The Long Goodbye: what is reasonable notice of termination?
A recent case heard by the Privy Council has provided comprehensive guidance on how courts should assess what constitutes reasonable notice when terminating an informal distribution agreement, in the absence of an express contractual term specifying the notice period to be given. In addition to authoritative guidance in assessing what amounts to a reasonable notice, the judgment confirms that the purpose of a notice period is to allow for an orderly winding down and adjustment, not to compensate fully the receiving party for lost profits.
Background
The Privy Council case of Anheuser-Busch International Ltd v Commonwealth Brewery Ltd [2026] UKPC 8 arose from a long-standing oral distribution agreement between Anheuser-Busch International Inc (part of the AB InBev group) and Burns House Ltd (later Commonwealth Brewery Ltd), a Bahamian distributor in the Heineken group. The arrangement, which gave the distributor exclusive rights to distribute Budweiser and other AB InBev products in the Bahamas, had been in place since 1975 but was never documented in writing. In August 2015, AB InBev sought to terminate the agreement. The termination letter gave approximately three months’ notice (later extended to three and a half months), which the distributor argued was insufficient for a 40-year relationship, contending that three and a half years would be reasonable.
The Bahamian Supreme Court found at first instance that 15 months’ notice would have been reasonable, awarding damages on that basis and by reference to the period over which the distributor’s profits had been reduced. The Court of Appeal of the Commonwealth of the Bahamas overturned this, finding that three to six months was the appropriate range and that the notice given was sufficient. The distributor appealed to the Privy Council.
Issues before the Privy Council
The distributor challenged the Court of Appeal’s decision to overturn the Supreme Court’s finding that 15 months’ notice would have been reasonable. The principal question that the Privy Council had to answer, was how courts should assess whether a period of notice for terminating a distribution agreement is reasonable (it being accepted that there was an implied term to give reasonable notice of termination in the absence of anything express). In considering the appeal, the Privy Council addressed the following questions:
- What is the purpose of a reasonable notice period for terminating a distribution agreement?
- What factors are relevant to assessing reasonable notice?
- Was the Court of Appeal correct to find that the Supreme Court had placed undue weight on factors such as the length of the 40-year relationship and the time needed to replace the lost business?
The Privy Council’s decision
The Privy Council dismissed the appeal, upholding the Court of Appeal’s finding that three and a half months’ notice was within the range of reasonable periods, which the Court of Appeal had held as being between three to six months.
In delivering the judgment, the Privy Council confirmed that the “chief purpose” of a reasonable notice period is to enable the parties to bring their relationship to an end in an orderly way and to give the recipient an opportunity to make “substantial progress towards entering into alternative arrangements.” Crucially, it was emphasised that it is not the purpose of reasonable notice to protect the recipient from all loss of profit resulting from the termination.
The Privy Council identified several key factors relevant to assessing reasonable notice. The formality of the contract is significant. On this basis the absence of a written agreement militates against a long notice period, as the parties had chosen not to stipulate a fixed term and accepted the risk of relying on implied reasonable notice. While the length of the relationship is relevant, it matters primarily insofar as it reflects the significance of the business to the recipient and their ability to adjust to its loss.
The significance of the terminated business to the recipient is of “central importance” because it determines how easily the recipient can adjust. A distributor losing a relationship that represents only a small fraction of turnover will find it easier to adapt than one heavily dependent on the arrangement. The extent of financial, management and personnel resources devoted to the relationship is also relevant, particularly whether employees can readily be redeployed.
Where a party has incurred extraordinary capital expenditure specifically for the relationship shortly before termination, and has not had the opportunity to benefit from it, this may justify longer notice. However, ordinary recurring expenditure is unlikely to be relevant. Contractual commitments to third parties that cannot readily be terminated may also point towards a longer notice period. Conversely, the fact that both parties must continue to perform during the notice period points “strongly against” a long notice period, since the longer the notice, the greater the difficulty of performing obligations while simultaneously adjusting the business.
Applying these factors, the Privy Council found the judge at first instance had taken the wrong approach by fixing the notice period at 15 months, based primarily on the period over which the distributor’s profits were reduced, which was “not a relevant consideration.” Commercial organisations that enter arrangements without stipulating a fixed notice period take the risk that they may suffer loss while seeking to replace the business.
The Privy Council also noted that the judge at first instance had failed to give weight to important factors favouring shorter notice, including that the distributor was free to sell competing products, the terminated business represented only about 10% of its turnover, and both parties would face difficulties being tied into an arrangement which was coming to an end.
Comment
This judgment provides comprehensive guidance on assessing reasonable notice in distribution and similar business arrangements. The emphasis on “adjustment” rather than “compensation” is significant. The distinction means that businesses cannot expect a notice period long enough to replace lost income fully, but only sufficient time to make substantial progress toward alternative arrangements.
For businesses operating informal distribution arrangements without fixed termination provisions, the decision underscores the importance of formalising key terms. If a particular notice period and/or greater certainty in the event of termination is important to a business, it would be prudent to include it expressly in a written agreement rather than relying on implied reasonable notice.
Parties with long-standing informal arrangements may wish to review whether those arrangements adequately protect their interests. In addition, and where extraordinary expenditure is incurred specifically for a distribution relationship, it would be sensible to maintain contemporaneous records linking that investment to the arrangement, as this may support arguments for a longer notice period if termination occurs before the investment has been recouped.
For further information, please email the authors or your usual CMS contact.
This article was co-authored by Hannah Forbes, Trainee Solicitor at CMS.
