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In a dispute over the supply of children’s clothing to a major high street retailer, the High Court has ruled that a breakdown in effective communication between the parties justified early termination of the agreement and that the notice period given was reasonable.
The agreement between the clothes manufacturer and the retailer had taken the form of an informal profit-sharing joint venture. The contract was not fully recorded in writing and the contractual relations became muddled over the years.
In 2007, the terms under which they traded varied and the new arrangement had been in place for less than a year when the retailer gave nine months’ notice of termination. The manufacturer argued that the period was too short in light of the seasonal nature of clothes retailing and that it had suffered substantial costs and loss of profits as a result.
The Court viewed the arguments in the context of a trading relationship that had subsisted for some years previously. In dismissing the manufacturer’s claim, it noted that, by the time notice was given, the manufacturer ‘had no money’ and effective communication between the parties had broken down. There was by then also ‘deep unrest down the supply chain’.
The notice period could not be divorced from the realities of operating the contract. The manner in which the contract was being performed and would foreseeably be performed during the notice period were legitimate factors to be taken into account when assessing what was reasonable in the circumstances.
Contact Clare Towers for advice on any contractual matter.