Hamsard 3147 Ltd (t/a Mini Mode Childrenswear) & Anor v Boots UK Ltd

A reasonable notice period in an informal commercial arrangement must be assessed objectively and by reference to all the circumstances existing when notice is given. The court may consider the relationship’s purpose, its formality, the parties’ dealings, the commercial context and the practical state of performance. A notice period agreed in an earlier, different contract is not necessarily a measure of reasonable notice under a later interim arrangement.

A general duty of good faith is not routinely implied into commercial contracts. Such a duty does not ordinarily require a party to subordinate its own commercial interests, order unwanted goods or maximise profits for the other party. Contractual accounting arrangements must be applied according to what the parties objectively agreed.

The claim arose from the termination of an unwritten interim trading arrangement under which Hamsard supplied Boots with Mini Mode childrenswear. Hamsard claimed damages for alleged wrongful termination, contending that 18 months’ notice was required, and alleged breach of an implied term requiring the parties to act in good faith and maximise profits.

Hamsard also challenged Boots’ treatment of unsold stock, Advantage Card costs and other items in the final profit reconciliation. Boots counterclaimed for an alleged overpayment. The central issues were the length of reasonable notice, the scope of any implied good-faith obligation and the correct accounting treatment.

1. Reasonable notice. The notice term was implied into a new, interim arrangement arising from the insolvency of the previous supplier. Its length had to be assessed objectively at the date of notice, while also having regard to the common purpose of the notice provision when the contract was formed. Relevant matters included the informal and short-term nature of the arrangement, the parties’ practical dealings, the supply cycle, the absence of any long-term joint venture and the financial instability of Hamsard. The 18-month period in the earlier agreement was not a pre-estimate of reasonable notice. Nine months’ notice, expiring on 31 August 2010, was reasonable.
2. Good faith. No term equivalent to the good-faith clause in the earlier agreement was implied. The interim arrangement was not a long-term relational contract of the relevant kind. Even if a narrower obligation to deal openly and collaboratively had been implied, it would not have required Boots to subordinate its own commercial interests, order unwanted transitional AW10 stock, sell stock at the best available price or maximise Hamsard’s profit.
3. Boots was entitled to exercise its contractual right to terminate on reasonable notice and its right to set sale prices. Giving residual broken stock to charity did not breach any contractual obligation.
4. Counterclaim. The financial and operational provisions of the earlier agreement supplied the framework for the interim arrangement. Advantage Card costs were therefore chargeable at the agreed budget rates: 1.3% for February and March 2009, 2.2% for April 2009 to March 2010, and 2.2% for April to August 2010 in the absence of a later agreement. The counterclaim was reduced by £123,000 for excess Advantage Card charges and by £29,000 for fixtures and fittings. Hamsard was entitled only to the 20% profit-share rate for July and August 2010, not a blended rate.
5. The claim was dismissed. Boots was awarded £63,920 on its counterclaim.