Termination of Dutch distribution or agency contract
Category: Distribution agreements
How is a distribution agreement concluded under Dutch law? A distribution agreement is a contract concluded between a supplier and distributor of goods. The supplier is usually a manufacturer in one region, although in some cases it may be a distributor reselling other goods. Because the movement of goods is often crosses numerous border-lines, distribution agreements are crucial in determining first and foremost how the cross-border commercial relationship will be conducted. The distribution agreement governs aspects such as exclusivity, price and payment and termination. Because there are no specific rules under Dutch law governing distribution contracts, they fall under the general scope of the Dutch Civil Code (DCC). Therefore termination is governed by both relevant provisions of the DCC and Dutch case law.
Termination of distribution contract in the Netherlands
Most often, the distribution contracts contain a clause which will govern the method of termination, explaining under what circumstances it may be terminated by each of the parties. The general rule provides that any party may terminate the contract by reason of a sufficiently serious breach of contract of one of the parties. This is, however, a high threshold to prove before the Dutch courts. Additionally, Dutch law makes a clear distinction between termination of a contract concluded for a fixed time period and for contracts concluded for an indefinite time period. A principal may also wish to end a contract because of another reason, not being an default of the distributor.
Termination a fixed-term Dutch contract
Dutch case law (Mondia v Calanda [1988]) has established that a contract concluded for a fixed time period which does not contain a termination clause, will not be allowed termination by a court, except in the instance of unforeseen circumstances which would justify its termination. Dutch courts maintain the general principle that a distribution contract, which does not provide for a termination clause may be terminated, however it must comply with principles of reasonableness and fairness (Gemeente De Ronde Venen v SNU & Stedin). Citing its judgment in this case, the Dutch Supreme Court considered in Auping/Beverslaap that contracts concluded for an indefinite time period may be terminated, but extended the notion of reasonable and fairness to consider the nature and content of the agreement and the circumstances of the case. Upon these considerations, termination is still only possible if there is a sufficiently serious ground for termination. In deciding whether or not termination complies with reasonableness and fairness, courts may consider if there is a heavy-weighing reason for termination, if a reasonable notice period has been provided or examine if compensation has been offered by the terminating party. The Dutch courts may take into account the level of a party’s dependence on the contract and how long business has been conducted between the two parties.
Notice period for terminating Dutch contract
Termination of an established commercial relationship does not merely require there to be sufficiently serious grounds, but these circumstances, in accordance with reasonableness and fairness, might additionally entail that a longer period of time must be respected or that a notice must be accompanied with the offer of payment of (damage) compensation (Auping/Beverslaap). The determination of a notice period is, however, less concrete than deciding whether the termination is serious enough. This is due as a wide array of circumstances are considered by the Dutch courts in determining whether the notice period was reasonable. The courts may consider whether there was opportunity to earn back long-term investments, the possibility for the distributor to continue its business with a new manufacturer or consider the overall nature of the agreement itself. Dutch courts are therefore very clear that termination on solely sufficient serious grounds for a relationship between two commercial parties will not be permitted.
Termination without going to Dutch Court
Being long term partners can be the reason the work out a proper termination agreement. Out firm has been succesfull in negotiating proper termination agreement taking into account the legal framework in the Netherlands. Settling may be preferable an saves cost of Dutch proceedings. However if that’s not possible we’re happy to take you case to Court. We can fill you in on the nature Dutch of the Dutch Court Procedure and cost costs of Dutch proceedings.
Advice Dutch attorney on business contracts governed by Dutch law
The process of terminating a long term Dutch contract, like distribution or agency, especially one concluded for an indefinite time period, can be a complex process. Therefore we advise you to contact a lawyer before concluding a distribution contract. If you have any questions about a distribution contract governed by Dutch law, please do not hesitate to contact from Blenheim Attorneys in Amsterdam. We provide assistance for an array of issues regarding distribution agreements in the instance that Dutch law is applicable. Feel free to contact Mark van Weeren to assist you in assessing the agreement, drafting a distribution contract or provide assistance in terminating the distribution contract.