Alpha Lettings Ltd. v Neptune Research & Development Inc

This appeal is about the termination of an exclusive agency agreement. The appellant defendants (Neptune) are manufacturers of specialist valves used in medical and scientific equipment and instruments. The founder and President is Mr Akos Sule who owns all the shares, save for a 25 per cent minority holding. The valves are of two types; first, those described and appearing in Neptune’s literature and price list (standard valves); second, special valves which may be shortly described for the purposes of this appeal as valves designed and made to perform to a particular user's requirements and purposes.

The respondent claimants (Alpha) were at all material times a company which arranged the importation into, and sale in the United Kingdom, of valves and associated products ordered by them prior to 30th April 1998. Alpha also dealt in goods of a like kind produced by other manufacturers. Alpha’s founder and director was and is Mr John Peirce. From 1994 until her death in 1999 Mr Peirce's wife, Elke Hofstedde, was managing director of Alpha and during such period Mr Peirce was chairman.

An association between Alpha and Neptune began prior to 1983, but in November 1983 letters came into existence which brought more formality to the situation and constituted Alpha as Neptune’s exclusive agent in the United Kingdom, save that Neptune retained for themselves the right to sell directly to United Kingdom purchasers, if they chose. At all times the trading arrangement was that Alpha obtained an order for valves from a customer in the United Kingdom who could either be an end user or an original equipment manufacturer (an “OEM”), that is a customer who used the valves as part of an item of equipment manufactured by it.

In relation to such orders Alpha would require payment to themselves on an invoice in their own name and such invoice would reflect in the price charged to the customer not only the price due from Alpha ex-works to Neptune, but also the attendant cost of carriage, insurance and import duty, together with profit for themselves. Title and risk had passed to Alpha ex-works in New Jersey. There was no retention of title clause or “Romalpa” clause, and Neptune looked to Alpha (not Alpha’s customers) for payment of its price (subject to any agreed discount) whether or not Alpha were themselves paid by the end user or OEM. Alpha thus made their own profit from the resale. It is common ground that until 1st May 1996 Alpha had complete autonomy over the resale pricing. It is also common ground that by about autumn 1995 Mr Sule wished to impose restrictions on the ultimate price for which Alpha, and indeed other distributors, sold Neptune’s products.

On 31st March 1998 Neptune gave one month’s notice of termination of the exclusive agency expiring on 30th April 1998. Alpha claimed that this termination was wrongful. Neptune asserted that Alpha were in breach of new terms of the exclusive agency orally agreed in April 1996 at Munich and that as a result they would have been entitled to terminate the agency agreement without any notice at all.

The judge decided that Alpha were not in breach of contract because the terms relied on had never been agreed. He also decided that the agency agreement was not terminable at will but only on reasonable notice. One month’s notice was not reasonable and a reasonable period would have been 12 months notice. He accordingly awarded Alpha damages of £192,491.75 based on the profit which he assessed Alpha would have earned during an additional 11 month period, the judge having taken into account the 1 month’s notice given by Neptune. There is now an appeal to this court.

The grounds of appeal are as follows:-

(1)

Neptune never had a fair trial because their main witnesses Mr Sule and Mr Gary Stevens (an ex-employee of Alpha to whom Neptune granted the agency once Alpha’s agency had been terminated) were dealt with by the judge in such a hostile and angry manner that (a) their evidence could not properly be assessed by the judge and (b) an objective observer would conclude that the judge was biased

(2)

Contrary to the judge’s findings, new terms were agreed at Munich in April 1996; Alpha were in repudiatory breach of the terms with the result that the termination of the agreement was lawful;

(3)

in any event the agreement was terminable at will and no damages for termination could be recovered;

(4)

twelve months notice was not required and the one month notice actually given was sufficient;

(5)

damages were calculated on the wrong basis.

Since there was a considerable amount of oral evidence tendered and cross-examined at a ten day trial, the judge’s assessment of the main witnesses is important. That assessment is set out at paragraphs 63 to 81 of the judgment and can be summarised as follows:-

(1)

Mr John Peirce for Alpha was careless in the way he had prepared his witness statement and was more “hands on” in the management of Alpha’s business than he cared to admit. The reliability of his evidence, therefore, needed careful consideration;

(2)

Mr Sule needed allowance to be made because his first language was not English; but he was more concerned to give answers which he thought would fit his interest rather than to give a truthful recollection of events. He was a man who was determined to get his own way. His evidence on matters of primary fact was not, therefore, reliable. In particular an allegation in correspondence that a special valve, ordered by one of Alpha’s major customers, a company called Chiron Diagnostics Ltd (“Chiron”), had been discontinued, was incorrect;

(3)

Mr Stevens was more keen to argue Neptune’s case than to deal with the facts. His evidence could not be relied on to give a correct picture or emphasis to events.

