Termination of a continuing performance contract lawyer advises
Continuing performance contracts are contracts such as distribution and franchise contracts. Nothing is regulated by law regarding the termination thereof. When parties decide not to set out any rules regarding the termination of the agreement in their agreements, is it then even possible to terminate the agreement?
What is a continuing performance contract?
A continuing performance contract is characterized by the long trade relationship that the parties enter into with each other. A continuing performance contract can be concluded for a definite period and for an indefinite period. Fixed-term contracts generally end at the end of the last date. In addition, continuing performance contracts can be concluded for a fixed period of time. This is different for a permanent contract for an indefinite period and without a cancellation scheme. A continuing performance contract for an indefinite period can in principle be terminated. It is important that the greater the interest of the terminated party in the continuation of the agreement, the more the terminating party is deemed to take this into account.
Compensation for damages on continuing performance contracts
A terminating party must offer compensation in certain circumstances. These circumstances may include:
– Distributor exclusivity;
– The respected notice period.
– Investments made on the instructions of the supplier that cannot be recouped;
– Whether there is a substantial reason for cancellation
Although cancellation is possible in principle (whether or not by observing a notice period and/ or offering compensation), the circumstances may require that there must also be a substantial ground. This may be the case if the terminated party suffers financial loss, for example because it is not possible to recoup investments made (which were made on the instruction of the other party).
Considerable substantial grounds for the terminating party may include: default of the terminated party, force majeure or changed strategy.
Notice period of a continuing performance contract
A reasonable notice period must be observed when terminating a continuing performance agreement. For example, when a party has invested a lot of money and time it will be regarded as unreasonable if a termination notice is not observed. The duration of the agreement plays a role in determining the notice period. The dependency relationship of the terminated party often plays a major role. A notice period gives the other party time to find a new source of income.
Offer for compensation
Payment of compensation usually takes place if the agreement has been terminated in a valid manner, but for example the notice period does not sufficiently compensate the interests of the terminated party. Due to the mutual interests in a long trading relationship, it is hardly ever the case that the notice period is eventually extended. The relationship is usually disrupted by the cancellation alone.
Lawyer specialized in terminations of continuing performance contracts
If you have any questions about entering into a new continuing performance contract, or if you wish to terminate a closed continuing performance contract, please feel free to contact lawyer mr. Lisa Jie Sam. Foek.