Supplier notice periods come under scrutiny

The 12-week notice period commonly used for terminating retail supply agreements may be challenged more in the courts

The 12-week notice period commonly used for terminating retail supply agreements looks set to be challenged more in the courts, according to a legal expert.

Dependent on the value of a contract between supplier and retailer, together with the length of time it had been in place and the characteristics of the foodstuff involved, a court might rule that a longer notice period was more appropriate, should a dispute arise, said Mark Jones, food and drink solicitor at Gordons.

This would be even more likely if the contract represented a large proportion of the supplier’s business, he added.

For suppliers that were about to lose a very valuable contract and could not easily replace it, a notice period of anywhere between nine months and three years might be more appropriate, suggested Jones.

Reasonable notice

As high street supermarkets, which fall under the remit of the Groceries Supply Code of Practice (GSCOP), continue to scale back on the number of products they sell and look to achieve better deals from suppliers, more queries will be raised about reasonable notice in relation to de-listing, he said.

“The big four – and the other six designated retailers – are all looking at what they sell and how much they sell it for,” said Jones. “As a consequence, a number of suppliers have been delisted and many more are still fighting what some may perceive as an inevitable cull.

“What I have often been surprised by in the food and drink sector is that so many buyers and suppliers seem to hold misplaced belief that 12 weeks’ notice amounts to reasonable notice under the GSCOP. It does not and it is not that simple.”

He suggested the reason this perception persisted was that most retailers required their own-label suppliers to keep at least 12 weeks’ dry stock. “That means that if their product is delisted then, at the very least, the own-label supplier will not be stuck with a substantial amount of packaging that cannot be re-used,” he said.

Not the correct approach

However, since larger and savvier suppliers sometimes bought double that amount of dry stock to take advantage of economies of scale, linking notice to dry stock is not the correct approach, he argued.

“Before GSCOP, reasonable notice was already a legal concept, and one that contract lawyers and dispute lawyers grappled with frequently,” he said. “Reasonable notice would be required to terminate an agreement where there was no written evidence as to what notice was appropriate.”

In the absence of a written contract with an agreed notice period, a court would consider other extrinsic information to determine what reasonable notice was, Jones claimed.

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