Short Reads

Termination of continuing performance contracts: a new chapter

Termination of continuing performance contracts: a new chapter

Termination of continuing performance contracts: a new chapter

02.08.2017 NL law

On July 7th 2017, the Dutch Supreme Court added a new chapter to the case law it has developed over the years regarding the termination of continuing performance contracts, making a specific exception for publishing agreements regarding copyrighted works (ECLI:NL:HR:2017:1270).

Disputes between parties that have mutually accepted continuing obligations often revolve around the question whether and on what conditions one of the parties may terminate the contract. The Supreme Court decided that the party desiring to terminate a publishing agreement is only allowed to do so if a sufficiently compelling ground for termination exists. It also decided that contracts that end with the occurrence of a specific event, like the death of a party, qualify as contracts for an indefinite period of time.

Rock band v. music publishing company

The members of rock band Golden Earring claimed they were entitled to terminate the publishing contracts regarding their copyrighted works that they had concluded with Nanada, a music publishing company. Nanada had acquired the publishing rights on various songs of Golden Earring. In return, Nanada was obliged to use its best endeavours to promote the songs of Golden Earring and to exploit and administer the rights. The agreements were entered into for the duration of the copyright on the songs. Under Dutch law, copyrights end 70 years after the death of the author (here: the last living band member). Nanada primarily argued that the contracts had been entered into for a definite period and could not be terminated before the end of the term. Alternatively, according to Nanada, termination would require a sufficiently compelling ground.

Termination of continuing performance contracts in Dutch case law

The Dutch Civil Code has no general provision on the termination of continuing performance contracts, but the Dutch Supreme Court has developed a nuanced body of case law over the years. Contracts that have been entered into for a definite period of time can, in principle, not be terminated before the end of the term. Contracts that have been entered into for an indefinite period can, in principle, be terminated without cause, unless that would be contrary to the parties' intention when entering into the contract (ECLI:NL:HR:2016:660). Depending on the circumstances, the party terminating the contract may need to observe a notice period or compensate for the other party's damage (ECLI:NL:HR:2011:BQ9854). Consequently, disputes between contractual parties often revolve around the length of the notice period and the amount of compensation. However, the Supreme Court has held repeatedly that, in connection with the nature and subject matter of the agreement and the circumstances of the case, the standard of reasonableness and fairness may entail that a sufficiently compelling ground is required to terminate a contract for an indefinite period (ECLI:NL:HR:1999:AA3821). This will not often be the case.

Decision of the Supreme Court

The Supreme Court denied Nanada's claim that the contracts had been entered into for an indefinite period of time, holding that the duration of contracts that end with the occurrence of a certain event (like the death of a party) is "otherwise indefinite". According to the Advocate General, a contract lasting as long as the contracts at hand are, in fact most similar to contracts with an indefinite duration (see ECLI:PHR:2017:321, par. 3.19).

According to the Supreme Court the legislative history of copyright law shows that the legislator considered it undesirable that these publishing contracts could be terminated without cause, given the investments publishing companies make in order to promote, exploit and administer the copyrighted works. The possibility of termination without cause would lead to too much uncertainty, limiting the willingness to invest. This would in the end adversely affect the artists. For that reason, the Supreme Court holds that a sufficiently compelling ground is required to terminate these types of publishing contracts. However, the longer the publishing contract has lasted, the more the publishing company will have been able to recoup its investments. Consequently, a court may decide that in the particular circumstances of the case no compelling ground is required for termination.

Consequences for other types of continuing performance contracts?

The 7 July 2017 judgment specifically protects publishing companies and forms an exception to the general rule set by the Supreme Court that continuing performance contracts for an indefinite period of time can, in principle, be terminated without cause. However, the situation in which one of the parties has made significant investments in order to perform under the contract arises much more often. We may expect litigating parties to invoke this newly created exception with regard to other types of contracts in the future. This is undoubtedly not the last chapter in the Supreme Court's case law on the termination of continuing performance contracts.

This blog was written together with Jeroen de Boer, a student trainee at Stibbe during June-July 2017.

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