THE CONTINUING OBLIGATION WITH A DUTCH TRADING PARTNER
Trading partners often do not only conclude a purchase contract or an agreement for the provision of services aimed at a single transaction. The parties usually seek a longer-term cooperation and, in addition to the underlying sales contracts, enter into a continuing obligation. In law, a continuing obligation under Dutch law is an obligation that is directed towards recurring performance and consideration over a longer period of time. A long-term contract is interpreted differently under Dutch law than under English law. It is important to take this into account. Our English lawyers in the Netherlands regularly advise and litigate on this issue.
DEBT RELATIONSHIPS AND CONTINUING OBLIGATIONS
With a continuing performance agreement, the parties have committed themselves to a continuous performance over a longer period of time, e.g. by means of an agency agreement, a franchise agreement or a distribution agreement. When entering into or terminating a continuing obligation with a partner in the Netherlands, you should seek advice on the Dutch legal framework.
As in English law, a distinction is made in the Netherlands between simple obligations and continuing obligations. Since the subject of a continuing obligation is a recurring performance, there are some differences to simple obligations that you should know when entering into a continuing obligation. In the following blog, our lawyers explain in particular what a continuing obligation is under Dutch law and how they can be terminated.
CONTINUING OBLIGATIONS IN HOLLAND
A continuing obligation is to be distinguished from an ordinary contract of sale or a contract for work and services. While these contracts are about a one-time performance, a continuing obligation is about a recurring and permanent performance over a longer period of time. Although a contract of sale can also be concluded for recurring performance, in which case it would be a continuing obligation, in this example we will assume the ordinary contract of sale, in which the seller owes the buyer the transfer of ownership of an object and the buyer has to pay the seller the purchase price for this object. A continuing obligation is not only about the performance of services. Rather, the object of the continuing obligation can also be acquiescence or omission. As a rule, however, it is about the permanent provision of a service.
Examples of a continuing obligation are tenancy agreements, lease agreements, loan agreements or insurance contracts, since these contracts have as their object a recurring performance.
FIXED-TERM AND OPEN-ENDED CONTINUING OBLIGATIONS
A distinction is also made between fixed-term and open-ended continuing obligations. In the case of a fixed-term continuing obligation, the term is included in the contract so that the contract ends on a certain date. In this case, it is possible not to include a notice of termination in the contract, as the contract cannot be terminated before the end of the specified term. An example is the conclusion of a sublease: if the subtenant enters into a lease for one year, it can be included in the contract that he cannot terminate the sublease before the end of this period.
TERMINATION OF INDEFINITE CONTINUING OBLIGATIONS
In the case of a continuing obligation of indefinite duration, however, the termination is different. As a rule, a notice period must be observed in this case in order to be able to terminate the contract properly.
The Dutch Code contains provisions on termination options for certain types of continuing obligations, such as employment contracts or tenancy agreements. However, there are also continuing obligations that are not regulated in the Dutch Code. These include, for example, the distribution agreement or the licence agreement. Accordingly, the law does not contain any provisions on termination that could be invoked.
In principle, a continuing obligation of indefinite duration can only be terminated if there is a serious reason so that it is unreasonable for the parties to adhere to the contract.
However, the Dutch Supreme Court (Hoge Raad) ruled in 2011 that continuing obligations can in principle be terminated. The court ruled that there does not always have to be a serious reason to be able to terminate a continuing obligation. Rather, the principle of reasonableness and fairness should also be considered in order to assess whether it is still reasonable to adhere to the respective continuing obligation and whether termination is possible. It is important that the interests of the parties are weighed against each other. Elements that could play a role in the weighing are, besides financial reasons, the continuing business relationship between the parties. In the case of termination, it is therefore not possible to fall back on statutory provisions, so as a rule it can only be decided on a case-by-case basis whether termination of a continuing obligation is possible.
DUTCH LAWYER SPECIALISED IN CONTRACT LAW
Do you have questions about Dutch contract law or do you need specific legal advice in Holland about the termination of continuing obligations under Dutch law? Our experienced English-speaking specialist lawyers in Amsterdam will be happy to help you.