THE BOTTOM LINE
- Wrongful termination is costly. Terminating a contract based on promises not explicitly included in the final written agreement is a high-risk move. The Netherlands Commercial Court of Appeal (NCCA) found that a buyer’s termination constituted a breach of contract, making them liable for the supplier’s damages.
- Lost profits can be a direct loss. A standard clause excluding liability for “indirect or consequential loss” may not shield you from a claim for lost profits. The court ruled that the supplier’s lost profits were a direct and foreseeable result of the breach and therefore recoverable.
- The duty to mitigate damages is real. Even if you are the wronged party, you cannot let costs escalate indefinitely. The court significantly reduced a claim for long-term storage costs, reminding businesses they have an obligation to take reasonable steps to limit their own financial losses.
THE DETAILS
This dispute arose from a Sales Agreement for wind turbine generators (WTGs) between Turkish buyer Meriç and Dutch supplier Lagerwey. Meriç terminated the multi-million euro deal, arguing that Lagerwey had failed to provide a crucial “Type Certificate” for the turbines, which it claimed was a pre-agreed condition necessary for project permits. Lagerwey denied that providing this certificate by a specific deadline was a contractual obligation and argued Meriç’s termination was therefore a breach of contract. The case landed before the Netherlands Commercial Court of Appeal for a final say on both the termination and the financial consequences.
Applying Dutch contract law, the Court looked beyond the literal text of the agreement to determine the parties’ reasonable expectations. Despite evidence of pre-contract discussions and even a letter from a Lagerwey representative reassuring Meriç about the certificate, the Court found these assurances were never formalized in the final, signed Sales Agreement. The absence of a specific clause making the delivery of the Type Certificate a condition of the contract was critical. The Court concluded that no firm commitment on timing had been made, rendering Meriç’s termination unjustified and placing it in breach of the agreement.
The financial fallout of this decision was significant. The NCCA reversed the lower court’s finding on damages, particularly concerning Lagerwey’s lost profits. The lower court had deemed lost profits an “indirect or consequential loss,” which was excluded by the contract. The NCCA disagreed, ruling that lost profits were a direct and foreseeable result of Meriç’s wrongful termination and should be compensated. Consequently, Meriç was ordered to repay over €1 million to Lagerwey (an amount Lagerwey had paid out under the initial judgment), plus additional damages for lost profits on a related service agreement and VAT costs incurred. The Court did, however, limit Lagerwey’s claim for extensive storage costs, reinforcing that even an innocent party must act to mitigate its losses.
SOURCE
Amsterdam Court of Appeal
