THE BOTTOM LINE
- Long-standing relationships imply contracts: A consistent, long-term business relationship can be legally recognized as an ongoing contract, even if nothing was ever signed. The court will look at the actual conduct and mutual expectations of the parties.
- “Reasonable notice” is mandatory: Terminating an unwritten long-term agreement requires providing a reasonable notice period. Abruptly ending the relationship because you found a cheaper alternative can expose your company to liability.
- Damages are calculated on lost profits: If a court finds the notice period was too short, you will likely be ordered to pay the other party’s lost profits for the duration of what would have been a “reasonable” notice period.
THE DETAILS
A recent ruling from the District Court of The Hague provides a critical reminder for companies relying on long-standing, informal agreements with their suppliers. The case involved a fruit and vegetable company that terminated its relationship of over 15 years with a transport provider after finding a cheaper alternative. Because no formal contract existed, the company assumed it could end the arrangement with minimal notice. The court disagreed, establishing that the long history of collaboration had created a legally binding “continuing performance agreement.” The court determined this was more than just a series of separate orders, pointing to the high degree of integration: the transport company had three trucks and drivers working full-time for the client, trailers were branded with the client’s logo, and the drivers were specifically assigned to this work, unable to perform other duties for their employer.
The central legal question became how such an unwritten agreement could be terminated. Under Dutch law, while indefinite agreements are generally terminable, the principle of “reasonableness and fairness” plays a crucial role. This principle requires the terminating party to consider the other’s legitimate interests, especially when the supplier has come to rely on the relationship. The court found that the transport company had a right to expect a reasonable notice period to adapt its business operations—specifically, to retrain or reassign the drivers who had been dedicated to the client’s account for years. Simply phasing out the work over a few weeks and then cutting ties completely was deemed insufficient.
Ultimately, the court had to balance the interests of both parties to determine a fair outcome. While the supplier demanded damages equivalent to an 18-month notice period, the court found this excessive. It noted that the supplier had not made significant recent capital investments solely for this client and that the lost revenue represented only a small portion of its total turnover, classifying it as a manageable entrepreneurial risk. The court concluded that a notice period of one month would have been reasonable under the circumstances. Consequently, it ordered the client to pay the supplier damages equal to one month of lost profits, amounting to just over €15,000. The decision serves as a clear warning: the true cost of ending a long-term business relationship isn’t just the final invoice, but the potential liability for failing to provide a fair exit.
SOURCE
Source: Rechtbank Den Haag (District Court of The Hague)