The judge accepted that he dealt with Mr Sule and Mr Stevens robustly on occasion but asserted he did the same with Mr Peirce.

After the first ground of appeal had been fully opened, the court decided that it had to fail for reasons to be given later. Likewise after the argument in relation to the suggested variation had been advanced, the court indicated that the appeal in relation to that would have to be dismissed. Argument then took place in relation to any period of notice required under the agreement and damages.

As Mr Peter Leaver QC said, when presenting this part of the case on behalf of Neptune, no advocate makes this submission lightly, because it is a direct attack on the manner in which the judge has conducted the trial. He asked the single lord justice, who had adjourned into court the application for permission to appeal, to listen to five particular parts of the trial on the tape recorder. We can well understand why, having listened to those particular passages, the single lord justice gave permission.

A submission that a trial was unfair by reason of the conduct of the judge can fall into parts. First, it may be said, as in Jones v. NCB [1957] 2 QB 55, that if the judge takes over the case and prevents either the witnesses from giving their evidence or the advocates from presenting the case in an orderly and sensible manner, an informed and objective observer would conclude that there has not been a fair trial. Secondly, the judge may intervene in such a way as to show that he is not approaching the evidence of witnesses or submissions of counsel in an impartial manner; in such a case it may be said that an informed and objective observer would conclude that there is an appearance of bias. Mr Leaver put Neptune’s case in both these ways.

We have now read, both privately and in open court, large parts of the transcript of the evidence of the witnesses and have considered the numerous interventions of the judge. We have also listened to parts of the trial where the judge was allegedly shouting at or displaying hostility to the witnesses. Having done so we are satisfied that Mr Leaver’s submissions are without foundation. On occasion the judge showed irritability with Mr Sule and Mr Stevens and, indeed, Neptune’s counsel. But at no time did he prevent Mr Sule or Mr Stevens from giving their evidence or prevent the advocates from eliciting that evidence. His concern was to ensure that the witnesses (and, in particular, Mr Sule, whose first language was not English) understood the accusations which were being made against them and how answers that they had given would be used by counsel in their final submissions. This shows a laudable anxiety to be fair. Nor could a fair minded and informed observer of the trial have concluded that the judge was apparently biased. He occasionally expressed surprise at certain answers but such surprise never betrayed a refusal to be persuaded of any factual proposition whatever the evidence might be. In this context the remarks of Sir Thomas Bingham MR giving the judgment of the court in Arab Monetary Fund v Hashim (1993) Admin LR 348 A-C have become the locus classicus:-

“In some jurisdictions the forensic tradition is that Judges sit mute, listening to advocates without interruption, asking no question, voicing no opinion, until they break their silence to give judgment. That is a perfectly respectable tradition, but it is not ours. Practice naturally varies from Judge to Judge, and obvious differences exist between factual issues at first instance and legal issues on appeal. But on the whole the English tradition sanctions and even encourages a measure of disclosure by the Judge of his current thinking. It certainly does not sanction the premature expression of factual conclusions or anything which may prematurely indicate a closed mind. But a Judge does not act amiss if, in relation to some feature of a party’s case which strikes him as inherently improbable, he indicates the need for unusually compelling evidence to persuade him of the fact. An expression of scepticism is not suggestive of bias unless the Judge conveys an unwillingness to be persuaded of a factual proposition whatever the evidence may be.”

Rather than encumber the body of this judgment with extensive references to the transcript, I prefer to set out the passages of which Mr Leaver complained most vigorously and my comments upon them in an appendix to this judgment.

Neptune’s case before trial was that there had been an oral agreement made at Munich in April 1996 between Mr Peirce and Ms Hofstedde on behalf of Alpha and Mr Sule on behalf of Neptune that Alpha would:-

(1)

sell Neptune’s valves to customers in the United Kingdom at Neptune’s list price;

(2)

provide discounts to their customers according to Neptune’s customer discount schedule;

(3)

charge customers the actual costs of carriage, insurance and import duty;

(4)

itemise both quotations and invoices to show the actual costs incurred;

(5)

supply to Neptune a copy of their (Alpha’s) mailing list.

