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19 Mar 2024 Termination of a long-term contract

The 's-Hertogenbosch Court of Appeal recently had to rule in a case in which, after a long and intensive cooperation between the parties, the contract was terminated subject to the agreed one-month notice period. Was this considered reasonable by the court?

The facts
Two transport companies, focused on home parcel delivery, transported parcels on behalf of freight forwarder DPD since 2008 and 2011. In that context, several framework agreements had been concluded between the parties. The last agreements dated from December 2012 and January 2013.

The agreements included the following provisions:
The Agreement shall be entered into for the term of one year and shall thereafter each time be tacitly renewed each time for a term of one year. Both the Freight Forwarder and the Contractor may terminate the Agreement. Termination shall be in writing by the end of the month and with a notice period of one month."

In November 2018, DPD informed both transport companies by telephone that
the agreements were terminated subject to one month's notice. Emails dated 28 and 30 November 2018 confirmed the termination by 1 January 2019. Despite email correspondence requesting DPD to reconsider the decision to terminate, DPD persisted with this decision. On 31 December 2018, the last orders were issued by DPD.

DPD was subsequently summoned to summary proceedings. Primarily, the claim was that the termination should be reversed and DPD should be ordered to honour the contracts. Alternatively, DPD was ordered to attach a longer notice period to the termination and, in the further alternative, to order DPD to pay an advance on damages. The claims were dismissed by the interim relief judge.

The two transport companies subsequently commenced proceedings on the merits before the court, in which they claimed substantial damages consisting of, among other things, wage costs and amounts for redundancy payments, termination of rental agreements for delivery vans, recruitment costs for drivers, mobile phone costs and salary costs of the director. The court also rejected the transport companies' claims following which an appeal was lodged.

Position of the transport companies
The transport companies' primary position was that the notice of termination should have been subject to further requirements based on the additional effect of reasonableness and fairness (Section 6:248(1) of the Dutch Civil Code), in the sense that a longer notice period should have been attached to the notice of termination. According to the transport companies, the shortcoming in the manner of termination translated into an obligation for DPD to pay damages. In the alternative, the position was taken that the termination was unacceptable by the standards of the restrictive effect of reasonableness and fairness (Section 6:248(2) of the Civil Code). According to the transport companies, this also obliged DPD to pay for the damages caused by this.

Assessment of the Court of Appeal
It was established that a contractual relationship had existed between the parties for several years on the basis of which parcels were delivered by order of DPD. According to the Court of Appeal, it was reasonable to regard the contractual relationship between the parties as a continuing performance contract. Given the manner in which the parties gave effect to the agreements, they had apparently intended it to be so.

In its judgment of 2 February 2018 (ECLI:NL:HR:2018:141 (Goglio/SMQ Group)), the Supreme Court, referring to its judgment of 10 June 2016 (ECLI:NL:HR:2016:1134 (Alcatel-Lucent)), set out the rules on the terminability or non-cancellability of continuing performance contracts. In so far as relevant in the present case, the following applies. If a continuing performance contract provides for a regulation on termination, if the law and what has been agreed between the parties leave room for this, the requirements of reasonableness and fairness in connection with the nature and content of the contract and the circumstances of the case may, pursuant to Article 6:248(1) of the Dutch Civil Code, imply that further requirements are imposed on the termination. The requirements of reasonableness and fairness may imply that termination is only possible if a sufficiently serious ground for termination exists, a certain notice period is observed or that the termination is accompanied by an offer to pay compensation (for damages). Under Article 6:248(2) of the Civil Code, a reliance on a contractual power to terminate the contract may under circumstances be unacceptable according to standards of reasonableness and fairness.To that extent, reasonableness and fairness function as a corrective mechanism to the principle of freedom of contract.

There is room for the additional effect of reasonableness and fairness on the basis of Section 6:248 (1) of the DCC if an agreement contains a loophole with regard to a certain subject matter, such as in this case: the contractual termination arrangement. Whether the agreement contains a gap must be determined by interpretation of the agreement.

According to the court, it did not follow from the termination regime contained in the contracts under what circumstances the contracts could be terminated. There were no requirements for termination, other than that termination had to be in writing and with one month's notice.

It was established that the scope of cooperation between the parties had expanded over time. In view of this substantial expansion of the cooperation since the beginning of the cooperation in 2008 and 2011 respectively, in the court's opinion it would have been in the parties' power to review the agreements and, if necessary, adapt them to the changed circumstances. Adaptation of the termination arrangement to the changed circumstances since the start of the cooperation would therefore have been reasonable and to that extent, according to the court of appeal, there was a gap in the agreements.

The Court of Appeal ultimately ruled that against the background of the long-term, in the course of the years greatly intensified cooperation between the parties, the way in which the parties implemented the cooperation, the reasonable expectations the transport companies had created as a result and the dependence of the transport companies on the turnover to be realised with DPD's assignments, DPD, by observing a notice period of one month, had insufficiently met the transport companies' justified interest in giving notice at a longer notice period.

This interest in giving notice at a longer notice period lay in the fact that, also in view of their dependence on DPD, they could not or could hardly adapt their business operations at a notice period of one month to the unforeseen disappearance of DPD as a client at such short notice, for instance by looking for other clients and in order to keep their drivers and delivery vans working/driving. DPD had indicated that its interest in terminating the cooperation on one month's notice was based on the argument that the quality of the transport companies' execution of orders 'would not improve' after termination. A longer notice period would therefore have been detrimental to DPD. The Court of Appeal found that DPD's interest in giving notice in accordance with the notice period provided for in the agreements was less important than the interest of the transport companies, which affected the continuity of their businesses, in giving notice at a somewhat longer notice than one month.

Reasonable notice period
Reasonableness and fairness therefore implied that DPD should have observed a longer notice period. This applies even if notice periods - as DPD argued - are by their nature not intended to prevent the terminated party from suffering any disadvantage as a result of the termination. To that extent, a correction to the notice provisions in the contracts was justified. The court considered a three-month notice period towards one transport company and a two-month notice period towards the other to be reasonable.

Claim compensation
The above meant that DPD had imputably failed by terminating the contracts with one month's notice towards the transport companies in accordance with the notice scheme. On the basis of this culpable breach, they were entitled to claim compensation for the loss resulting for them (Section 6:74 of the Civil Code).

The basic principle of compensation law is that the injured party must, as far as possible, be put in the position he would have been in if the event causing the damage had not occurred (Hoge Raad 5 December 2008, ECLI:NL:HR:2008:BE9998). The extent of the damage is therefore determined by comparing the condition as it is in reality with the condition as it would (presumably) have been if the damaging event had not occurred (Hoge Raad 26 March 2010, ECLI:NL:HR:2010:BL0539).

As the transport companies had not based their claim for damages on this required equity equation, but on an enumeration of costs that, according to the transport companies, resulted from the one-month notice, the court did not have sufficient information to estimate the damages (Section 6:97 of the Civil Code). The parties were therefore referred to the damage assessment procedure to estimate the damages.

It is therefore advisable, in the case of a long-term and intensive cooperation between the parties where the work is expanded, to review the contract and, if necessary, adjust it to the changed circumstances. Otherwise, you run the risk that termination can only take place if a sufficiently compelling reason exists, that a longer notice period must be used, or that the termination must be accompanied by an offer to pay compensation (for damages).

Do you have questions about terminating an agreement or would you like advice? Then contact one of our lawyers without obligation. We will be happy to assist you!

SPEE advocaten & mediation Maastricht


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