Alpha Lettings Ltd. v Neptune Research & Development Inc

An exclusive agency or distributorship agreement of indefinite duration is not ordinarily terminable at will. In the absence of an express term or repudiatory breach, reasonable notice must be given and its length is assessed at the date of termination.

Relevant considerations include the relationship’s formality, commercial dependence, restrictions on competing business, unrecouped investment, the time needed for an orderly conclusion and the parties’ continuing reciprocal obligations. The duration of the relationship may carry weight but is not decisive. The manner or motive of termination, including deliberate breach or associated falsehoods, does not alter the objectively reasonable period.

Neptune manufactured specialist valves. Alpha imported and resold its products as Neptune’s exclusive United Kingdom agent under an informal arrangement dating from 1983. Alpha remained free to sell competing products, and Neptune products represented about 20% of its turnover.

Neptune terminated the arrangement on one month’s notice. His Honour Judge George found that alleged new terms had never been agreed, that reasonable notice was required and that the appropriate period was 12 months. He awarded Alpha £192,491.75 for the profits expected during the additional 11 months.

Neptune appealed on grounds concerning the fairness of the trial, contractual variation, termination, the length of reasonable notice and damages. The central issues were whether the trial had been unfair, whether the contract had been varied, and what notice and damages the agreement required.

1. Disposition. Per Longmore LJ, with whom Richards J and Schiemann LJ agreed, the appeal was allowed only as to the length of notice and the resulting assessment of damages. The reasonable period was four months, not 12 months. The damages assessment was remitted to the deputy judge or another judge of the Queen’s Bench Division.
2. The trial was fair. Judicial intervention may make a trial unfair where the judge prevents evidence or advocacy from being presented properly, or creates an appearance of bias. The deputy judge was at times irritable and discourteous, but neither prevented Neptune from presenting its case nor displayed an unwillingness to be persuaded by the evidence. The principles stated in Arab Monetary Fund v Hashim were applied.
3. The finding that the contract had not been orally varied was upheld. The trial judge was entitled to rely on his assessment of the witnesses, their answers about contemporaneous documents and the commercial probabilities. The introduction of a 45% discount and Alpha’s eventual use of Neptune’s list prices did not establish agreement to the alleged package of ten new terms.
4. The arrangement was not terminable at will. In the absence of repudiatory breach, reasonable notice was required and had to be assessed at the time of termination. Its length depended on the relationship’s commercial features. The informality of the arrangement, Alpha’s freedom to sell competing products, Neptune’s comparatively small share of Alpha’s turnover, the opportunity already enjoyed to recoup initial investment and the difficulty of continuing best-endeavours obligations after notice all favoured a shorter period.
5. The circumstances and motive of termination did not lengthen the reasonable period. Deliberate breach, false statements, lack of warning or an intention to replace the distributor may affect other questions, but reasonable notice must be capable of applying equally to amicable and hostile terminations. The 12-month periods in Martin-Baker Ltd v Canadian Flight and Murison and Decro-Wall v Practitioners in Marketing Ltd arose from materially more restrictive or dependent arrangements.
6. Four months allowed an orderly conclusion and substantial progress towards finding another supplier. Profits earned from orders placed before termination were not deductible because they were earned during the contract. Alpha was not normally required to mitigate by continuing to deal with Neptune, and bulk purchasing would have exposed it to risk and tied up capital.

1. Court of Appeal (Civil Division): In [2003] EWCA Civ 704, the court unanimously varied the required notice from 12 months to four months, dismissed the remaining substantive grounds and remitted the assessment of damages.
2. High Court, Queen’s Bench Division: His Honour Judge George held that the agency had not been varied, required 12 months’ reasonable notice and awarded Alpha £192,491.75 in damages.