Interim termination is the premature termination of an ongoing agreement, other than by the agreed end date or term. In our practice, we see that entrepreneurs often terminate too impulsively. An ill-considered termination can actually make you liable for damages. Under Dutch law and the Vienna Sales Convention, strict conditions apply to termination and dissolution. Whoever masters these can terminate without committing a breach of contract themselves.
What is the legal problem?
Interim termination can be based on breach of contract, termination, dissolution due to unforeseen circumstances, or contractual termination clauses. Different requirements and consequences apply to each ground. In the case of international contracts, time limits, notice of default, assessment of damages, and judicial intervention differ by country. A wrong step leads to unlawful termination and substantial damage claims.
What does the law say?
Under Dutch law, Article 6:265 of the Civil Code governs dissolution in the event of breach of contract. Article 6:82 of the Civil Code requires notice of default in the event of default. Article 6:83 of the Civil Code lists situations of default by operation of law. In the case of long-term contracts, termination requires a reasonable period and sometimes a compelling ground (Supreme Court Latour/De Bruijn, NJ 1998/172). For commercial agency agreements, Article 7:437 of the Civil Code applies, with mandatory notice periods.
The Vienna Sales Convention permits dissolution in the event of a fundamental breach under Article 25 of the CISG. In the case of a non-fundamental breach, a Nachfrist (additional period) is required under Article 47 of the CISG. The German Mahnung (Section 286 BGB) and the French mise en demeure (Article 1344 Code Civil) have comparable formal requirements.
What risks do companies face?
Unjustified termination makes you liable for damages. A notice of default given too late causes claims to lapse. Termination without a notice of default is impossible in many legal systems. Misjudging a notice period leads to an obligation to pay compensation. In the case of agency and distribution contracts, there is a risk of additional goodwill payments under Article 7:442 of the Dutch Civil Code. A wrong step can turn a workable relationship into an expensive legal battle.
Practical example from our practice
We advised a Dutch company that wanted to terminate a supply agreement with a German partner due to underperformance. The client wanted to terminate immediately. We initially advised a formal notice of default under Section 286 BGB with a reasonable period of 30 days. In the absence of a response, formal termination followed. The German partner subsequently claimed damages of 400,000 euros. The German court rejected this claim: due to the formal notice of default and reasonable period, the termination was lawful. Without the notice of default, the client would almost certainly have paid.
What can you do?
Read your contract and the applicable law before terminating. Send a documented notice of default under Section 6:82 BW (or equivalent) with a reasonable period. Use written notices of termination with clear grounds. Take into account mandatory law for long-term contracts, agency (Section 7:437 BW), and distribution. Document shortcomings carefully. See also our article on Termination of long-term contracts.