THE BOTTOM LINE
- Termination is a high-risk remedy. A Dutch court ruled that terminating a contract for a custom-built machine, even after a deadline was missed, was unjustified because the project was nearly complete. The financial harm to the supplier far outweighed the buyer’s damages from the delay.
- Ongoing collaboration can waive ‘hard’ deadlines. By actively participating in revised project timelines and providing constructive feedback, a company may lose the right to later terminate based on the original, stricter deadlines. Your actions can reset expectations.
- Wrongful termination can make you liable. The buyer who improperly terminated the contract was put in “creditor’s default” for refusing to cooperate. As a result, they were ordered to pay a substantial part of the contract price (€855,000) without ever receiving the finished machine.
THE DETAILS
In a cautionary tale for any business involved in complex, long-term projects, the Amsterdam District Court recently blocked a buyer’s attempt to terminate a €1.9 million machine manufacturing agreement. The case involved Procan, a Dutch machine builder, and Trivium, an Italian packaging company. While the contract initially stipulated an 11-month manufacturing timeline, both parties acknowledged and worked through delays, establishing a new, more fluid schedule through frequent meetings and progress updates. The court found that this pattern of cooperation meant the original “hard” deadline had been implicitly waived. When Trivium suddenly issued a final ultimatum and terminated the contract shortly after, the court viewed this action not as an enforcement of a clear deadline, but as a disproportionate response in the context of a collaborative, albeit delayed, partnership.
The core of the judgment rests on a key principle of Dutch contract law (Art. 6:265 of the Dutch Civil Code), which allows for termination for any breach, unless the breach is of such a minor or special nature that it does not justify the severe consequences of termination. Here, the court determined the termination was not justified. It reasoned that the project was “in sight of the harbor”—the custom-built machine was nearly ready for its factory acceptance test. The financial impact of termination on the supplier, Procan, would be devastating, leaving them with a highly specialized machine and a massive unrecoverable investment. In contrast, the buyer’s damages were limited to delays, which could be compensated financially. The court concluded that wielding the “sledgehammer” of termination was an excessive response to a problem that could have been resolved with a more proportionate remedy.
The situation unraveled further for the buyer, Trivium. Because its termination was deemed invalid, the contract remained in force. When Procan subsequently demanded that Trivium attend the factory acceptance test and Trivium refused (still believing the contract was terminated), Trivium itself fell into breach—a status known as “creditor’s default.” This had two major consequences. First, it immediately ended Procan’s own state of default. Second, it allowed Procan to ask the court to be released from its obligation to deliver the machine. The court granted this but ruled that Procan could not claim the full remaining contract price for work it would no longer perform (like shipping and on-site installation). Ultimately, Trivium was ordered to pay the second major installment of €855,000, effectively paying for a machine it will never receive—a stark lesson on the perils of premature termination.
SOURCE
Source: Rechtbank Amsterdam
