Do Framework Agreements Necessitate Further Contracting? | The Netherlands Commercial LitigationTuesday, 28 March 2017
The Amsterdam Court of Appeal ruled that under Dutch law, a legal entity that has entered into a framework agreement (“raamovereenkomst“) is actually obliged to conclude the supplementary agreements provided for in that framework agreement. In this particular case, that had not happened, which constituted a breach of contract. The other contracting party was entitled to claim damages – for the full amount of lost revenue (“positief contractsbelang“).
In 2012, a German company, EWG, concluded two agreements with a Slovenian contractor, SM Montaza. The latter company was going to carry out welding and installation work on two locations in the Netherlands (1) in the Port of Eemsmond (EUR 1.580.040); and (2) in the Port of Rotterdam, on the so-called Maasvlakte (EUR 1.291.500). Both agreements were defined as a “Rahmenwerkvertrag” (German for ‘framework agreement’). Parties intended to conclude supplementary agreements for each specific activity already provided for in the framework agreement. Although the transaction was conducted in German, Dutch law was declared applicable.
After conclusion of the framework agreement, SM Montaza heard nothing from EWG. There were no supplementary agreements. There were no payments.
Feeling left behind, SM Montaza demanded that a Dutch court terminate both agreements (Article 6:265 Dutch Civil Code) due to breach of contract (Article 6:74 Dutch Civil Code). SM Montaza’s claimed that EWG be ordered to pay EUR 1,112,244.= plus interest and costs. SM Montaza alleged that it had already sent 60 of its employees to the Netherlands (for every welder two pipe fitters), and has foregone profits and incurred costs in the course of her preparatory work.
Contrary to the court of first instance, the Amsterdam Court of Appeal ruled that the agreements did indeed oblige EWG to assign both welding and installation work to SM Montaza. EWG had no right to simply walk away from the framework agreement and refrain from further cooperation without legal effects.
The fact that under the framework agreement parties still had to agree to supplementary agreements, in itself was insufficient to warrant the conclusion that parties were completely free in order to decide whether or not they wanted to conclude those supplementary agreements. Quite the contrary, in principle EWG was obliged to conclude those supplementary agreements.
In the absence of a legitimate reason explaining why EWG would walk away from the cooperation, the Amsterdam Court of Appeal holds EWG was under a legal obligation to assign the activities to SM Montaza. Under the present circumstances, it means EWG will have to compensate SM Montaza for loss of profit.
Look Out for Framework Agreements
Does this judgment imply that under Dutch law, every framework agreement obliges contracting parties to (also) conclude the supplementary agreements provided for? No. Depending on the circumstances of the case, there are e.g. various ways to terminate a framework agreement prematurely. Furthermore, a party may suspend its contractual obligations provided that the other contracting party does not (properly) fulfill its contractual obligations.
The essence of the present judgment is that a legal entity cannot simply conclude an agreement and subsequently go on to ignore its counterpart. Such actions lead to considerable legal and financial risks. In this case, the check for EWG’s inaction turns out to be expensive indeed. Of the total lost revenue of EUR 3 million, SM Montaza claims a profit of EUR 1.1 million (cf. Judgment of the Supreme Court of the Netherlands of 8 July 2011, LJN BQ1684 (G4 Management / Hanzevast)).
The Amsterdam Court of Appeal has confirmed in the present judgment that SM Montaza has the right to claim damages. Parties now have to continue litigation on the exact amount of damage.
Judment of the Amsterdam Court of Appeal of 3 January 2017, ECLI:NL:GHAMS:2017:21 (EWG Rohr- und Kesselbau / SM Montaza).
Any Questions? Require More Information?
Please feel free to contact on of our specialists re contracts and (cross-border) commercial litigation, Adriaan Buyserd.