Termination of Warehousing Contracts

Warehousing capacity in the UK is currently very limited. The demand for storage space is significantly outstripping supply. Unsurprisingly given current market conditions this has led to a significant increase in the number of contract terminations by storage providers as unprofitable longer term arrangements are ushered out in favour of immediately available and potentially more profitable business.

Termination without reasonable notice can have a devastating impact on supply chains, particularly where, as in the current market, immediate like for like capacity may be limited elsewhere. Reasonable notice of termination allows for an orderly transition when one party wants to end the contract.

When can a warehouse contract be terminated?

Many storage contracts will be subject to express contractual terms dealing with termination and will provide clearly for what notice period must be complied with if one party invokes the termination clause. Such provisions may well also detail the implications arising from such termination. This promotes stability and certainty for the immediate contracting parties and in the wider supply chain.

These terms may be individually negotiated or may be found within the standard terms and conditions pursuant to which the warehouse trades. Assuming these have been incorporated correctly into the contract these terms will make provision for termination. For instance, the United Kingdom Warehousing Association standard terms confer on the Company the right to terminate at any time by providing written notice to the customer requiring removal of goods within 14 days (or in the case of perishable goods within 3 days).

Assuming neither party is in breach of contract and absent any specific contractual term which deals expressly with termination the parties will be required to fall back on common law principles as developed in case law.

What constitutes reasonable notice?

The Courts have the power to imply into a contract the right to terminate by either party on provision of reasonable notice. This gives rise to the question of what constitutes reasonable notice.

In determining what is reasonable the Court will apply five principles (derived from the case of Hamsard 3147 Ltd (t/a Mini Mode Childrenswear) v Boots UK Ltd [2013] EWHC 3251):

1.    Each decision turns on its own facts and specific circumstances of each case. Previous cases are of limited assistance

2.    General circumstances and practices of the trade may be relevant in determining what the parties may have agreed to as ‘reasonable notice’

3.    What is reasonable notice is to be judged as at the time the notice is given. For instance, and pertinently in light of prevailing capacity issues, the Court will look carefully at alternative available arrangements, the time frames for implementing any alternative arrangements and the financial reliance each party has on the other. The wider supply chain and pre-exisiting trading and business commitments to customers will be additional factors considered

4.    The circumstances existing at the time the contract was entered into are relevant to determining the common purpose of the parties. Implying reasonable notice into a contract is intended to give effect to that common purpose

5.    The formality of the relationship. The more relaxed or ad hoc the arrangements are the less likely the Court will impose a lengthy notice period. Equally if the parties to a fixed term contract have included other provisions for termination but not covered termination on notice the Court may be less inclined to intervene than a longer term contract which is otherwise silent on termination and has no other mechanism for bringing the contract to a conclusion.

The Courts will adopt a commercial approach in applying the law to these questions. However, prevention is always better than cure and the key, as ever, is to ensure wherever possible that the parties’ intentions are expressly and clearly stipulated in advance in the contract to avoid later disputes.