There are no mandatory rules for Dutch distribution contracts. Distribution contracts are governed by the general provisions of Dutch contract law. Parties must take notice of the principles of reasonableness and fairness (redelijkheid en billijkheid). For the majority, parties are free to determine the terms of a distribution contract.
What does the termination of distribution agreements in the Netherlands entail?
Ways to end distribution contracts in the Netherlands
– Expiry of distribution agreements
If a distribution contract runs for a fixed term or a specific project, it automatically expires at completion of the project or at the expiry date. The guiding principle is that no notice is required and neither party is entitled to compensation.
– Termination by mutual consent
Parties are always free to end the distribution agreement when the agree upon the terms of termination of the distribution agreement.
– Termination by rescission of the distribution contract
Dutch law stipulates that a party may rescind a contract in the event of a breach by the other party, unless the breach does not justify the rescission of the contract and its consequences.. As long as parties have not agreed to exclude this right, parties are free to rescind the distribution contract.
It is important to mention that rescission is only possible in case of a breach by the other party (which breach hasn’t been cured).
Termination of distribution contracts by giving notice
When a distribution agreement runs for a fixed term and the contract doesn’t contain a clause of early termination, it cannot be terminated early by giving notice.
How is the termination of distribution contracts by giving notice regulated?
Distribution agreements closed for an indefinite period of time, can in principle be terminated.
The principles of reasonableness and fairness in connection with the nature and content of the distribution agreement can lead to the consequence that termination is only possible in case of compelling reasons. In determining whether compelling reasons are required, a court must not only take into consideration the (detrimental) consequences of the termination for the non-terminating party, but also circumstances that are relevant for the terminating party.
Given the principles of reasonableness and fairness, courts may consider if there is a compelling reason for termination, if a reasonable notice period has been provided or whether a compensation amount has been offered by the terminating party. The courts may also take into account the level of a party’s dependence on the contract with the producer, how long business has been conducted between the parties and whether the distributor has made investments which it cannot earn back.
Notice period of distribution agreements
The principles of reasonableness and fairness usually also entail that a longer period of time must be respected or that a notice period of distribution agreements must be accompanied with the offer of payment of compensation to the distributor.
The determination of a notice period with the termination of distribution agreements in the Netherlands is very difficult and also depends on all circumstances. The following circumstances are – inter alia – of importance:
• whether there is the opportunity for the distributor to earn investments so that the distributor is able to continue its business with a new manufacturer or to compensate the losses;
• Dependence on the distribution contract;
• Whether or not employment agreements with employees need to terminated;
• The respective interests of parties;
• The duration of the long lasting agreement;
• The expectations given by the terminating party about continuation of the distribution agreement.
Lawyer in the Netherlands, specialized in distribution agreements
The termination of distribution agreements in the Netherlands is very complex and could lead to risky legal consequences. We therefore recommend to involve a lawyer in the Netherlands who is specialized in distribution agreements. Lisa Jie Sam Foek has a lot of experience in assessing distribution agreements, drafting distribution contracts and providing assistance in terminating distribution contracts. Please feel free to contact lawyer in the Netherlands, specialized in distribution agreements, Lisa Jie Sam Foek contractenrecht & privacy (email@example.com).