When a fight over reasonable notice for termination of an exclusive sales agency reached the Court of Appeal, they rejected both sides’ arguments. For the verdict and the issues for the marketing industry.
Topic: Contract
Who: Alpha Lettings –v- Neptune Research & Development
Where: The Court of Appeal, London
When: July 2003
What happened:
For 15 years Alpha had been Neptune’s exclusive sales agent in the UK. There was no written contract setting out how much notice needed to be given if either side wanted to terminate the arrangement.
In 1998, Neptune gave Alpha one month’s written notice of termination. Alpha said this wasn’t long enough and sued for loss of profits on the basis that it should have got 12 months’ notice.
Five years on from the termination, the case reached the Court of Appeal. The appeal judges agreed with neither party.
They did not believe that the acrimonious 1998 split should have any material influence on their decision on the point in issue, namely how long was a reasonable period of notice of termination. They also did not feel that the length of the relationship before termination occurred should necessarily dictate that a long period of notice was appropriate.
Factors militating against a long notice period, in the appeal judges’ view, included Alpha’s freedom to sell products competing with Neptune’s during the notice period, the fact that Neptune business only constituted 20% of Alpha’s total turnover and one other factor. This was the Court’s finding that they should imply into the contract an obligation on the part of Alpha to use its best endeavours to sell Neptune’s products in the UK.
Assuming that this was right, it was difficult to see how, commercially, Alpha could be reasonably required to carry on using its best endeavours in this manner over a 12 month notice period.
All in all, the appeal judges felt that a four month notice period was appropriate.
Why this matters:
This was a sales agency contract, not a marketing services supply agreement, so it should be treated with caution as an authority for what might be regarded as a reasonable notice period where a contract for the provision of advertising services, for example, is terminated. However, there are features of the case which would undoubtedly be of relevance where a client terminates its marketing agency’s contract. One particularly mind-concentrating aspect here was the appeal judges’ view that a very long notice period was inconsistent with an obligation to use best endeavours to sell the client’s products (equally applicable in a marketing services context) and its rubbishing of the relevance of a very long relationship before termination occurred.
As ever, the best advice here has to have a written, signed contract in place specifying the period of notice, but if all else fails, decisions such as this one have elements which could comfort both clients and agencies in a marketing services context: the four month period eventually plumped for by the appeal judges might be regarded by both the client and a marketing services agency as a reasonable compromise on similar facts in an advertising industry context.