The consideration for these promises was that Neptune would:-

(1)

increase Alpha’s existing discount, in respect of valves supplied to them, to 45% irrespective of the quantity ordered;

(2)

pay Alpha 10% when Neptune supplied valves directly to customers (as they were entitled to do);

(3)

undertake an intensive marketing campaign; if leads materialised, Neptune would direct those leads to Alpha;

(4)

deal with technical queries from customers and potential customers;

(5)

refund the difference between 20% and 45% on any inventory held by Neptune.

On the third day of the hearing, a formal concession was made, after being foreshadowed on the first day, that the alleged oral variations applied only to standard valves not to special valves made specially to order.

This alleged oral variation was an important part of the case because Neptune alleged that there were subsequent breaches of the orally agreed terms in that Alpha:-

(1)

failed to charge Neptune’s list prices to existing customers until after September 1997 (a fact which only emerged during discovery in the action) despite apparent acceptance in contemporaneous correspondence by Alpha that they had agreed to change to charging Neptune’s list price and assertions by Alpha that they were, in fact, doing so;

(2)

failed to itemise separately the costs of transport, insurance and duty on invoices but only on quotations;

(3)

failed to charge the correct amounts in respect of transport, insurance and duty;

(4)

failed to supply their mailing list until mid-1997.

Neptune then said that these breaches singly or, at any rate, cumulatively constituted a repudiation of the contract which they were entitled to accept by summarily bringing the agency agreement to an end in March 1998. Alpha’s case was that there had been discussion in April 1996 of the matters now alleged to constitute a variation to the contract but that no agreement had been reached.

The judge rehearsed the parties’ contentions and set out the history and the correspondence between the parties in considerable detail; having given the assessment of the witnesses summarised earlier in this judgment, he recorded the submission of Neptune’s counsel (Mr Wilson) that Neptune’s evidence in support of its case was overwhelming and that the case had been admitted by Alpha in the contemporaneous correspondence. He then continued:-

“81.

In my judgment there is no such or other material admission and the evidence is not credible in the context of such correspondence and other documents and the surrounding circumstances, notwithstanding criticisms which have been properly levelled at Mr Peirce because of the matters I have mentioned and indeed emphasised at length. In my judgment counsel for the claimant accurately, but shortly, described the evidence of Mr Sule as disastrous. Mr Stevens' also accurately but shortly described one answer he gave in cross-examination as “off the top of his head” and in my judgment this described many parts of his evidence. I should add that I have directed myself specifically to make allowances in respect of both witnesses, Mr Sule and Mr Stevens, by reason of the fact that I have treated them on occasion in a robust way when they failed to answer a pertinent question directly but answered some other question or “glided over” the point that was put to them. I also mention that I made the same allowance, but perhaps to a lesser extent, in respect of Mr Peirce, who, I recollect, I also dealt with robustly on other occasions. At the end of the day I have reached the view that Mr Peirce's account of the relevant history in relation to the negotiations from and including April 1996 as the more reliable where it conflicts with the evidence of Mr Sule and/or Mr Stevens.

82

Accordingly I reject each and every proposition to the effect that there was consensus affecting a variation of the contractual relationship in 1996 or 1997 set out in paragraphs 7, 8, 9 and 10 of the amended defence. In my judgment, there is no evidence which can be accepted on the balance of probabilities in support of these allegations of a variation of the original agreement either in April 1996 or in the late summer/early autumn of 1997 when the oral evidence of Mr Sule and Mr Stevens is weighed against that of Mr John Peirce, their answers to cross-examination in the light of the contemporaneous documents, notwithstanding (which I take fully into account) the change in the discount structure as from 1st May 1996.

83.

I mention in particular the fact that the invoicing system did not change, the terms and conditions of the defendant for sales to the claimant were not varied and the fact that the defendant was plainly in no position to carry on its supposed obligation as regards marketing and technical support until Mr Stevens appeared on the scene in 1997. What, in my judgment, happened in April 1996 was that Mr Sule unveiled his plans, that is to say his policy for the future and such plans and policy for the future were later varied and relaunched in August 1997, but the claimant never agreed to be bound contractually to implement the same. Such implementation as there was, was to preserve some harmony in the light of pressure the claimant was subjected to and in an understandable desire to seek to continue to trade. There was no variation of the trading arrangement other than the across the board discount of 45 per cent.”

