Dissolving a business contract: avoid an invalid termination

1. Identify the right legal question

Dissolution for breach responds to a failure to perform. Termination by notice ends a contract through an applicable notice mechanism; avoidance concerns other legal defects. KVK distinguishes these ways of ending a contract. Do not use the terms as interchangeable labels. An incorrectly chosen declaration can create a dispute over your intention and the obligations you still owed.

First describe in everyday terms what you want: delivery after all, partial termination, repayment or an exit from a long-term relationship. Note other interests, such as access to data, outstanding orders and dependence on a system. Your desired practical outcome helps your lawyer determine whether dissolution, performance, a settlement or another step is most suitable.

2. Examine which obligation has been breached

Compare the signed agreement, schedules, general terms and subsequent amendments with actual performance. What had to be delivered, by when, to what standard and subject to which dependencies? Disappointing sales results do not automatically amount to breach of a promised outcome. Distinguish specific agreements from expectations that were never agreed with the other party.

Link every alleged breach to evidence: an incomplete delivery, missing functionality or an undertaking not fulfilled. Include complaints and the responses. Have the seriousness and consequences assessed; not every minor defect justifies the same extent of termination. Dissolving a substantial contract in full may require a different assessment from ending a clearly defined remainder.

3. Check whether a final opportunity is needed

Where performance remains possible, default is often an essential issue to examine. A formal notice of default, or ingebrekestelling, generally gives the other party a clear, reasonable final period to perform correctly. Judgment ECLI:NL:HR:2003:AI0827 also discusses situations in which default can arise without such a notice. This requires an assessment of the actual circumstances; neither “always send a letter” nor “a letter is never needed” is a safe general rule.

Collect earlier demands, agreed dates and statements about failure to deliver. Establish whether a stated deadline actually had the required legal significance and whether later agreements changed that. An extension you accepted yourself may matter. In an urgent situation, ask how to preserve your rights while the contract is being examined, rather than trying to repair an expired deadline afterwards.

4. Assess any force majeure defence separately

A supplier may refer to illness, war, a cyber incident or failure of a subcontractor or supplier. KVK stresses that such circumstances do not automatically establish a successful force majeure defence. Read the contractual definition and consequences, and ask which obligation was actually affected. A general reference to difficult market conditions does not explain what became impossible in your specific order.

Keep the questions separate: can performance still be required, is compensation available and is termination permitted? These consequences need not be identical. Collect the notification, proposed alternatives and duration of the problem. A lawyer can assess the effect of the contract’s allocation of risk. Do not simply adopt a foreign model clause as an explanation of a Dutch contract.

5. Determine full or partial dissolution and the financial settlement

Specify exactly which contract or part of it is affected. For continuing services, identify the period and services already performed correctly. Prepare an overview of payments, deliveries and what you believe must be returned. The possibility of physically returning performance differs between goods and services already used; have the financial consequences assessed separately.

Do not assume that every historical invoice will automatically be repaid. A breach affecting a later part does not necessarily make earlier performance worthless. The other party may also have a position on the settlement. Ask your lawyer to align the requested dissolution and repayment so that the letter claims no more than the facts and chosen legal basis support.

6. Organise the declaration and any proceedings

A declaration of dissolution must make the relevant contract, reasons and intended scope clear. Keep a complete copy as sent and evidence of dispatch and receipt. Check which party and address the declaration must be directed to. A message to a random account manager is not a sufficiently documented formal step for every contract.

If the other party contests the claim, proceedings on the merits may be needed. Rechtspraak explains that the court in summary proceedings, or kort geding, cannot definitively dissolve or avoid a contract. An urgent interim order concerning access, delivery or protection can address a different question. Also check any choice-of-court or arbitration clause. Plan a transition to a replacement without ending all your existing obligations without review.

7. Fictional example: software lacks an agreed integration

Suppose a company pays for software with an expressly specified accounting integration. The supplier delivers a system without that integration and repeatedly promises a solution. The business owner wants the entire annual fee back and to block all payments immediately, although other functions have been used.

Useful preparation includes the specification, acceptance arrangements, promised repair dates and services used. The seriousness of the breach, any necessary final deadline and scope of the settlement can then be assessed. This fictional example does not establish a right to a particular refund. It shows why the missing element and objective of termination must be made specific.

8. Checklist before sending a dissolution letter

First request assessment of the legal basis and consequences, then drafting of the definitive declaration. Flag existing notice or response deadlines and the services that remain operationally necessary. Agree how the other party may respond and who will handle further communications.

• Complete agreement, schedules, terms and amendments.
• Specific breach alongside the performance originally agreed.
• Complaints, demands, promises of repair and all relevant dates.
• Payments, performance received and an itemised proposed settlement.
• Force majeure notification, jurisdiction clause and plan for temporary business continuity.