Termination of agreements of long duration
Written by:
Hein Kernkamp
Cancellation of Agreements in the Netherlands
Many business partners have been working together for years. Sometimes based on a written agreement, sometimes based on oral agreements and mutual trust. But in all cases there may come a time when one of the parties wants to end the cooperation. In the Louis Latour / De Bruijn judgment of the Supreme Court of the Netherlands of 3 December 1999, the parties had been doing business with each other continuously since 1892. The Supreme Court of the Netherlands ruled that this agreement could not simply be canceled. In the Mattel / Borka judgment of the Supreme Court of 21 June 1991, it was decided that the rules of reasonableness and fairness could lead to the award of compensation to be paid by the principal, even if the notice period was observed. In this case, the distributor had made significant investments that had not yet been recovered.
More recently, on 2 February 2018, in the Goglio / SQM Group judgment, the Supreme Court of the Netherlands formulated a very precise step-by-step plan with regard to the termination of continuing performance contracts. This step-by-step plan goes as follows.
Step 1 Cancellation
Whether and, if so, under what conditions a continuing performance contract that has been entered into for an indefinite period of time can be canceled, is determined by its content and by the applicable legal provisions.
Step 2 Agreements can in principle be canceled
If the law and the agreement do not provide for a regulation of the cancellation, the agreement can in principle be terminated. Based on art. 6: 248, paragraph 1 of the Dutch Civil Code the requirements of reasonableness and fairness in connection with the nature and content of the agreement and the circumstances of the case may entail that cancellation is only possible if there is a sufficiently compelling reason to do so. These requirements may also, in connection with the nature and content of the agreement and the circumstances of the case, entail that a certain cancellation period must be observed or that the cancellation must be accompanied by the offer to pay compensation.
Step 3 Further requirements
Even if the law or a continuing performance contract provides for a regulation of termination, if the law and what has been agreed between the parties leave room for it, the requirements of reasonableness and fairness in connection with the nature and content of the agreement and the circumstances of the case based on art. 6: 248 paragraph 1 of the Dutch Civil Code may entail that further requirements are set for cancellation.
Step 4 Cancellation may be unacceptable
An appeal cancellation of the agreement may be unacceptable under circumstances of reasonableness and fairness as described in 6: 248 paragraph 2 of the Dutch Civil Code.
Step 5 The agreement that cannot be canceled by the parties' intention
It is possible that a continuing performance contract concluded for an indefinite period of time cannot be terminated as this is the intention of the parties. The other party of the person who invokes the non-cancellability can nevertheless terminate the contract under certain circumstances, by invoking the reasonableness and fairness, or by asking the court to change the legal effects of the agreement. This is exceptional, but it is a possibility.
Application in practice
In many cases, an agreement can simply be canceled in accordance with the agreed provisions. But the Supreme Court has left very specific room for special cases. In those special cases, there may be an obligation to observe a longer cancellation period than initially thought or compensation must be paid in the event of cancellation. And then there are the agreements that can in principle be canceled, but cannot be canceled, and agreements that cannot be canceled in principle, but can still be canceled. In short, the circumstances of the case matter. In standard cases, the agreement will simply be leading, but if there are special circumstances, then it is wise to seek legal advice. We are happy to discuss your case with you on the basis of the latest insights.
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