It is consistently surprising that so many agreements in the wine and spirits sector are still conducted on little more than a handshake or perhaps an email. It is heartening to see that level of trust and expectation that there will not be a disagreement in the future. Unfortunately however, things change, wineries priorities change or a competitor makes an unbeatable offer and disagreements can happen.
Those distribution agreements that have been concluded on a handshake or an ancient piece of paper do not envisage termination or set out a contractual notice period. It is then a matter of argument as to whether a party is entitled to terminate the agreement and what period of notice is reasonable.
Where a distribution agreement is silent on these matters, the parties will either have to rely on common law termination rights – i.e. if there has been a serious repudiatory breach which deprives the innocent party substantially of the benefit they were intended to receive – or provide the other party with “reasonable notice” in order to bring the agreement to an end.
It is open to the court to imply a term that a distribution agreement can be terminated on reasonable notice, with the court’s ability to do this depending on the circumstances existing at the time the agreement was made. The length of notice will depend on the individual circumstances surrounding the distribution agreement with regard to the facts at the time the notice was given.
For example, in Jackson Distribution Ltd v Tum Yeto Ince [2009] EWHC 982 (QB), the court determined that a reasonable notice period for an informal distributorship that had lasted 2 and a half years would be nine months. The court took into account that the arrangement was informal and had only been in place for such a short period, there was no prohibition on the claimant selling competitors’ products, the turnover was low and the business was seasonal.
In Anheuser-Busch International Inc and another v Commonwealth Brewery Ltd (The Bahamas) [2026] UKPC 8, the parties had a distribution agreement which had originally been entered into in 1975. In 2015, the supplier terminated the agreement for strategic reasons and gave just over three months’ notice. The distributor brought proceedings, arguing that this notice period was unreasonable. At first instance, the Bahamian court held that 15 months would have been a reasonable period. However, the Bahamian Court of Appeal disagreed and concluded that three to six months’ notice was reasonable. The Privy Council upheld the Court of Appeal’s decision.
The Privy Council highlighted that the aim of the notice period is to enable the parties to the agreement to achieve an orderly end to their relationship, which involves winding up the relationship and “giving the recipient of the notice an opportunity to make substantial progress towards entering into alternative arrangements for its business”. The Privy Council identified a number of factors which may be relevant to the assessment of what is reasonable notice and made clear that this will depend on the circumstances of the parties and the markets in which they operate:
- the formality of the distribution agreement;
- how long the relationship between the parties has been in operation;
- the significance of the relationship to the business of the party receiving the notice;
- the extent to which the party receiving the notice has invested financial, management and personnel resources into the relationship;
- whether the party receiving the notice had, with the other party’s knowledge and assent, incurred extraordinary capital expenditure or business expenses specifically for its performance of the agreement shortly before it was terminated;
- whether the party receiving the notice may face other difficulties in terminating the agreement, for example, if it has entered into other contracts with third parties to service the distribution agreement which cannot be readily terminated; and
- the fact that the parties are obliged to continue performing their contractual obligations during the period of notice.
The court did note that whilst several of the above factors may point to a longer notice period, the court must bear in mind that commercial relationships involve risk-taking and that the notice period is designed to provide a period of adjustment to the change in business circumstances.
To our wine and spirits clients, we always urge there to be a good quality and fair distribution agreement. Where that hasn’t happened, the notice period can be a matter of important negotiation with the swing of several months being potentially very valuable to both sides.
If you would like to discuss any of the issues raised in this article, please contact Ed Henderson.