The Bottom Line
- Territory Means Compliant: If your distribution agreement specifies a sales territory, your products must be legally compliant for sale in that territory. A Dutch court found that failing to ensure this constitutes a fundamental breach, allowing the distributor to terminate the contract and demand a full refund.
- Director’s Assurances Create Personal Risk: A director who personally provides unfounded assurances about a product’s legal status can be held personally liable for the company’s breach of contract. The court held the director jointly and severally liable with the company for all damages.
- You Can’t Bill for Your Own Breach: A supplier who breaches a contract by providing non-compliant goods cannot later charge the distributor for costs (such as storage) incurred as a direct result of that breach.
The Details
In a case with significant implications for supply chain management and executive liability, the Rotterdam District Court ruled that a supplier, Sanisign B.V., fundamentally breached its distribution agreement with Total Energy Service B.V. (TES). The contract granted TES exclusive rights to distribute Sanisign’s hand soap in the Netherlands. However, it was later discovered that the product was not legally permitted for sale—or even storage—in the country. The court sided with TES, affirming its right to terminate the agreement. It reasoned that when a contract defines a specific territory, the distributor is entitled to expect that the product is legally sellable there. The fact that it was not frustrated the entire purpose of the agreement.
The court took the significant step of holding the supplier’s director, Mr. [person A], personally liable alongside his company. Under Dutch law, holding a director personally liable for a company’s contractual failings requires a high standard of proof, typically a “serious personal blame.” The court found this standard was met because the director had actively and repeatedly assured the distributor that the hand soap was compliant for the Dutch market, even after being presented with evidence to the contrary. These direct, unfounded reassurances went beyond normal commercial negotiation and created a personal tort liability for the director.
As a result, both the company and its director were held jointly and severally liable for repaying the full purchase price of €136,733.51 paid by the distributor. Furthermore, they are liable for any additional damages TES incurred, which will be assessed separately. In a final blow to the supplier, the court dismissed its counterclaim for the costs of storing the products in Belgium after they were ordered to be removed from the Netherlands. The court concluded that these costs were a direct consequence of the supplier’s own breach and could not be passed on to the wronged party.
Source
Source: Rechtbank Rotterdam
