Court of Appeal rules 3.5 months ‘reasonable’ notice for termination of near 40-year distribution agreement

Court of Appeal rules 3.5 months ‘reasonable’ notice for termination of near 40-year distribution agreement

NASSAU, BAHAMAS — The Court of Appeal has ruled that three and a half months was a ‘reasonable’ notice period for American beer manufacturer Anheuser-Busch to give Commonwealth Brewery before terminating its nearly 40-year distribution agreement, setting aside an earlier Supreme Court decision in the brewery’s favor.

Anheuser-Busch—the Budweiser manufacturer—had appealed a May 2022 judge’s decision that the company did not give reasonable notice to Commonwealth Brewery before terminating the distribution agreement on December 1, 2015. In that decision, it was also noted that in the circumstances, 15 months’ notice before termination was reasonable, with damages being awarded to Commonwealth Brewery.

 Anheuser-Busch and Commonwealth Brewery Ltd, the successor to Burns House Ltd, entered into an informal and unwritten distribution agreement in 1975, whereby the brewery distributed ABI’s beer products in the Bahamas.

According to the evidence presented in the case, over 40 years, Commonwealth Brewery met its obligations, “allocating significant resources, including a $250,000 letter of credit, a senior brand manager, and a team of employees to fulfill its obligations under the agreement.”

In August 2015, Anheuser-Busch unexpectedly terminated the agreement, citing a business decision unrelated to Commonwealth Brewery’s performance, and provided a notice period of only three months. However, it subsequently extended the notice period by one additional month. Commonwealth Brewery had contended that the reasonable notice period should have spanned 3.5 years, considering the longstanding nature of the agreement. 

Anheuser-Busch subsequently entered into a distribution agreement with Freeport-based Bahamian brewery, the Sands Beer manufacturer.

Commonwealth Brewery brought a wrongful termination claim against Anheuser-Busch, seeking damages amounting to $145,000 for marketing expenses and $2.3 million for lost profits. Anheuser, however, countered with a lawsuit seeking payment of unpaid invoices totaling $598,000. Commonwealth Brewery counterclaimed, alleging that the abbreviated notice period constituted a breach of contract. It further contended that ABI breached an implied duty of good faith by assigning the agreement to its subsidiary.

The Court of Appeal, while ruling in favor of Anheuser Busch, noted that three and a half months’ notice was within the range of reasonableness and that the Missouri-based company was not in breach of the distribution agreement.