Under the Dutch Civil Code, parties to contracts may terminate their agreements by exercising certain statutory rights of termination. Dutch contract law knows both opzegging and ontbinding, both of which are routinely translated to English as “termination”. The right to “ontbinding” is always available unless contracted out. “Opzegging” should be a contractual right. Only in specific case “opzegging” can take place. A Dutch contract lawyer can advise on the possiblility of termination. Dutch Courts have set out more rules on termination some of which are very specific to the nature of the contract, like distribution or agency.
Netherlands law on termination of agreement
Sometimes it is not obvious which of these rights is executed, nor whether the intention is to effect an opzegging or an ontbinding. I will address the statutory right of termination an ontbinding due to a breach of contract. There are other ground for termination like fraud, misrepresentation, error or abuse or change of circumstances. These are not discussed in this blog. Otherwise please don’t hesitate to contact me to ask your question on this Dutch topic of law.
Contract termination due to default: ontbinding
Article 6:265(1) of the Dutch Civil Code provides parties to a contract with a statutory right to terminate a contract, even in the absence of a contractual right of termination. Article 6:265(1) relevantly provides as follows:
- Any breach by a party of any of its contractual obligations shall give the other party a discretion to completely or partially terminate the agreement for cause, unless the breach’s specific or insignificant nature does not justify such a termination and the legal effects thereof.
This statutory right can be modified, displaced or excluded by contractual provisions, however it is our view that the parties failed to do this in the Licence Agreements which, while they provide for their own specific termination mechanisms, are not worded in such a way as to cover the field to the exclusion of the default statutory mechanism. As such art. 6:265(1) of the Dutch Civil Code will usually be available as remedy legal relationship under Dutch law between the parties.
Anticipatory breach under Dutch law
Under Dutch law, in addition to cases of concrete breaches, a party may also invoke art. 6:265(1) in cases of anticipatory breach. There will be a case of anticipatory breach where the terminating party either concludes from a statement of the other party that the other party will not perform its obligations in conformity with the agreement (art. 6:80(1)(b)) or where it has other good cause to fear a lack of performance of the other party’s obligations in conformity with the agreement (in the case of the latter, subject to a written notice of default setting a reasonable deadline for confirmation of the other party’s willingness and ability to perform its obligations) (art. 6:80(1)(c)).
No termination clause in contract
So even in the absence of a contractual right of termination a party is able to invoke the statutory right of termination under art. 6:265(1), taken with art. 6:80(1)(b) of the Dutch Civil Code. Lacking contractual right of termination, a termination could be based on the statutory right of termination under art. 6:265 of the Dutch Civil Code. The fact that its letter of termination is relatively poorly drafted and does not clearly state the grounds for termination is not in and of itself sufficient to render it ineffective.
Undo transaction upon rescission of contract
In terms of the legal consequences of a termination by way of ontbinding as discussed above, we note that these are quite far-reaching. Under Dutch law, when a contract is ontbonden, this is similar (in practical terms) to a rescission in that the parties come under an obligation to “undo” the contract, returning any benefits received under the contract and, to the extent that this is impossible, compensating the other party for any performance which cannot be undone.
Expression of termination as acceptance of termination
The Dutch Supreme Court has held that a wrongful declaration of termination can also give rise to a valid termination where the parties’ subsequent conduct gives rise to an implied agreement to terminate the contract. In the event a terminations is legally invalid, an argument could be made that if the other party accepted the termination this gives rise to an agreement to terminate the agreement.