The Bottom Line
- Termination requires legal default: If you terminate a contract for poor performance or delays, you must prove the other party is in legal default. Dutch courts require strict adherence to procedural steps, such as issuing a formal notice of default with a reasonable deadline to cure the issues.
- Wrongful termination becomes a “cancellation for convenience”: If you fail to follow the correct procedure, a court will likely re-characterize your termination as a cancellation for convenience. This means you may be liable for the contractor’s full contract price, including their lost profit, minus their direct cost savings.
- Courts will estimate costs if evidence is unclear: In this case, neither party could provide clear evidence of the contractor’s exact savings from the unfinished work. The court stepped in and made its own equitable estimate, highlighting the financial uncertainty that arises when projects end in a dispute without clear documentation.
The Details
The dispute arose from a construction project to rebuild a horse stable that had been destroyed in a fire. The contractor provided a timeline, but the project was plagued by delays, and the client grew increasingly frustrated with the quality of the work. After a series of heated messages, the client sent an email declaring the contract terminated due to the contractor’s failures. The client refused to pay the final invoice, arguing the termination was justified. The contractor, in turn, sued for payment, arguing the client had improperly ended the agreement.
The core of the court’s decision hinged on the critical legal difference between termination for cause (ontbinding) and cancellation for convenience (opzegging). To terminate for cause under Dutch law, the terminating party must prove the other party is in legal default (verzuim). This typically requires that a contractually agreed fatal deadline has been missed or that a formal notice of default (ingebrekestelling) has been sent, giving the party a reasonable period to remedy their breach. In this case, the court found that neither of these conditions had been met. The deadlines had shifted during the project, and the client’s final ultimatum—demanding completion within one week—was deemed unreasonable given the amount of work remaining.
Because the termination was not legally valid, the court reclassified it as a cancellation for convenience. This fundamentally changed the financial calculation. Instead of simply paying for work completed, the client became liable for the entire agreed-upon contract price, less any savings the contractor realized by not having to finish the job (e.g., unused materials and labor). The Court of Appeal found that the contractor had not fully accounted for these savings, particularly regarding defective work that would have required unpaid rework. Lacking precise figures from either side, the court made its own reasonable estimate of these savings. While this ultimately reduced the amount the client owed, the court still affirmed the core principle: the contractor was entitled to be compensated for their expected profit from the entire project.
Source
Gerechtshof Arnhem-Leeuwarden