Mr Leaver on behalf of Neptune attacked the judge’s conclusions by submitting that:-

(1)

the judge gave no reasons for rejecting the proposition that there was a consensus that affected a variation;

(2)

the judge failed to have regard to the overall probabilities of the case particularly in the light of

(a)

the undoubted fact that as from 1st May 1996 Neptune did give Alpha an across the board 45% discount on price, regardless of the quantity of valves ordered; and

(b)

Alpha’s twice repeated assertion that they were charging their customers with Neptune’s list price “as agreed”;

(3)

the judge was wrong to say that Alpha’s invoicing system did not change;

(4)

the judge was wrong to say that Neptune was not in a position to provide the marketing and technical support allegedly agreed in May 1996;

(5)

the judge determined whether there was a contractual variation by reference to the subjective intention of the parties.

None of those criticisms is justified.

First, it is not right to say that the judge gave no reasons for his decision. If a dispute arises as to whether a contract has been orally varied, the most critical determinant is the judge’s assessment of the witnesses who are alleged to have made the oral agreement. That assessment the judge made and he made it clear that he could not accept Mr Sule’s account and did accept Mr Peirce’s account. The judge could have relied, although he did not, on the inherent improbability that ten new terms would be agreed between two commercial concerns without, at least, an exchange of correspondence on the matter; but he did rely, particularly, on the contemporaneous documents and the witnesses’ answers in relation to them. He had set out the correspondence in considerable detail with his comments and there was no need for him to do that again when he came to make his decision.

The second criticism mounted by Mr Leaver is the most substantial criticism but, for the reason just given, the overall probabilities of the case militate against Neptune rather than in their favour. It is nevertheless true both that Alpha did receive an across the board 45% discount from Neptune and that Alpha did, in due course, change their invoicing system to their customers and quoted Neptune’s list price. This has to be seen in the context of the evidence as a whole.

In the first place, Mr Peirce accepted that the matters said to constitute the terms of the variation were actually discussed but, at the same time, he made it clear that they were not agreed. Secondly Mr Sule’s character was, as the judge said (paragraph 69) “such that he would be determined to get his own way by pressure of circumstances”. Thirdly once it became clear that Mr Sule was prepared (and, indeed, anxious) to put Neptune’s price list on the Internet, Alpha would have little option other than to make that the base price for charging their own customers. Mr Sule did indicate that this was his intention and it happened on 1st May 1997. At some stage Alpha began to charge new customers the list price (with additions for carriage, insurance, duty and profit) and, recognising the inevitable, did so for all customers as from September 1997. The fact that on 1st May 1997 Mr Peirce (and on 29th August 1997 Ms Hofstedde) said that Alpha were charging the list price “as agreed” and “as advised” is not very persuasive evidence that an agreement on this matter (together with nine other matters) was made in April 1996. It is only an acceptance that Alpha had, at some time, agreed to do what was, in any event, inevitable. Mr Wilson was able to show by cross-examination at the trial, that despite what Mr Peirce had said, Alpha were not in fact quoting the list price to all their customers. That went, of course, to Mr Peirce’s credit but the judge took that into account when weighing up the respective truthfulness of Mr Peirce and Mr Sule and came to his conclusion about the witnesses from which it is impossible for this court to depart. The 45% across the board discount was a change which did take place as from 1st May 1996. But the mere fact that this change occurred does not mean that any formal agreement incorporating the ten new terms was made in April 1996. Mr Sule himself frequently described it as a “concession” in his evidence and, no doubt, he hoped it might be an incentive to Alpha to agree what he wanted. But it was never more than that. Even in June 1997 Mr Sule was still saying that it was up to Alpha to decide if they wanted to continue the business under what Mr Sule called “these new circumstances”. It is apparent that Mr Sule did not consider that he had reached agreement on his new terms even by that date and the judge was correct to hold that no such agreement had been made.

From the above it can be seen that there is only verbal substance in Mr Leaver’s third criticism of the judge’s finding that Alpha’s invoicing system did not change. It did, of course, change once Neptune’s list prices were published on the Internet, as the judge himself recognised, see paragraphs 56 and 93 of his judgment. In the light of that recognition, it is clear that the judge meant in paragraph 83 that the invoicing system did not change until Alpha’s hand was forced in May 1997. That is itself an indication that no variation was agreed in April 1996.

