A foreign supplier fails to honor its agreements: late delivery, poor quality, sudden price increase, or refusal to deliver. In our practice, we advise Dutch importers who depend on such suppliers. A cover purchase under Section 75 of the CISG often offers a quick, legally strong route to limit damages and enable continued delivery to their own customers.
What is the legal problem?
Breach of contract by an international supplier requires a quick, legally substantiated response. A delayed response results in the loss of claims. Clumsy termination causes one's own breach of contract. Finding replacement suppliers costs time and money. Internationally, rules regarding cover purchases, damages, and evidence vary.
What does the law say?
Under CISG (Articles 45-52), the buyer has various remedies in the event of non-performance: performance (Article 46), replacement, repair, price reduction (Article 50), and rescission in the event of a fundamental breach (Article 49). Damages may be compensated, including lost profits, provided they are foreseeable (Article 74). Cover purchase under Article 75 CISG: damages are the difference between the contract price and the cover purchase price, provided reasonable conduct has taken place.
Under Dutch law, Article 6:74 of the Civil Code governs damages in the event of non-performance. Internationally, termination law may differ under local law; applicable law is decisive.
What risks do companies face?
Loss of customers due to production losses caused by delivery failures. Reputational damage when passing on costs to end customers. Problems with proof due to missing documentation. Loss of right to claim compensation in the event of a late complaint under Section 39 CISG. International proceedings are lengthy and costly. Total loss looms in the event of a supplier's bankruptcy. Lock-in with specialized suppliers makes switching expensive.
Practical example from our practice
We represented a Dutch company that faced an unannounced price increase of 40 percent by an Asian supplier. We first sent a notice of default under Section 6:82 of the Dutch Civil Code demanding payment of the original price. Upon refusal, a cover purchase followed from an alternative supplier (10 percent more expensive). The claim for damages for the difference under Section 75 CISG was awarded by the arbitrator. Early legal action and documented cover purchase provided an effective remedy.
What can you do?
Respond quickly with a notice of default under Section 6:82 of the Dutch Civil Code. Assess whether a fundamental breach applies under Section 25 of the CISG. Plan a cover purchase with documentation of prices under Section 75 of the CISG. Build up alternative suppliers to reduce dependency. Send a letter of termination in accordance with contractual and statutory requirements. Document damages carefully. For strategic suppliers: try mediation. See also our article on What are the consequences of breach of contract?