Setting aside for breach: contract termination under Dutch law
Under Dutch law the remedies for non-performance of a contractual obligation are (in principle):
- contract performance
- contract performance and compensation for late performance
- damages instead of performance
- contract termination for cause - setting aside of the contract (ontbinding)
- setting aside of the contract and damages.
The remedy to set aside a contract under Dutch law is provided in article 6:265 (up to and including 6:277) of the Dutch Civil Code (Burgerlijk Wetboek). Article 6:265 of the Dutch Civil Code provides that every failure of a party in the performance of one of its obligations gives the other party the right to set the contract aside in whole or in part, unless the failure does not justify this setting aside and the consequences thereof, given its special nature or minor importance.
It is the debtor who has the onus of proof that the failure to perform its obligations does not justify the setting aside of the contract. It is important to note that under Dutch contract law setting aside of a contract does not require a fundamental breach and that a creditor is not burdened with proving that the breach is so fundamental that it justifies setting aside of the contract. The remedy of setting aside a contract is available when the non-performance is attributable and when the non-performance is due to force majeure (overmacht). The right to claim damages only exists when there is an attributable breach of contract.
Article 6:277 of the Dutch Civil Code provides:
1. Where a mutual agreement has been set aside in full or in part, the party whose failure to perform has caused the ground of termination must compensate the damage which the opposite party suffers as a result of the fact that both parties have not complied with the agreement.
2. If the failure to perform is not attributable to the debtor, then the previous paragraph shall only apply within the limits of in article 6:78.
When both parties are unable to perform, both parties have the right to set aside the contract.
Setting aside a contract under Dutch law requires that the debtor is in default (in verzuim). It can be done by a written declaration to the other party (article 6:267, paragraph 1, of the Dutch Civil Code):
1. The setting aside of a mutual agreement is effectuated by means of a written notification of the party who is entitled to set aside the agreement, addressed to the other party to that agreement. If the mutual agreement has been concluded solely by electronic means, it may also be set aside by means of a notification addressed to the other party by electronic means. Article 6:227a, paragraph 1, applies accordingly.
The setting aside of a contract under Dutch law may also be pronounced by a court upon the demand of the creditor (article 6:267, paragraph 2, of the Dutch Civil Code):
2. A mutual agreement may also be set aside by a judgment of the court, upon demand by the party who is entitled to set aside the agreement.
Why do international commercial contracts often choose English law over Dutch law?
English law attracts approximately forty percent of international commercial contracts as their governing law. Its appeal rests on a perceived combination of legal certainty, judicial neutrality, and strong respect for the precise terms parties have negotiated.
Leading Dutch commentators note that parties selecting English law do so primarily because English contract law treats party autonomy as close to absolute. Courts applying English law give effect to what the contract says, with limited room for general reasonableness requirements to override the agreed text. This contrasts with Dutch law, where the principles of reasonableness and good faith (redelijkheid en billijkheid) under Article 6:2 of the Dutch Civil Code can supplement or even limit contractual rights.
A second reason concerns predictability. English contract law applies an objective standard of interpretation: a court asks what a reasonable person with all available background knowledge would have understood the contract to mean. Pre-contractual negotiations are generally excluded from this analysis under what English lawyers call the exclusionary rule. The result is that the signed document carries decisive weight, and parties on both sides can rely on the same text without fear that undisclosed subjective intentions will later alter its meaning.
Swiss law is also frequently chosen for international contracts, particularly where political neutrality matters more than legal sophistication. However, English law remains the dominant choice in financial, commodities, and M&A transactions. For contracts governed by Dutch law, courts in the Netherlands apply the so-called Haviltex standard, which takes both the text and the parties' reasonable expectations into account. That more contextual approach can produce less predictable outcomes in complex commercial disputes, which is one reason some international parties prefer English law even when their business is centred in the Netherlands.
What is the difference between a condition, a warranty, and a guarantee under English law?
Under English law, a condition is a contractual term so fundamental that any breach, however minor, entitles the innocent party to treat the contract as terminated. A warranty is a less important term whose breach gives rise only to a damages claim.
The distinction matters enormously in practice. Where a term qualifies as a condition, the innocent party may terminate the contract without proving that the breach caused serious loss. Where the same term qualifies only as a warranty, termination is not available. Dutch legal doctrine observes that this apparently formalistic classification system actually serves two recognised policy goals. First, it respects party autonomy: the parties themselves decide, by drafting and by agreement, how much weight each term should carry. Second, the clear advance classification promotes legal certainty in commercial transactions, because the consequences of a breach are known before any dispute arises rather than determined retrospectively by a court.
