A lesson on why written agreements are always best - the Court of Appeal case of Zymurgorium Ltd v Hammonds of Knutsford PLC

A recent Court of Appeal judgement re-iterated the importance of entering into formal written agreements. Whilst oral agreements can be enforceable under English law, the Court of Appeal case of Zymurgorium Ltd v Hammonds of Knutsford PLC [S023] EWCA Civ 52 reinforces the argument that written is always best.

The Facts
 
The initial High Court dispute concerned the breakdown of a commercial relationship between the claimant, Zymurgorium Ltd (" Zymurgorium") a drinks manufacturer and the defendant, Hammonds of Knutsford Plc ("Hammonds") a drinks wholesaler. Since 2015, Hammonds had acted as Zymurgorium's wholesaler but in late 2018 the relationship came to an end following Hammonds' discovery that Zymurgorium had started supplying directly to J D Wetherspoon ("JDW").
 
Following the breakdown of the relationship, Zymurgorium made a claim against Hammonds for unpaid invoices plus interest and Hammonds subsequently made a counterclaim for damages for breach of contract. Hammonds argued that whilst there was no written exclusivity provisions between the parties, there were several oral contracts and/or related contracts between the parties.

High Court judgement
 
Following careful consideration, on 13 August 2021, Judge HHJ Pearce gave his judgement. In summary, the invoices had been resolved between the parties and so he only had to decide if there was a question of interest, against which there was no appeal.
 
With respect to the counterclaim, Judge Pearce rejected the case that there was an overarching or master wholesaler agreement between the parties, but found that there were individual contracts in relation to five particular customers, including JDW. By supplying JDW other than through Hammonds, Zymurgorium had acted in repudiatory breach of that contract and renounced the others. Judge Pearce held that a reasonable notice period for these contracts was three months, and that Zymurgorium was therefore liable for damages for breach of those five contracts for that period.
 
Court of Appeal judgment
 
Hammonds and Zymurgorium both appealed the decision of the High Court.
 
Hammonds appealed against the conclusion that there was no master wholesaler agreement and Judge Pearce's determination of three months' notice period of termination being a reasonable notice period.  Zymurgorium cross-appealed against Judge Pearce's decision that by supplying directly to JDW, the remaining four individual agreements were renounced.
 
Hammonds' appeal was dismissed on the following grounds:

• in respect of the argument whether the meeting between the parties amounted to the agreement of a master wholesaler agreement, the Court of Appeal found that even though the parties intended there to be a commercial relationship with legally enforceable obligations on each side, this was only contained within the purchase orders rather than a master wholesaler agreement made during the meeting; and
• in respect of the argument which related to the three month notice period of the individual contracts, the Court of Appeal upheld the implied notice period and dismissed Zymurgorium's argument that a longer period of notice should apply since the drinks market is recurrent and so it would take longer to clear the stock following the Christmas season.

 
The cross-appeal brought by Zymurgorium was also dismissed. Whilst the Court of Appeal acknowledged that Judge Pearce's reasoning could have been set out more fully, he was entitled to reach the conclusion that he did since Zymurgorium was clearly acting as though they were free to supply directly to customers without even notifying Hammonds, as it did when Zymurgorium supplied to JDW.
 
Takeaways
 
Following both judgements, we should take-away the following lessons:
 

• Even though it might not always be practical, at the very outset of an arrangement, a formal written agreement setting out the terms is always the best and safest option. Hammonds had initially argued that a master wholesaler agreement was in existence during the initial meetings between the parties and such agreement included an express term of exclusivity. However, the judge did not agree that emails between the parties directly after a meeting amounted to an exclusivity agreement. If for any reason you can't enter into a formal agreement, as a minimum, you should follow up any such meetings with a clear summary of the agreement terms and request that the other party accepts such terms in writing.
• Particularly with these type of supplier arrangements, you should formalise in writing any exclusivity and notice periods for breach of contract so as to avoid the Court having to decide what these terms should be. In this case, the Court held that a three month notice of termination was appropriate.
• Care should be taken to outline how a framework agreement and any correlating individual agreements operate. In this case, the Court concluded that there was no framework agreement but there were individual agreements which Hammonds could rely on even though these agreements were oral. Zymurgorium would have benefitted from a written agreement which outlined that breach of one of the individual agreements would not mean a breach of all the remaining individual agreements. 

If you would like to know more about this topic, or for any advice, please contact Sara Stewart or your usual contact in Fieldfisher's Commercial Team.