The fourth criticism is also misplaced. Although, in theory, Neptune could provide marketing and technical support from their head office in New Jersey, the reality of any such support was that it would have to be provided in the United Kingdom. That was not going to happen until Mr Stevens’ company (to be called NR Research UK) was established, and that was not something Mr Sule was in a position to arrange as at April or May 1996.

Lastly I cannot see any reliance by the judge on the subjective intention of the parties. The reference in paragraph 83 of the judgment to the preservation of harmony in the parties’ relationship and the desire to continue to trade is entirely understandable as a matter of narrative. It is not in any way indicative of an error on the part of the judge in relying on the parties’ subjective intention rather than objective criteria for deciding whether an agreement was reached.

Thus the conclusion that the original agreement was not varied cannot be assailed. The court did not, therefore, require to be addressed on the question whether, if the new terms had been agreed, Alpha were in breach of those terms.

Matters came to a head when Mr Sule wrote to Ms Hofstedde on 31st March 1998 terminating the exclusive agency for Neptune’s products with effect from 30th April 1998. Eight days earlier, on 23rd March, Mr Johnson of Alpha had notified Ms Cuzzi of Neptune that they were intending shortly to place an order for 5,000 valves of the type (CME 161T03) which were to be supplied to Chiron during the remainder of 1998 and throughout 1999. Alpha’s first response to receiving the notice of termination was to place a firm order (no. 867460) with Neptune for 5,100 of these valves. Mr Peirce on 6th April 1998 then faxed Mr Sule saying that a one month termination was not reasonable, fair or practicable and asking a number of practical details to be settled “if you go ahead with termination”. On 7th April Mr Sule faxed Mr Johnson saying that order no 867460 could not be accepted since product CME 161T03

“has been discontinued and is no longer available”

and faxed Mr Peirce saying it made no difference whether notice of termination was short or long and that Neptune would honour all orders received before 30th April, except orders for CME 161T03, which “has been discontinued”. He added that his decision to terminate stood. Chiron was horrified to learn from Mr Peirce that the valve had been discontinued since it was critical to the continued production of their blood analysis products. They requested urgent clarification from Mr Stevens of NR Research UK who (we were informed by counsel) themselves supplied the valves required. Mr Peirce faxed again on 24th April saying that in Alpha’s view reasonable notice of termination would be twelve months. Mr Sule repeated that he did not wish to discuss the matter any further.

Battlelines were accordingly drawn. The judge held that it was a breach of contract to terminate the agency on one month’s notice and (agreeing with Alpha) that twelve months was the reasonable period. He accordingly awarded damages on the basis of the loss of profit which Alpha could have been expected to earn over the 11 month period 1st May – 31st March. He rejected three arguments in support of deductions from that sum and awarded what he thought was an agreed figure, on the basis of his findings, of £192,491.75.

Although one of Neptune’s Grounds of Appeal was that the agreement was terminable at will by either party, Mr Leaver did not make such a submission, which would have been untenable. Mr Leaver accepted that, in the absence of repudiatory breach, any agency or distributorship agreement requires at least some notice before it is terminable. Mr Leaver further submitted that one month’s notice was adequate and, alternatively, that three months’ notice would have been quite sufficient. He submitted that any initial expenditure on the Neptune agency had been absorbed by Alpha a long time previously and that Alpha had not pointed to any item of expenditure currently being incurred which was attributable only to the Neptune agency. Alpha had a number of other distributorships and Neptune’s supplies amounted to only 20% of Alpha’s overall turnover. Mr Jones QC for Alpha pointed to a number of factors in support of the judge’s conclusion including:-

(1)

Alpha had to carry both stock and spares; they also had overheads;

(2)

one specially controlled storage environment area was used for Neptune products;

(3)

Alpha had always serviced the products; that included on one occasion going to the United States at their own expense, so that Alpha could ensure that a series of faulty valves was repaired and returned to the ultimate consumer within the shortest possible period;

(4)

they had an accreditation of quality of product assurance, issued and maintained by Lloyd’s Register at yearly cost to Alpha;

(5)

they had up to 5 technical staff at any one time and a number of managerial staff. According to Mr Peirce the technical staff had to be trained and afforded facilities to keep up to date.

