Be careful with broadly formulated commitments

An agreement may only be dissolved in the event of a breach of sufficient gravity. Pursuant to Article 6:265 paragraph 1 of the Dutch Civil Code, in principle, any failure to perform gives the other party the right to dissolve the agreement; however, the law makes an exception to this: dissolution is not justified if the breach is too light given its minor significance or particular nature. For you as an entrepreneur, this means two things: do not agree too lightly to broadly formulated or difficult-to-achieve obligations, and be aware that by no means every breach of contract automatically leads to dissolution.

What does Article 6:265 of the Dutch Civil Code say about dissolution?

Article 6:265 paragraph 1 of the Dutch Civil Code stipulates that “any failure by a party to perform one of its obligations” gives the other party the power to dissolve the agreement in whole or in part. That same paragraph immediately adds an important exception: this does not if the failure, given its particular nature or minor significance, does not justify dissolution and its consequences. This is known as the “unless clause”.

The core issue, therefore, is that a breach in itself is no guarantee of dissolution. The question is whether the breach is serious enough to justify such a far-reaching consequence—the undoing of the agreement.

What does “broadly formulated commitment” mean?

A broadly formulated obligation is a contractual obligation written so generally that it is open to multiple interpretations or is difficult to fully comply with in practice. Consider provisions such as “the contractor shall use maximum effort,” “take all necessary measures,” or an enumeration of additional obligations that are difficult to comprehend. It is precisely with these types of clauses that the risk arises that you—often on a minor point—fall short, and the other party seizes upon this to dissolve the entire agreement.

Practical example: an insurance obligation in a construction contract

An agreement may stipulate that a contractor performs certain works on the condition that he takes out liability insurance for this purpose and provides proof thereof. If it subsequently transpires that the contractor has no insurance and also fails to provide proof, the client may refuse him access to the construction site and, in principle, dissolve the agreement. Whether that dissolution holds up depends again on the severity of the breach and the circumstances of the case.

How do you correctly dissolve an agreement?

Dissolution does not happen automatically. In addition to a lack of sufficient weight, a few other conditions apply. Broadly speaking, follow these steps:

1. Establish that there is a breach. The other party fails to fulfill an obligation under the agreement, or does not fulfill it on time or properly.
2. Put the other party in default. If performance is still possible, a notice of default is usually required first (Article 6:82 of the Dutch Civil Code): a written demand in which you set a reasonable period for performance. In certain cases, default occurs automatically without a notice of default (Article 6:83 of the Dutch Civil Code), for example in the case of a fixed deadline.
3. Assess the severity of the breach. Is the breach serious enough to justify dissolution, or does the "unless" clause stand in the way?
4. Dissolve extrajudicially or through the court. Extrajudicial dissolution can be effected by a clear written declaration to the other party; additionally, you can claim dissolution from the court.

Because an unjustified dissolution can turn against you — you may have fallen short yourself — it is wise to have the approach legally reviewed beforehand.

The case that led to a landmark ruling

The scope of Article 6:265 of the Dutch Civil Code came sharply into question in a tenancy case. In violation of the tenancy agreement, a tenant allowed another family with a young child to use part of the dwelling free of charge for approximately eight months; without that assistance, that family would have become homeless. The tenant continued to live in the dwelling himself, but should have requested permission from the landlord to allow its use.

The lessor sought dissolution of the lease agreement pursuant to Article 6:265, paragraph 1, of the Dutch Civil Code. According to the lessee, his breach did not justify such a far-reaching dissolution—and thus the eviction. Consequently, the central question was: is any breach sufficient for dissolution, or must a balancing of interests always take place?

General rule with exception or always a balancing of interests?

There were two views regarding the interpretation of the article. The majority of legal scholars read it as a general rule with an exception: every breach gives rise to dissolution (general rule), unless the 'unless' clause stands in the way (exception).

In contrast stood the so-called Bakels doctrine — named after former Vice-President of the Supreme Court FB Bakels, who previously wrote a dissertation on the subject. According to this doctrine, also known as the doctrine of the reasonable alternative, a balancing of interests must always be made, and dissolution is only possible if no less drastic remedy is better suited.

What did the Supreme Court decide?

