The termination of a term contract

Surely one of the most common collaborations in the transport sector is the collaboration between principals, forwarders, shippers and carriers that makes sometimes very complex transports possible in a short period of time. Often, consciously or unconsciously, this cooperation is based on one or more long-term contracts. In practice, termination of such a contract can have far-reaching consequences for both parties. Reason enough to take a closer look.

From assignment to term agreement

A continuing performance contract is characterized in that it obligates one or more parties to continuous or successive performance/assignments. A single transport order does not therefore constitute a continuing performance contract. This may be different if the principal gives various orders to a carrier over a longer period. Note that a continuing performance agreement does not have to be put in writing first, but can also arise unknowingly through the development from a single assignment to a cooperation in which frequent assignments are given.

The notice

In practice, it often happens that after years of cooperation, at some point the figurative kink in the cable appears and one of the parties wants to end the cooperation. A reason for this can be, for example, that a competitor carrier is willing to carry out the transports for a lower price, the quality of the service is not up to standard, or because the number of trips is decreasing so that the remaining trips are no longer interesting for the carrier. The reasons for wanting to terminate the long-term contract can be many. Unfortunately, the termination of a long-term contract still has its drawbacks.

If one of the parties wants to terminate the contract, the first question is whether the contract can be terminated. In that case, the content of the contract and the statutory provisions must be examined. If the law and the contract do not provide for a termination arrangement, then the contract can, in principle, be terminated. Note, 'in principle', because in law we always have the requirements of 'reasonableness and fairness' which you may have heard of:

"The requirements of reasonableness and fairness, having regard to the nature and content of the contract and the circumstances of the case, may mean that termination is possible only if a sufficiently serious ground for termination exists."[1]

Therefore, if there is a continuing contract between the principal and the carrier and nothing has been arranged about termination, the continuing contract can, in principle, be terminated, but you must have a "sufficiently compelling reason," i.e., a good reason to be able to terminate.

With this, however, you are not there yet. The requirements of reasonableness and fairness may also imply that a notice period must be given and/or an offer of compensation must be made. In other words: if you are allowed to terminate, this does not mean that you can do so (just like that) without notice or compensation. You will understand that the foregoing quite often gives rise to discussion and even litigation.

This is precisely why it is preferable to put the agreements in writing before the start of the cooperation. Mind you, during the cooperation it is also important to periodically review the agreements made. More than once parties conclude an agreement with a term of one year, a notice period of one month and a tacit extension. The agreement then disappears into a drawer and it is automatically tacitly renewed every year. Many years pass until at some point the client decides it wants to terminate the agreement and award the contracts to a competitor carrier in the future. The client acts in accordance with the (dated) agreement and uses a notice period of 1 month. Nevertheless, this situation can also give rise to discussion and uncertainty, especially if the carrier in question has adjusted its business operations in recent years and has made investments because of this cooperation. Despite the fact that in that case there is a notice in accordance with the (dated) agreement, the circumstances can still mean that a longer notice period must be used and the carrier is entitled to compensation.

Conclusion

In particular, the complete absence of a written agreement, as well as the dated agreement, more than once constitute grounds for discussion, or even legal proceedings. My advice: pay attention to the cooperation beforehand and record the agreements made. However, this is not enough. Pay attention to the cooperation periodically, take the agreement out of the drawer and check whether the previously made agreements are still up-to-date. In this way you will not only work on a lasting cooperation with your clients, customers and suppliers, but you can also prevent a lot of problems afterwards.

Do you have a question about the termination of a long-term contract, or would you like to review your agreements? If so, please feel free to contact me.

[1] See, for example: ECLI:NL:RBNNE:2020:4424, Rechtbank Noord-Nederland, 8610303 CV EXPL 20-4211.

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