It is relevant in so far as it reflects the significance of the business in question to the recipient of the notice and the recipient’s ability to adjust to its loss.

Significance of the relationship to the business of the recipient of the notice

If the relationship being terminated makes up a high proportion of the recipient’s turnover, the loss of the relationship will pose a greater difficulty to the recipient in adjusting its business, and conversely it will be easier to adjust if the relationship constitutes only a small proportion of that business. The relative formality of the contract and the length of time in which the relationship has been in existence, as discussed above, are relevant to the extent that they affect this factor. The ability of the distributor to sell competing products during the currency of the relationship is relevant to the ease or otherwise by which the parties can adjust their business during the period of notice.

Investment in the relationship

The extent to which the recipient of the notice has invested financial, management and personnel resources into the relationship. If the recipient had a large proportion of its workforce engaged in the business relationship being terminated that would suggest difficulty in adjusting its business and point towards a longer period of notice.

Extraordinary investment

If the recipient of the notice had, with the knowledge and assent of its counterparty to the relationship, incurred extraordinary capital expenditure or business expenses specifically for the performance of its part of that business relationship a short time before the relationship was terminated this may point towards a longer notice.

Other difficulties in terminating the relationship

An example here would be where the recipient of the notice has entered into contractual commitments with third parties to service that relationship which themselves cannot readily be terminated.

Continuing performance obligations during notice period

Where a party is contractually required to use reasonable efforts or its best efforts in performing the contract to be terminated, the longer the period of notice the greater the difficulty it will face in performing that obligation.

Held

The Privy Council upheld the 3.5 months notice period found by the Court of Appeal. In doing so it rejected the reasoning of the court at first instance that the notice period of 15 months was appropriate as this would reflect a period over which the termination of the distribution agreement had reduced profits on the part of BHL. The Privy Council stated:

“A commercial organisation which agrees to take part in a commercial arrangement without stipulating for a fixed period of notice and in reliance on receiving a reasonable period of notice takes the risk that it may suffer a loss of turnover and a loss of profits while it seeks to replace that which it had from the arrangement and otherwise adjusts its business to the termination of that relationship. That is a risk of commercial life.”