He also submitted that there was no one right answer to the question of reasonable notice and that this court should not interfere unless satisfied that twelve months was outside the bracket of legitimate periods of notice a judge might reasonably choose.

There is little authoritative guidance on the appropriate notice for termination of exclusive agencies or (as lawyers sometimes prefer to call them) distributorships. One possible view is that the reasonable notice period should equate to the time needed to find an alternative supplier and get a new product approved. Another view is that it need only reflect the time required for an orderly winding down of the distributorship. The only common ground between the parties was that, in the absence of any express term, the question, of what notice of termination is to be taken as reasonable, must be determined as at the time of termination.

One very important consideration will be the degree of formality in the relationship. A completely formal agreement would probably have its own provisions for termination so no problem about assessing a reasonable period for termination will arise. But the more relaxed the relationship, the less likely it will be that the law would imply a lengthy notice period. There was evidence in the present case that at an early stage in the relationship. Alpha had wanted a more formal relationship than then existed and had proposed, among other things, a contractual period of notice of 12 months. Mr Sule did not, however, want any formal relationship and nothing came of the discussions. One result of not having any formal written contract was that Alpha were entirely free to sell products of other suppliers to their customers even if those suppliers were competitors of Neptune. No doubt not all products so supplied could be described as competitive products but the fact is that Neptune’s business only accounted for 20% of Alpha’s overall turnover. This is an indication that a lengthy notice of period should not be implied.

Mr Jones sought to emphasise the length of time which the parties’ relationship had lasted (15 years from 1983 – 1998) as a factor in favour of a lengthy notice period. He likened the position to that of a valued and long-serving employee who would be entitled to a longer period of notice than an employee who had served a lesser period of time. I do not consider that a contract of employment is sufficiently analogous to an exclusive agency or a distributorship contract to be helpful. In the first place a distributor may have to spend or invest considerable capital at an early stage of the relationship to build up the business which may thereafter run with moderate annual expenditure. This would militate in favour of a lengthier notice period in the earlier years of the relationship and perhaps a lesser period once the business is up and running. No doubt it is right to lay some stress on the length of the relationship but I would not myself regard that as, in any way, critical, since businessmen expect to run risks in the ordinary course of business while employees have a legitimate (and often contractual) expectation that their services, rendered for the benefit of their employers, will be properly and adequately recognised. As McNair J said in Martin-Baker Ltd v Canadian Flight and Murison [1955] 2QB 556, 580-1, one of the few English cases to touch on the issue of reasonable notice for the purposes of a distributorship agreement:-

“It is the common experience that people, who are prepared to put up capital for the development of new business, do run risks.”

It follows from this that while initial capital investment and business expenses out of the ordinary run of things may well be relevant to the amount of notice, ordinary and recurring expenditure is unlikely to have much relevance.

It must not be forgotten that every distributorship is a bilateral contract. There was some debate before us as to the appropriate implied obligation of a supplier in the position of Neptune in the present case but, in the end, both parties were prepared to agree that it was necessary to imply a term that Neptune would accept and fulfil orders placed by Alpha in respect of both standard and special valves if such valves were in Neptune’s current range and were ordered in reasonable quantities. The existence of this implied term is, of course, of great importance when it comes to assessing any damages for breach of contract on the part of Neptune for giving an unreasonably short period of notice, once such breach is proved. But there will have been a correlative obligation on Alpha, the extent of which was not debated before us, but is most likely to have been that Alpha were under an implied obligation to use their best reasonable endeavours to promote the sale of Neptune’s valves in the United Kingdom. The concept of a party to a contract being obliged to use his best endeavours to promote the products of the other party after notice of termination has been given (by whomsoever it may be given and in whatever circumstances) is a difficult one and must also militate in favour of a shorter rather than a longer period of notice.

One matter which should not be regarded as important is the means of termination. The ending of a long-term relationship will often occur for many different reasons some of which may be more legally reputable than others. A termination with no notice or less than due notice will be a breach of contract and damages must be assessed appropriately. But the fact that the termination may be a deliberate breach or may be accompanied by the telling of falsehoods, of which the court disapproves, ought not to affect the question of what the period of reasonable notice actually is. The reasonable notice period will have to apply to both amicable and vitriolic partings of the way. In coming to his conclusion that twelve months was the appropriate notice period in the present case, the judge referred both to Neptune’s misrepresentation that the valve being supplied to Chiron had been discontinued (para. 125) and to the fact that the notice had been given without warning (para. 127). With respect to him, I do not think either of these considerations is relevant to the determination of the appropriate notice period.