Whether a term is a condition or a warranty depends on three sources. A statute may declare it directly, as the Sale of Goods Act 1979 does for certain implied terms in sale contracts. The parties may agree it expressly, and it is prudent drafting practice to state that the term is "of the essence". Absent either of those, a court will determine the classification through interpretation of the contract as a whole.
Care is also needed with the word "condition" itself. In the English-law sense discussed above, it refers to a fundamental term. However, the same word is also used to mean a suspensive condition (a condition precedent) or a resolutive condition (a condition subsequent), neither of which carries the same termination-right consequences. In Dutch-law contracts that borrow English-law terminology, this ambiguity can generate genuine uncertainty.
A "guarantee" under English law is an entirely different concept. It is a three-party arrangement in which a surety undertakes, as a secondary and accessory obligation, to pay the creditor if the principal debtor fails to do so. English law requires a guarantee to be in writing under the Statute of Frauds 1677. This structure is comparable to a bank guarantee or a Dutch borgtocht, but the label does not correspond to the broader use of the word "guarantee" in Dutch commercial practice.
What is an indemnity clause, and how does it differ from a warranty under Dutch law?
An indemnity is a contractual promise by one party to hold the other harmless against a defined category of loss or liability. Unlike a warranty, which covers unforeseen risks, an indemnity typically addresses risks that are known and foreseeable at the time of contracting.
The legal character of an indemnity matters for enforcement. Courts have distinguished between two forms. The first is a claim in debt: the indemnifying party owes a fixed or ascertainable sum once the triggering event occurs, and the claimant need not prove the amount of damage suffered. The second is a damages claim, which requires the claimant to establish actual loss and is subject to ordinary rules on mitigation and causation.
In Dutch-law contracts that contain Anglo-American indemnity clauses, a court will interpret the clause according to Dutch standards. The practical question is whether the clause creates an autonomous payment obligation or merely a secondary obligation tied to proven loss. That classification determines the burden of proof, the availability of mitigation defences, and the limitation period. Because English and Dutch law reach different answers on these points, parties should not assume that an indemnity clause copied from an English-law precedent will operate identically under a Dutch-law contract.
Partial setting aside of contractual obligation under Dutch law: the actio quanti minoris
Under Dutch law a contract may be set aside in whole or in part. Article 6:270 of the Dutch Civil Code provides for partial setting aside of a contract:
A partial rescission of a mutual agreement implies a proportional reduction of the mutual performances, in quantity or quality, that parties have to perform according to that agreement.
In this way a party may obtain a reduction of his obligations (such as the obligation to pay the contractual price), in case the other party delivers only part of the goods bought, or when the goods delivered are lacking in quality.
What are the effects of setting aside a contract under Dutch law?
Setting aside (or termination for cause) of a contract under Dutch law does not have retroactive effect. The setting aside of a contract under Dutch law releases parties from the contractual obligations.
To the extent that these obligations have already been performed, the legal ground for this performance remains intact even after setting aside of the contract, but an obligation arises for the parties to reverse the performance of the obligations already performed. This is regulated in article 6:271 of the Dutch Civil Code:
Setting aside a contract releases parties of the obligations affected by it. As far as these obligations have been performed already, the legal basis for performance remains effective, but the law imposes an obligation on parties to undo the performances they already have received by virtue of the rescinded agreement.
In case the performances by their nature cannot be reversed, compensation of their value at the time of performance is required. Article 6:272 of the Dutch Civil Code provides:
1. Where the nature of the performance received makes it impossible to return it, it is replaced by a compensation of its value, calculated at the moment on which it has been received.
2. Where the performance received was not in conformity with the contractual obligation, the compensation meant in paragraph 1 is limited to the value of the benefit that the recipient, in the circumstances, has gained from the performance, calculated at the moment on which he received it.
When performance cannot be undone after the contract has been set aside, the recipient shall be considered to have failed in his performance of the statutory obligation to reverse the performances, and is obliged to pay compensation for the losses caused by this. A party who has rightfully set aside a contract, may also claim supplementary damages, provided that the non-performance is attributable to the other party. To determine the statutory interest on such claims, creditors can use a statutory interest calculator.