Writing requirement in commercial contracts: not doing it too formally?

Commercial contracts regularly include a formal requirement, for example for the termination of an agreement. It is then stipulated, for example, that a termination must be made in writing, not verbally. Sometimes even stricter requirements are added; for example, termination must be done by registered letter or even by bailiff's writ. In practice, contracts regularly disappear into a drawer after they have been entered into and are not looked at (properly) afterwards. A termination is then made verbally or by e-mail. What then? Is the agreement now validly terminated or not under Dutch law?

For several years, the line in case law has been that a party cannot rely on the fact that the rules of the contract were not strictly complied with when it is established that that party received the notice in time and understood the notice. Several lower courts have already concluded that it may be unacceptable by the standards of reasonableness and fairness to rely on non-compliance with a formal requirement.

Now, a higher court has also recently ruled along these lines. A recent ruling by the Arnhem-Leeuwarden Court of Appeal, delivered on 17 December 2024, clearly shows how this correspondence and the parties' actions are interpreted and how a party can prove that a termination is legally valid despite the fact that a formal requirement has not been met (ruling). What was this case about?

Excerpt

Xlab Cloud Services B.V. ("Xlab") provided a software application to Stichting Contourdetwern ("Contourdetwern"). After an initial extension of the agreement, Contourdetwern terminated the agreement. Xlab subsequently disputed that timely and legally valid notice of termination had been given, as Contourdetwern had not complied with the written requirement that had been agreed. Xlab believed that the contract had therefore been extended (because no timely notice of termination had been given) and then claimed fulfilment of the payment obligation.

Agreement

When the agreement was renewed, the parties had agreed the following: 'The one-time short extension period of 6 months will start on 1 July 2021 and end on 31 December 2021. The agreement will end on 31 December 2021 subject to 3 months' notice. If this agreement is not terminated in time (before 1 October 2021), it will automatically continue for the agreed period in the main agreement."

The purpose of this extension was to give Contourdetwern additional one-off time to choose a new application, whether from another provider or not, and this purpose was explicitly included in the extension agreement.

The renewal agreement had been declared subject to general terms and conditions. These stated, "The Agreement may be terminated by either Party in writing or by e-mail subject to three (3) calendar months' notice, which notice may be given without reasons and justification. Termination by Customer shall not be final until confirmed by Supplier by e-mail.

Correspondence

To develop another software application for Contourdetwern, Xlab participated in a selection process. On 4 June 2021, Contourdetwern informed Xlab by phone that it had not been chosen, but one of the other providers. Internal correspondence from Contourdetwern showed that in that same telephone conversation, its director is also said to have discussed that, in view of the outstanding issues, the parties would have to discuss how to continue the cooperation temporarily and how to prepare the conversion in time

On 8 June 2021, Contourdetwern wrote to Xlab in an email: "We would then like to finish the process of choosing our application for the primary process. And we would then like to look ahead with you at how we will prepare for the transition to another application and how we can arrive at a conversion of data we want to take over into the new application. What do we need from each other for that?”

A Teams meeting was held on 7 July 2021, at which the director of Contourdetwern took notes. These included, "Help offer from Xlab to land soft along possibly in connection with the other party (read the new supplier). () Read only data file at X amount for hosting and Escrow (e.g. 3 months view). (Toev CdT: Xlab would send documentation on this)".

By e-mail dated 2 September 2021, Contourdetwern wrote to Xlab: "In preparation for the conversion soon, the new supplier has a number of questions about how the data will soon be accessed. Via web service, data dump or from exports. Can they contact you about this." Xlab answered this question in the affirmative on 3 September 2021.

On 4 November 2021, Contourdetwern wrote to Xlab: "We are terminating the contract with Xlab's regular service that has been extended until 1-1-2022 through the document "KeDO BLIK extension 6 months" () I announced the termination by phone on 4 June and it was further discussed in our Team meeting on 7 July. I will also confirm this by letter next Monday as agreed today."

So Xlab did not want to resign itself to that.

Judgment

First, the court concluded that the extension agreement could be validly terminated if it was in writing before 1 October 2021 and Xlab confirmed this by e-mail. However, the court was quick to clarify "the purpose of such a written requirement is to avoid ambiguity among the parties as to whether, and if so on what date, notice of termination was given." The court also weighed in that the purpose of the extension was to give Contourdetwern additional time to arrive at a choice of a new application, with or without another provider. According to the court, by verbally telling Xlab on 4 June 2021 that it would not provide the new application, followed by the email of 8 June 2021 that dealt with the transition to another party, Contourdetwern "left no doubt as to what its intention was." It was clear that Contourdetwern no longer wanted to use Xlab's application from 1 January 2022 and the e-mail of 8 June 2021 therefore qualified as a written termination of the renewal agreement, according to the court. That Xlab should have understood that the renewal agreement had been terminated followed from the fact that it had cooperated in the conversion to the new application (from a different supplier) during the term. The court stated, "After all, the commissioning of the new application automatically meant the end of the use of the old application." Xlab's reliance on the requirement of written form was therefore unacceptable by the standards of reasonableness and fairness, the court said. In other words, the renewal agreement had been timely terminated and ended as of 1 January 2022.

Conclusion

This judgment also shows that a contractual requirement of written form is about whether a message reached the other in time and whether the other understood it. The safest course is to comply with the formal requirements in the contract. But if that has not happened (for whatever reason), it does not mean that all is lost. And conversely, if not all the rules have been strictly adhered to, it does not mean that you can catch the other party on that and that a party has been automatically extended. What matters is whether the other party received the message and whether they understood the message: substance over form.

As to whether the recipient would have understood this message, the correspondence between them is important. Also important is how the recipient acted. If it can be inferred that the recipient understood the message, he cannot hide behind a formal requirement.