Jackson Distribution Ltd. v Tum Yeto Inc

A commercial distributorship agreement may arise without a signed formal contract. Its terms are determined from the parties’ agreement and conduct, but a party asserting that an unsigned draft governs bears the burden of proving that the parties acted on its terms. Where an exclusive distributorship contains no agreed duration or termination provision, the court may imply a term permitting termination on reasonable notice. Reasonable notice is assessed at the time of termination by considering the formality of the relationship, exclusivity, duration, early investment, turnover and the nature of the business. A supplier cannot terminate immediately for repudiatory breach without proving a contractual breach. On the facts, nine months was reasonable notice.

The claimant was appointed the defendant’s sole distributor of Dekline products in the United Kingdom and the Republic of Ireland. The parties operated from March 2005 without signing a formal distribution agreement, although each circulated draft agreements containing different terms.

The defendant terminated the relationship in July 2007, alleging failures by the claimant to promote and sell the products. The claimant alleged breach of contract and claimed damages. The issues were whether the unsigned draft terms governed the relationship, whether the defendant was entitled to terminate for repudiatory breach, what notice was required, and what loss resulted.

1. Contractual terms. The parties had agreed in March 2005 that the claimant would be the defendant’s sole distributor for Dekline products in the United Kingdom and the Republic of Ireland. The parties had not agreed that either draft distribution agreement governed their relationship. Although terms may be accepted by conduct under [1877] 2 A.C 666, the claimant had not discharged the burden of showing that the parties acted on the Jackson draft.
2. The agreement included implied obligations that the defendant would supply products in a timely manner and with good workmanship. It also included an implied term that either party could terminate on reasonable notice. The agreement was not intended to continue indefinitely merely because the parties hoped to conclude a formal written agreement. In the commercial context, there was no presumption in favour of permanence: [1955] 2 QB 556.
3. Repudiatory breach. The evidence did not establish that the claimant had failed properly to promote or sell Dekline. The allegations concerning marketing plans, advertising, staffing, trade shows, product lines and defective Deuce shoes were unsupported or unfounded. The decline in orders was not shown to result from any breach by the claimant. The defendant therefore had no right to terminate for repudiatory breach.
4. Reasonable notice. The assessment was made at the date of termination, applying the factors identified in [2003] EWCA Civ. 704. The relationship was relatively informal and lasted only two and a half years, but the claimant had made substantial early investment, the business was seasonal, the claimant had incurred promotional and expansion costs, and finding and establishing an alternative brand would take time. Nine months was reasonable notice. The shorter period in [2003] EWCA Civ. 704 and the longer period in [1971] 1 WLR 361 reflected their different facts.
5. The defendant’s July 2007 letter and August email did not give effective notice because they made termination conditional on a release of claims and immediate consent to replacement distribution. The agreement was therefore terminated without notice. Liability was established, with supplementary submissions invited on the effect of the nine-month notice period on damages.