Achieving an Orderly End: Reasonable Notice of Termination in the Absence of an Express Term

In Anheuser-Busch International Inc and another (Respondents) v Commonwealth Brewery Ltd (Appellant) (Bahamas) [2026] UKPC 8 (Privy Council), the Privy Council has provided useful commentary on the question of what will constitute reasonable notice for termination of a contract where the agreement itself does not expressly specify the requisite period.

Background

In 1975, Burns House Limited (BHL) entered into an oral contract with Anheuser-Busch International Inc (ABI) under which BHL was granted the exclusive right to distribute Anheuser Busch InBev NV (AB InBev) products in the Bahamas. Subsequently, in 2012, Cerveceria Nacional Dominicana SA (CND) became an indirect subsidiary of AB InBev and its official partner in the Caribbean. Accordingly, from then on, CND supplied the products to BHL, and BHL marketed and distributed the same.

Although the agreement was never set out in writing, the key terms of the agreement were not in dispute between the parties. The parties were also in agreement that the contract contained an implied term that reasonable notice of termination was required.

Dispute Over Termination

In August 2015, ABI issued a termination letter to BHL, giving three months’ notice of the termination of the distribution agreement. ABI’s view was that “a period of three months represents reasonable notice” (albeit ABI subsequently confirmed in correspondence that they would be extending the notice period to three and a half months).

BHL disagreed, responding that a reasonable period of notice would be three and a half years, that is, approximately one month for every year that the distribution agreement had been in place. Relations unravelled, with BHL refusing to pay ABI’s invoices for products supplied by CND between June and September 2015 on the grounds that ABI had not given reasonable notice of the termination. As a consequence, ABI and CND stopped supplying the products to BHL on the grounds of nonpayment of invoices.

Proceedings were issued by ABI and CND against BHL in the Supreme Court of the Commonwealth of the Bahamas in January 2016. BHL’s defence was that it was entitled to set off its debts against ABI’s liability in damages arising from its wrongful termination of the distribution agreement without giving reasonable notice.

First Instance and Appeal Decisions

At first instance in the Supreme Court of the Bahamas, the Court concluded that a reasonable period of notice would have been 15 months, relying on, amongst other things, the length of time the commercial relationship between the parties had been in place and that the relationship between the parties was “fixed and formal.” ABI appealed to the Court of Appeal.

The appeal was allowed, with the Court of Appeal concluding that a range of reasonable periods of notice would be from three to six months and the notice given fell within this range. The Court of Appeal disagreed that the relationship between the parties was “fixed and formal”; on the contrary, the relationship was informal. Further, the Court of Appeal considered that the first instance judge had not taken into account other important facts such as that (i) BHL was allowed to sell its own products in competition with ABI; (ii) BHL had to use its best efforts to sell ABI products up until the end of the notice period, which militated away from a long notice period so that BHL could make alternative arrangements to replace the lost business; and (iii) while the ABI/BHL relationship had been a long one, the ABI product distribution was a small proportion of BHL’s business, and BHL could redeploy staff it had allocated to ABI products to promote its own brands. BHL appealed.

Privy Council Decision

The Board of the Privy Council dismissed the appeal, upholding the decision of the Court of Appeal.

In summarising the relevant English and Commonwealth authorities, the Board concluded that whether a term providing for reasonable notice is to be implied into a contract is answered in light of the circumstances existing when the contract was made.

The Board observed that the “chief purpose” of giving a notice period is to enable the parties to achieve an orderly end to their relationship and to give the recipient of the notice an opportunity to make progress in adjusting to the impending termination of the relationship. Drawing on previous case law, the Board noted that it was not the purpose of the reasonable notice period to protect the recipient of the notice from all loss of profit resulting from the termination of the relationship.

If there is an obligation to give reasonable notice, the length of time which is reasonable is to be assessed in light of the circumstances existing at the time the notice is given.

The Board stated that the factors that are relevant to the assessment of what is a reasonable notice period depend on the circumstances of the parties and the markets in which they operate. Importantly, the Board further stated that, in most cases, those factors will be relevant only to the extent that they have a bearing on the orderly winding up of the relationship and giving the recipient of the notice an opportunity to adjust to the forthcoming termination.

The Board did, however, identify seven non-exhaustive factors from the case law which may be considered in determining what amounts to a reasonable period of notice, subject to such factors being relevant to the “chief purpose”:

1. The formality of the contract in terms of whether the relationship was conducted on established terms and on a regular basis or was ad hoc or occasional
2. The length of the relationship between the parties
3. The significance of the relationship to the business of the recipient of the notice
4. The extent to which resources have been invested into the relationship by the recipient
5. The extent to which the recipient has incurred extraordinary capital expenditure or business expenses specifically for the purpose of the business relationship shortly before termination
6. Any difficulties the recipient might face as a result of the termination such as where it has entered into contractual commitments with third parties to service the relationship which cannot themselves be readily terminated
7. The extent to which the parties are obliged to continue to perform their obligations during the notice period

In considering the law as against the facts of this case, the Board was satisfied that the Court of Appeal was entitled to conclude that ABI had given a reasonable period of notice.

Commercial Takeaways

Clearly, when entering into contracts, parties should negotiate express termination provisions which provide for both the right to terminate and the length of the notice period that must be given in order to terminate. Not only does this provide commercial certainty which will allow for efficient forward planning in the event of termination, it also reduces the risk of becoming embroiled in time-consuming disputes and costly litigation.

As the Privy Council warned in its judgment:

“[A] commercial organisation which agrees to take part in a commercial agreement without stipulating for an agreed 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.”

However, where no such express terms exist, the Privy Council’s decision (which, while not strictly binding on the English courts, is of great weight and persuasive value) provides a useful discussion of the factors which may be taken into consideration when determining the length of an implied notice period. Whilst the relevant factors to be considered in each case are highly fact-specific, the finding that a three-to-six-month notice period was reasonable in this instance provides helpful guidance as to what a court is likely to consider reasonable (at least with analogous agreements).