Breach of contract

Failure of fulfilment

The consequences of failing to fulfil an obligation are governed by the Dutch Civil Code. Among other things, this states when a failure is attributable and under which conditions the creditor is entitled to compensation. Any failure to fulfil an agreed obligation obliges the debtor to compensate the losses suffered by the creditor as a result, unless the failure is not attributable to the debtor. The law therefore distinguishes between failures which are and which are not attributable to the debtor.

Default and force majeure

In daily parlance, this distinction is also referred to using the terms default and force majeure. The debtor can invoke force majeure if the failure of fulfilment was beyond his control and not within his sphere of risk. This is the case if the debtor is hindered or impeded in fulfilling the obligation.

Default

A failure, which is attributable to the debtor, obliges that party to pay compensation. If the fulfilment of the agreement is permanently impossible, the obligation to pay compensation arises directly and automatically. If fulfilment is not permanently impossible, the right to compensation only arises when the debtor is in default. Default is understood to mean a failure of fulfilment consisting in an attributable delay in fulfilling an obligation, which is due where that fulfilment is not permanently impossible.

Notice of default: summons

In general, for a party to be in default, a notice of default must first be issued. This is a written statement containing a summons/demand for payment or notification to fulfil the obligation within a reasonable term. If the debtor does not comply with the demand for payment, default arises at the time specified in the summons. A notice of default is therefore a condition for default on the part of the debtor. A notice of default is in effect nothing other than a notification to the debtor that fulfilment is required. The default ends if the debtor subsequently fulfils the obligation, if the creditor refuses a reasonable offer to fulfil and thereby enters a state of creditor’s default, or if fulfilment subsequently becomes permanently impossible.

Creditor’s default

The law states that if a creditor fails to cooperate in the fulfilment of the obligation as demanded by him or impedes it in any other way, he enters creditor’s default, unless the cause of the impediment is not attributable to him. In case of creditor’s default, the debtor has not fulfilled the obligation but does not enter a state of default. The existence of a state of creditor’s default requires that if a debtor is prevented from fulfilling the obligation, that prevention is exclusively caused by an impediment on the part of the creditor and the cause is attributable to the creditor. If one of these conditions is not met, a state of creditor’s default does not exist.

Right to compensation

Every creditor is entitled to fulfilment of the obligation in the first instance. However, in case of breach of contract, he can also claim compensation instead of fulfilment. If compensation is demanded alongside fulfilment, this is referred to as supplementary or additional compensation. If compensation is demanded in place of the agreed fulfilment, this is referred to as replacement compensation. Supplementary compensation is due, for example, if the fulfilment of the agreed obligation is late or is deficient. If the fulfilment of the obligation is not forthcoming, replacement compensation may be demanded.

Dutch law firm AMS in Amsterdam, The Netherlands

The specialists in obligations law at AMS have extensive experience of breach of contract and compensation, and also initiate proceedings in these areas for their clients if necessary. The lawyers at AMS are closely involved in their clients’ cases, work with short lines of communication and offer competitive rates. Feel free to contact us for a free meeting with no obligation.