Long-term contracts (duurovereenkomsten) under Dutch law
A long-term contract, duurovereenkomst in Dutch, is a contract in which the obligations of one or both parties are to be performed over an extended and often indefinite period: supply agreements, distribution contracts under Dutch contract law, franchise arrangements, confidentiality agreements with ongoing effect, and joint venture contracts all fall within this category. Dutch law applies special rules to the termination of long-term contracts that go beyond the general principles applicable to one-off transactions, and the requirements of reasonableness and fairness (redelijkheid en billijkheid) play a prominent role in governing the ongoing relationship between the parties.
How can an open-ended long-term contract be terminated under Dutch law?
The Dutch Supreme Court has confirmed that open-ended long-term contracts (duurovereenkomsten voor onbepaalde tijd) can be terminated by notice even where the contract does not expressly provide for termination for convenience, provided reasonable notice is given and, where circumstances require, compensation is offered.
Unlike fixed-term contracts, which run until their agreed expiry date and can only be terminated early for breach or force majeure unless the contract provides otherwise, open-ended contracts are inherently terminable. The right to terminate flows from the general principle that no party should be bound indefinitely without the possibility of exit. Dutch courts have held that this right exists even without an express termination clause, by operation of the requirements of reasonableness and fairness under Article 6:248 of the Dutch Civil Code.
However, the freedom to terminate an open-ended long-term contract is not unlimited. Where the counterparty has made substantial investments in reliance on the continuity of the contract, or where the parties' relationship has been long and mutually profitable, Dutch courts may require a longer notice period, the payment of transitional compensation, or the provision of assistance to help the counterparty transition to an alternative arrangement. A bare notice of immediate termination, without reason or transition provision, may be held to be in breach of the duty of good faith.
What constitutes reasonable notice for terminating a long-term contract in the Netherlands?
Dutch law does not prescribe a fixed minimum notice period for the termination of long-term contracts. The required notice period is determined by reference to all relevant circumstances, including the duration of the relationship, the counterparty's investments, and its ability to find alternative arrangements.
In practice, Dutch courts and arbitral tribunals assess the adequacy of a notice period by examining: how long the contract has been in force; the degree to which the counterparty has become operationally or financially dependent on the contract; any specific investments or commitments made in reliance on the relationship continuing; any representations or conduct by the terminating party suggesting a longer-term commitment; and industry norms for notice in the relevant sector. Distribution contracts and franchise arrangements that have been in place for many years, and in which the distributor or franchisee has invested heavily in building the business, typically require longer notice periods than less intensive supply relationships.
Where the terminating party provides insufficient notice, it will be liable for the damages suffered by the counterparty during the period of insufficient notice, typically lost profits for the additional period that would have been required to constitute reasonable notice.
How does Article 6:258 of the Dutch Civil Code apply to long-term contracts?
Where circumstances change fundamentally after the conclusion of a long-term contract, Article 6:258 of the Dutch Civil Code allows a court to modify or dissolve the contract if the changed circumstances are unforeseen and so serious that the other party cannot reasonably require continued performance on the original terms.
The threshold under Article 6:258 is high, deliberately so, since Dutch contract law strongly favours the binding force of agreements. A party cannot invoke Article 6:258 simply because the contract has become commercially inconvenient or unprofitable. The unforeseen circumstances must be of such a character that, had they been anticipated at the time of contracting, the contract would not have been concluded on the same terms. Even then, a court may prefer to modify the contract rather than dissolve it entirely, in order to preserve the relationship while adjusting the terms to the new reality.
In practice, Article 6:258 claims have arisen in long-term supply contracts affected by fundamental changes in regulation, dramatic shifts in market conditions, or (as seen during the COVID-19 pandemic) events affecting the entire economic environment. Dutch courts remain cautious about granting relief under Article 6:258 in commercial B2B contracts between sophisticated parties.
What Dutch law considerations apply to distribution and agency contracts?
Distribution and commercial agency contracts are among the most common categories of long-term contract in Dutch commercial practice and are subject to specific rules, including mandatory goodwill compensation for commercial agents, that interact with the general rules on termination of duurovereenkomsten.
For commercial agency contracts (agentuurovereenkomsten), Articles 7:428 through 7:445 of the Dutch Civil Code implement the EU Commercial Agents Directive and provide mandatory protection for the agent on termination, including minimum notice periods and a right to klantenvergoeding (goodwill compensation) where the agent has built up a customer base for the principal. These provisions cannot be contracted out of to the agent's detriment.
For distribution agreements, which are not regulated by specific Dutch statutory provisions, the general rules on long-term contract termination apply. A contract lawyer in the Netherlands experienced in distribution and commercial relationships can advise on the appropriate notice period and transition arrangements required to lawfully terminate an existing distribution contract under Dutch law.