Compliance with an agreement in preliminary relief proceedings

In spite of the fact that the supplier had terminated the distribution agreement Contract in which a supplier grants a distributor (exclusive) right to sell supplier’s products in a certain region
» Meer over distribution agreement distribution agreement, the Amsterdam Court recently held in preliminary relief proceedings that the supplier was obliged to partially continue the agreement with its distributor According to the court in preliminary relief proceedings the notice period, which the supplier observed, was too short. Lawyer Mathijs van Riet discusses the case.

Distribution agreement and notice period

Since the end of 2002 the supplier sold medical equipment to the distributor, who on its part sold on the equipment to hospitals in Italy. The term of the distribution agreement was three years and was extended several times over the years. The parties had agreed that the agreement could be terminated in the interim if a notice period of one year would be observed.

At the end of 2019 the supplier and the distributor concluded a new distribution agreement, with 31 March 2021 as the end date. The notice period in this agreement was reduced to 120 days. Thereupon the parties negotiated with each other for a long time regarding the next extension, but they did not reach consensus on this. On 26 March 2021 the supplier wrote that the distribution agreement would terminate four days later and would no longer be extended.

Compliance and notice of liability

The distributor did not agree to the termination of the distribution agreement. For this reason the distributor asked the supplier to still continue the agreement as well as to continue to negotiate regarding a new distribution agreement. In addition, the distributor held the supplier liable for all damage that the distributor would suffer as a result of the termination of the distribution agreement.

Preliminary relief proceedings

The parties did not reach a joint solution and therefore the distributor did not see any option other than to commence proceedings. The distributor did not have any time thereby to wait for protracted proceedings, because the distributor personally had to fulfil its obligations with its purchasers. For this reason the distributor also decided to commence preliminary relief proceedings.

Claim sufficiently plausible and urgent interest

The court in preliminary relief proceedings held that the claims in the preliminary relief proceedings can only be granted if it is sufficiently plausible that these claims would also be granted in ‘normal’ proceedings on the merits. This is the case for example if the defence of the supplier is apparently unfounded and if it cannot be required of the distributor that it awaits a decision in proceedings on the merits.

In addition, the claimant in preliminary relief proceedings must demonstrate that there is an urgent interest. According to the judge that was the case, because the distributor was for the most part of its turnover and revenue depending on the equipment from the supplier that it traded.

Legitimate expectation

The court in preliminary relief proceedings established that at the end of 2019 the supplier had confirmed in writing that at that time it had the intention to extend the distribution agreement for a longer time. For this reason the judge found it hard to justify that the supplier only stated four days prior to the end of the agreement that the agreement would not be extended.

Continuing performance contract

The judge added thereto that the distribution agreement, which the parties had concluded at the end of 2019, could not be regarded separately from the earlier similar agreements that the parties had entered into. For this reason there was a continuing performance contract. The judge also established that it was foreseeable for the supplier that the distributor would suffer considerable financial loss if the continuing performance contract would not be continued.

Notice period and partial compliance

However, the fact that there is a continuing performance contract does not mean that this agreement cannot be terminated. It must be considered that a notice period had been included in all contracts that the parties had concluded in the past. And even in the case of continuing performance contracts in which no notice period has been agreed, the parties cannot be expected to be bound to each other forever.

For this reason the court in preliminary relief proceedings did not deem it probable that the distribution agreement would continue for longer than the agreed notice period of 120 days after the termination by the supplier. The judge therefore determined that the supplier was only obliged to facilitate the equipment that related to the agreements that the distributor had concluded with its purchasers prior to the notice from the supplier that the distribution agreement would be terminated on 26 March 2021.

Assistance during contracting and litigating

At the concluding of commercial contracts it is important to properly record under which circumstances the agreement can be terminated. The potential negative consequences that can ensue from the termination for one of the parties must be taken into consideration thereby.

Do you have any questions regarding contracting or litigating in the Netherlands? The lawyers of AMS Advocaten have many years of experience and would like to speak with you!