There is no doubt that Mr Peirce and his employees were convinced that Neptune intended to set up Neptune Research UK Ltd under Mr Gary Stephens in order to cut Alpha out of their distributorship and poach their customers (see eg Mrs Pleece’s statement para. 13). The judge made no specific findings as to that but, once again, this must be irrelevant to the length of notice contractually required.

We were not referred to any English authority apart from Martin-Baker Ltd v Canadian Flight and Murison [1955] 2QB 556 and Decro-Wall v Practitioners in Marketing Ltd [1971] 1 WLR 361. The first case concerned the distributorship in Canada of ejector seats from aircraft which had been manufactured and patented by Mr Martin Baker. The main issue was whether the agreement, which was in writing and provided that the distributor could not sell products of other suppliers which might compete with those of the supplier, was terminable by any notice at all or was intended to be permanent. It is not surprising to modern eyes that McNair J decided that it was terminable on reasonable notice; he held that such reasonable notice was a period of 12 months. Decro-Wall was much relied on by the judge in the present case and was a case of a distributorship of French tiles in which the Court of Appeal held that a twelve month notice was appropriate. But there are three major distinctions between that case and the present. First, as in Martin-Baker, there was an express provision that the distributor was not to sell any goods competing with those of the supplier; secondly, the French tile business constituted 83% of the distributor’s turnover, unlike the 20% of turnover in the present case; thirdly, although (as in the present case) there was substantial initial investment (“expensive spadework”) in launching and promoting a new product in the United Kingdom, the agreement was terminated only three years after it began before any real reward for the initial expenditure could be reaped. In this case, there had been ample opportunity for the reward of initial investment to be earned. One way of regarding cases such as Decro-Wall might be to treat them as belonging to a category of case in which there is an implication that the agreement must exist for a reasonable time before any notice can be given. That would, however, not be open to us in this case.

I have also derived assistance from Crawford Fittings v Sydney Valve & Fittings Pty Ltd (1988) 14 NSWLR 438 which, although not cited to us, rehearses the arguments that were addressed to us as set out in paragraph 29 above. In that case the supplier terminated an agreement for the distributorship of valves and other fittings used in laboratories, chemical plants, drilling rigs and oil refineries with six months notice. This was held to be justifiable by the majority of the Court in a case where the distributor had agreed not to deal in any products at all other than those of the supplier. That was a considerably more restrictive agreement than the agreement in the present case and thus merited a longer rather than shorter notice period. It is McHugh JA who suggested the thought that Decro-Wall could be regarded as a category of case where the agreement must exist for a reasonable time before any notice can be given (page 448B). Priestley JA further pointed out (page 441 A-C) that a termination will almost always have adverse consequences and that, from the distributor’s point of view, it is the fact of termination rather than the length of notice which is often objectionable. But, of course, it is only the latter with which the court is concerned. As I have already said, in the present case it is difficult not to feel that the deputy judge was over-influenced by the circumstances of the termination.

Taking all these considerations into account and accepting Mr Jones’s submission that we should not interfere with the judge’s decision that 12 months was the appropriate notice period unless it was outside the range of notice periods reasonably open to him, I conclude that 12 months was indeed outside the range of reasonable periods. In my view the right range would be between three and six months. Since in this case there was no covenant against competition either during the existence of the agreement or after its conclusion, I would regard the right notice period as being at the lower end of the bracket and would fix it at four months. That should have provided ample time to bring the business to an orderly conclusion and, if this was wanted, to make substantial progress towards obtaining another supplier, for the distribution of whose goods Alpha could become responsible.

Both parties agreed that in the event of the court deciding that a period other than 12 months was appropriate, the matter would have to be remitted either to the deputy judge or to another judge of the Queen’s Bench Division for the purpose of the calculation of damages. Apparently the expert accountants could only agree on the right compensation if a 12 month notice period were appropriate. That is most unfortunate since it means that the parties have to incur yet further expense in a case where the costs may well already have exceeded any sum which is likely to be awarded. To make matters worse, Mr Jones gave notice that he might well seek leave to amend his quantum claim to plead an alternative basis of compensation by relying on the position with Chiron. It will have to be for the judge on the remission to determine whether any such amendment is to be allowed, but, despite not having heard argument, I would not wish it to be regarded as axiomatic that any such amendment should be allowed if all it meant was that Alpha was to be able to have second thoughts about how to put their damages claim on the most beneficial basis.

