Termination of a distribution agreement in the Netherlands
If you wish to terminate a continuing performance contract (e.g. a distribution agreement) in The Netherlands, some special rules may apply. It can happen that a contract party will be ordered by court to continue a contract even though he has terminated it in accordance with the applicable terms. Marco Guit, lawyer specialized in Dutch contract law, discusses recent case law.
First lawsuit: distributor demands new contract
In this case the distributor, owner of a shop in beds and mattresses, had a long-lasting distribution relationship with mattress manufacturer Auping. When Auping decides to end the distribution contract, the distributor starts preliminary relief proceedings and demands that Auping is ordered to offer a new distribution agreement. This claim is awarded and parties enter into a new contract. This new contract has a limited term, only running till 1 August 2013, and will end automatically after this term.
Second lawsuit: continuing distribution relationship
In May 2013 Auping notifies the distributor that they have no interest in a new agreement after the current one ends. The solicitor of the distributor files a new lawsuit (in summary proceedings) against Auping. He demands for the second time that the distribution relationship will be continued to exist after 1 August 2013 by ordering Auping to again offer the distributor a new contract. The distributor argues that the termination is invalid because Auping lacks substantial interest.
Termination of contract ipso jure
The interim relief judge considers that Auping does not terminate the agreement. As the contract was concluded for a set period of time only, the contract just ended ipso jure (automatically) after this term. Besides, when parties entered into this new contract, all earlier agreements ceased to be valid. The judge therefore denies the claims of the distributor.
Reasonableness and fairness when ending long-lasting business relationship
In general, all continuing performance agreements can be terminated early. Often the possibility and terms of interim termination are specified in the contract. A judge may, however, set aside an otherwise valid notice of termination when he considers the termination to be in conflict with the criteria of reasonableness and fairness. Whether this is the case, depends on the circumstances. When a termination has severe and unfair implications for the other party, the party who wishes to terminate needs to have substantial interest in ending the relationship. Sometimes a judge allows a party to terminate a longstanding contractual relationship under the condition that the other party gets compensated for unfair losses.
AMS: Dutch lawyers for advice on distribution agreements
Are you confronted with a termination of your long-lasting business relationship? Or are you considering terminating one but not sure if you are allowed? Please feel free to contact our office for further advice.