In its preliminary ruling of 28 September 2018 (ECLI:NL:HR:2018:1810), the Supreme Court opted for interpretation as a general rule with exceptions and did not follow the Bakels doctrine. The legislature intended to give the article that structure, and that structure remains intact.

At the same time, the Supreme Court placed strong emphasis on the standard of a “shortcoming of sufficient weight”. The main rule and the proviso together express that only a shortcoming that is sufficiently serious entitles one to (full or partial) dissolution. Therefore, not every shortcoming justifies dissolution, and claims for dissolution should not be granted too lightly. Moreover, the Supreme Court emphasized that while the exception is technically an exception, it need not therefore be rare in practice. In its outcome, the Supreme Court thus partially accommodates the rationale behind the Bakels doctrine, without adopting that doctrine.

What does this mean for you as an entrepreneur?

The general principle regarding the burden of pleading and proof is as follows. In principle, the creditor is only required to plead and, if necessary, prove that the counterparty has defaulted on its obligations. The party seeking to prevent dissolution must subsequently present the circumstances on the basis of which the "unless" clause applies. However, according to the Supreme Court, it may also follow from the creditor's own arguments that the "unless" clause applies.

A few concrete lessons follow from this for your contract practice:

• Be cautious with broad commitments. Do not lightly agree to broadly defined or hard-to-achieve promises; it is precisely these that are open to interpretation and increase your risk of reproach.
• Be aware that not every breach of contract leads to dissolution. If your counterparty falls short on a minor point, the "unless" clause may offer you a defense against dissolution and eviction.
• Consider less drastic measures. As a creditor, it is sometimes wiser to first demand performance, claim damages, or reach a payment arrangement rather than dissolving the contract immediately.
• Include preventive clauses. A well-formulated penalty clause or a clear arrangement regarding default and termination can prevent recourse to the courts and limit your damages.

Are you unsure whether an agreement is formulated in a balanced and feasible manner? Then have the contract reviewed by our contract law expertise , or view the contracts and templates we offer for entrepreneurs.

Frequently asked questions about the dissolution of an agreement

May I terminate an agreement for any breach?

In principle, any breach of contract gives rise to a right to dissolution pursuant to Article 6:265 paragraph 1 of the Dutch Civil Code, but the law makes an exception for breaches that, due to their minor significance or special nature, do not justify dissolution. The Supreme Court refers to a “breach of sufficient weight”. Whether such a exists depends on all the circumstances of the case.

What is a “deficiency of sufficient weight”?

This is the standard established by the Supreme Court in its decision of 28 September 2018: only a breach that is sufficiently serious justifies dissolution of the agreement. A minor or incidental default is generally insufficient. The judge weighs, among other things, the nature of the breach, the consequences, and the interests of both parties.

Do I need to send a notice of default before I can terminate the contract?

If performance is still possible, default is usually required first, and for this typically a notice of default: a written demand with a reasonable period to still perform (Article 6:82 of the Dutch Civil Code). In certain cases, default occurs by operation of law, without a notice of default (Article 6:83 of the Dutch Civil Code), for example if an agreed period is a fixed deadline. If you are in doubt whether default has occurred, have this assessed first.

What does the learning-Bakels entail?

The Bakels doctrine, also known as the doctrine of the reasonable alternative, posits that a balancing of interests must always be made upon dissolution and that dissolution is only possible if no less drastic remedy is more suitable. The Supreme Court has not adopted this doctrine, but with the standard of “shortcoming of sufficient weight,” it does emphasize the seriousness of the shortcoming.

Who has to prove what in a dissolution claim?

In principle, the creditor is only required to state and prove that the counterparty is in default. The party seeking to avert dissolution must present circumstances demonstrating that the "unless" clause applies. Sometimes, it follows from the creditor's own argument that the failure is of insufficient weight.

How do I prevent a broadly worded clause from working against me?

Formulate obligations as concretely and realistically as possible, limit additional obligations to what you can actually fulfill, and have the contract legally reviewed before signing. Clear agreements regarding default, notice of default, and potential penalties reduce the risk of disputes and termination.

Have your contract reviewed or is there a dispute regarding termination?

Do you want to avoid being bound by promises that are difficult to keep, or is a counterparty threatening to terminate your agreement? Our specialized legal experts and lawyers assess your contract or conflict in a level-headed and practical manner. View our legal assistance for entrepreneurs or schedule a no-obligation intake directly.