Every day, companies enter into contracts with each other for a short or longer period of time. In this way they give substance to a collaboration with which they can serve customers (even) better. Companies can work together on an equal basis or they can cast their cooperation in the form of a subcontract. Sometimes companies enter into a collaboration for an indefinite period of time, but they usually choose to work together for one or more years (or for the duration of a particular project). In the latter case, cooperation is for a fixed period of time. The way in which parties have shaped their collaboration often determines the way in which the collaboration can be terminated.
Ending a long-term contractual relationship
If during the cooperation there is a breach of trust (or there is a hitch in the cable for some other reason), the need may arise to terminate the contract. Ending the contractual relationship can have far-reaching consequences for both parties. The relationship with the customer may come under pressure and the financial consequences for (initially) the party with whom the relationship is terminated may be disastrous. A partnership cannot be terminated in all cases. And if it can, it must be done in a careful manner.
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The termination of a long-term contract
If the other party has made a mistake (also known as a ‘shortcoming’), the contract (usually a long-term contract) can be terminated by dissolution. This means that the partnership contract comes to an immediate end. A business partnership of many years is thereby brought to an acute standstill and the income for the party with whom the business relationship is terminated ceases almost immediately.
Therefore, the terminating party must be able to prove the existence of the other’s mistake. And the error must not be incidental or futile. As a matter of fact, it is up to the party who committed the wrong to show that the error (if it exists at all and can be proven) is incidental or futile. Without a mistake of sufficient weight, the contract cannot be terminated.
In addition, the terminating party must, in principle, give its contracting partner notice of default. A notice of default means that it must send a summons (also known as a ‘demand’), with which it offers its contractual partner a second (and last) chance to rectify the error within a reasonable amount of time. If the error is not rectified within that period, the contract can, in principle, be dissolved.
However, if there is no question of an error and the contract is dissolved anyway, this can be costly for the dissolving party. In that case it is often more difficult (but certainly not impossible) to end a fixed-term contract (or for the duration of a certain project) in the interim otherwise than by dissolution. Whether that is possible (for example, by giving notice) depends on the contractual agreements that the parties have made with each other beforehand. If interim termination is a possibility in that case, a notice period must usually be observed.
It is not unusual for the commercial relationship to be characterized in a legal sense as a commission contract (also know as ‘assignment contract’) or as a contract for work. In the first case, the emphasis is on the provision of certain services, in the second case on the realization of a material work (for example, the building of a house or the printing of brochures). Dutch law contains specific provisions for the termination of such contracts.
VIOTTA supports you in the termination of a long-term partnership
Have you and your company (subcontracted or otherwise) entered into a partnership with another company and are you considering terminating the partnership? Or are you actually faced with a termination? Then contact the specialists at VIOTTA Advocaten. Assisting companies with the termination of commercial relationships is right up our alley. Almost every day we assist clients in preventing or conducting proceedings regarding the termination of contracts with their business partners.
Also in the context of tenders. We litigate in ordinary courts (including appeals) in The Netherlands, but also before disciplinary tribunals and arbitrators in various types of arbitration proceedings. A legal assessment of the situation in advance can often prevent a lot of misery. If you have any questions or would like advice without any obligation, please feel free to contact Arnoud Fioole or Martijn Kesler. They will be happy to help you.
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VIOTTA is a law firm based in Amsterdam, specialising in providing advice in the areas of corporate law, mergers and acquisitions, contract law and corporate & commercial dispute resolution. We advise in transactional matters and litigate in commercial disputes. VIOTTA provides legal advice to its clients on Dutch corporate law matters, such as corporate governance, board structures, directors’ duties and liabilities, joint ventures and other collaborations. VIOTTA advises purchasers, sellers, management and other stakeholders in domestic and cross-border mergers and acquisitions (M&A).