Argument did take place before us on the question whether certain separate matters fell to be deducted from any award of damages and to these I turn. These proposed deductions were originally set out in Mr Wilson’s written concluding submissions at first instance. The first suggested deduction was that Alpha should bring into account amounts they would have received in the notice period, if the alleged variation had been agreed or, more plausibly, that Alpha should give credit against any damages the difference between the 45% discount and the discount they would have earned if no 45% discount had been granted. In the light, no doubt, of the judge’s finding about variation (which we have upheld) and Mr Sule’s own description of the 45% as a “concession”, the judge did not make any specific decision in relation to this proposed deduction, but it is clearly not allowable.

The second proposed deduction was the “actual profits received in the 11 month period” over which damages would have to be calculated if the appropriate notice period was 12 months (1 months notice having been in fact given). It is not clear what Mr Wilson meant by this. Obviously profit derived from the remaining 80% or so of Alpha’s business derived from other suppliers would be irrelevant. It could only be if a supplier was found to replace Neptune and profits were then earned from business derived from such suppliers that any such (received) profits could fall to be deducted. There has never been any suggestion that such replacement was found. The judge (para. 134) understood Mr Wilson to have meant that profits received from orders placed before the agreement expired on 30th April but only received after that date should be brought into account. If that is what Mr Wilson meant, the judge rightly rejected it since that was profit earned during the currency of the agreement and could not be brought into account against profits which could have been (but were not) earned during the period which should have been given by way of notice. Paragraph 53 of Neptune’s skeleton in this court does not meet the reasons for the judge’s conclusion on this point.

Mr Wilson’s third point in his closing skeleton at first instance was that Alpha could and should have mitigated their loss by continuing to buy products in bulk but chose not to do so. Again there is an ambiguity. If Mr Wilson meant that Alpha should have continued to buy from Neptune and, moreover, buy in bulk, it could not be right because an innocent party is not normally obliged to continue to deal with a contract-breaker. This may not have been what Mr Wilson meant, since he calls the suggested mitigation “continuing to purchase Neptune products in bulk”. The judge may have thought Mr Wilson meant that Alpha should have bought other products in bulk (rather than in smaller quantities) for supplying to their customers. The judge (para. 134 again) said of this that it would have exposed Alpha to risk and the tying up of capital and he, therefore, rejected it. The judge seems to me to have been right on either view of the contention. Paragraph 55 of Neptune’s skeleton on appeal submits that the judge’s view contradicts his view that Alpha would have bought valves and parts during the actual notice period. But that makes no reference to buying in bulk and was, anyway, not dealing with the notice period which ought to have been given.

A final matter which ought to be dealt with is the assertion that, to the extent that the claim for loss of profit is based on the loss of the ability to order Chiron valves during the relevant notice period, Mr Sule would have been entitled to re-classify those valves as standard rather than special valves and Alpha would, therefore, have had no alternative but to charge Neptune’s list price for such valves. This is rather a surreal submission since we know what Mr Sule actually did, which was to pretend falsely that the valve had been discontinued altogether. Not surprisingly the judge held in paragraph 133 of his judgment that such reclassification would have been as much a sham as the alleged discontinuance. I can only say that, in the absence of any suggested reason for such reclassification, I entirely agree with the judge.

Grounds 1 – 6 of Neptune’s appeal will, therefore, be dismissed. Ground 7 succeeds to the extent that the judge’s conclusion that 12 months’ notice should have been given will be varied so as to declare that four months’ notice should have been given. Grounds 8 – 12 will be dismissed, save that the case will have to be remitted to the deputy judge or to another judge of the Queen’s Bench Division to assess the amount of profit that would have been earned during the 4 month period. We declined to hear argument on Ground 13 in relation to costs, until we had made our decision on the appropriate period of notice. If thought appropriate, we can entertain argument on this on handing down the judgment but, for my own part, I would have thought it more sensible that questions of costs should only be entertained when it is known for what monetary sum judgment is to be entered.

I agree.

I also agree