If a party to a contract is not sure what the terms of that contract are, it could be extremely risky to purport to terminate the contract on reasonable notice, as (if evidence subsequently emerges about what the contract terms are) a court may take the view that such termination is inconsistent with the contract terms and therefore constitutes a repudiation of the contract i.e. a repudiatory breach, entitling the other party to accept the repudiation and sue for damages.
Although there is common law to the effect that, where a contract is ‘silent’ on term or termination rights, it can sometimes still be terminated on “reasonable notice” on the part of one or both parties. The law in this area is murky and what the courts consider “reasonable” very much depends on the individual circumstances of the case. Reasonable notice will be determined according to the ordinary principles which apply to the implication of terms into a contract and with regard to the facts in existence at the time the notice was given, as opposed to at the time the contract was entered into. Although there are no general guidelines on what constitutes “reasonable notice”, the factors a court might consider include:
- The length of the contract term and the type of contract;
- The degree of financial dependence of the terminated party on the contract.
- The time that would be required by the terminated party to replace the lost business represented by the contract.
- The commitments of the parties which exist at the date of the notice to terminate.
- The common intention of the parties at the time when they entered into the agreement.
In our example, where no terms exist or emerge to deal with this, it may be best to negotiate with the supplier an early exit on the grounds that this provision was never agreed upon. However, if it was the case that standard supplier terms did emerge, the client might decide either to go with the supplier’s view of things and comply with the stated notice provision, or negotiate with the supplier for an earlier exit (accepting (or not) the commercial cost of doing so).
One thing is for sure, this highlights that it is best to have written terms agreed from the outset to govern the entire transaction, not just the termination provisions. Terminating without being sure of what the contractual terms actually are is a risky strategy and one that ought to be avoided especially where the supplier may have greater bargaining power.