In a sharp corrective to anyone assuming that a long trading relationship implies a slow winding-down period, the Privy Council recently found in Anheuser-Busch International Inc v Commonwealth Brewery Ltd that a 3.5-month notice period was reasonable for a 40-year oral contract. 

A handshake deal spanning four decades

In 1975, Burns House, a Heineken subsidiary in the Bahamas (later merged with Commonwealth Brewery), entered into an oral exclusive distribution agreement with Anheuser-Busch. The deal accounted for around 10% of Burns House's annual turnover.

The parties never committed the deal to writing, and in 2015, Anheuser-Busch terminated on three months' notice, reasoning that it didn't want to keep working with a competitor. Burns House refused to accept this. It argued that reasonable notice should be 3.5 years (one month for each year of the relationship), stopped paying invoices, and claimed wrongful termination.

The dispute first ran through the Bahamian courts, where the Court of Appeal concluded that three to six months would constitute reasonable notice. Burns House appealed to the Privy Council, which affirmed that the three- to six-month range was reasonable, and therefore that Anheuser-Busch's 3.5-month notice period was acceptable.

Reasonable notice protects the wind-down, not the profits

The Privy Council's reasoning rests on a key principle: reasonable notice exists to allow an orderly wind-down and time to explore alternatives. It doesn't exist to insulate the recipient from lost profits. 

The length of the relationship and past performance don't confer concrete protection. Equally, a commercial organisation that enters a long-term arrangement without locking in a fixed notice period accepts the risk that any implied term will be short.

The factors that matter

The Privy Council set out a non-exhaustive list of factors for assessing reasonable notice. 

• Formality of the contract. The absence of a written agreement tells its own story. Here, neither party had sought the protection of a fixed term, and the Privy Council chose not to retrofit one.
• Length of the relationship. A longer relationship pulls towards a longer notice period. A shorter one with lesser bearing on overall turnover pulls the other way. But this must always be viewed alongside the other factors. Here, although the relationship spanned 40 years, this was not decisive.
• The importance of the agreement to the recipient's business. The court will look at how dependent the recipient is on the contract, and whether it's bound not to deal with competitors. Burns House earned 90% of its revenue from other sources and was free to distribute Anheuser-Busch's competitors' products. Both facts pointed towards a shorter notice period.
• The recipient's investment in resources or capital expenditure. If the recipient has invested in personnel or committed to extraordinary capital expenditure for the purpose of the agreement, a longer notice period may be needed. Courts will consider the scale of this investment, its relevance to the agreement, and whether it can be redeployed elsewhere.
• The recipient's third party obligations. If the recipient has commitments to third parties that depend on the contract continuing, the difficulty of unwinding those commitments may become relevant.
• Ongoing performance obligations between the parties. In this case, Burns House distributed products for Anheuser-Busch's competitors and was itself part of a competing group. Forcing the parties to keep cooperating through a lengthy wind-down, during which Burns House would continue to sell both Anheuser-Busch and competitor beer, was unrealistic. A shorter notice period made more commercial sense.

The Privy Council stressed that these factors are a starting point. It suggested custom and practice for that sector, and the time of year when notice is given, are potentially relevant additional factors. However, each case may raise fresh considerations. 

What this means in practice

For in-house teams, the message is clear. Where a contract lacks an express termination clause, the implied notice period may be far shorter than you'd expect, even after decades of performance.

If you're drafting an agreement, don't leave yourself exposed to an implied term. Include an express termination for convenience clause with a specified notice period. The commercial risk of relying on a court's assessment sits entirely with the party who failed to negotiate one.

If you need to terminate an existing agreement that lacks express notice provisions, a well-reasoned letter will strengthen your position. We'd recommend assessing each of the Privy Council's factors and addressing them directly in your termination notice; it shows you've given genuine thought to what's reasonable and builds a paper trail if the other side challenges you.

And if you're on the receiving end, be clear-eyed about your position. The court won't aim to preserve your profit stream. Measure the agreement against the Privy Council's factors before deciding whether to fight.