Late delivery can have significant consequences: lost profits, loss of customers, and production downtime. In our practice, we see that delay disputes depend heavily on whether the parties have agreed on 'time of the essence'. Under CISG, the Nachfrist mechanism applies; under English law, an express clause regarding strict time is essential. The right penalty clause makes the difference between the burden of proof and automatic compensation.
What is the legal problem?
Delays can be caused by force majeure, supplier issues, transport, or customs. Not every delay entitles the party to damages. Without a fixed delivery date or liquidated damages clause, damages must be proven. Internationally, rules regarding notice of default, reasonable time, and additional time vary. An awkward response undermines rights or causes a breach of contract itself.
What does the law say?
Under CISG, the buyer can set an additional time limit (Nachfrist) under Section 47. In the event of a fundamental breach, direct dissolution is possible under Section 25. Compensation for damages is limited by foreseeability under Section 74. Under Dutch law, default occurs after notice of default with a reasonable period under Section 6:82 BW. Under English law, time of the essence is crucial: in the case of time of the essence, delay is a direct fundamental breach under Bunge v Tradax (1981).
Specific transport contracts are subject to CMR (1956), The Hague-Visby Rules, and the Montreal Convention 1999, with their own time limits.
What risks do companies face?
Requirements for notice of default lack rights. Incorrect application of a fundamental breach leads to counterclaims. Non-measurable delay damages are often rejected. Without a liquidated damages clause, damages must be fully proven under Article 6:74 of the Dutch Civil Code. In the event of force majeure under Article 6:75 of the Dutch Civil Code, the right to claim lapses. Clumsy termination without grounds leads to personal liability.
Practical example from our practice
We represented a Dutch customer who was delivered six weeks late by an Italian manufacturer. The contract contained a penalty of 10,000 euros per week of delay, up to a maximum of 500,000 euros. Under CISG and Dutch law, the liquidated damages clause is enforceable under Article 6:91 of the Dutch Civil Code. The client received 60,000 euros without the burden of proof of actual damages. Without a penalty clause, the purchaser would have had to litigate for months with an uncertain outcome.
What can you do?
Clearly define delivery periods with a definition of late delivery. Incorporate a penalty clause or liquidated damages clause under Article 6:91 of the Dutch Civil Code. Agree on the consequences of delay in advance. Send a notice of default immediately upon a missed deadline under Article 6:82 of the Dutch Civil Code. Document damages and correspondence. For force majeure: request proof under Article 6:75 of the Dutch Civil Code. See also our article on Penalty Clauses in International Contracts.