If your business extends across international borders into the jurisdiction of the Netherlands, you have undoubtedly been confronted with agreements and procedures that are governed by Dutch law.
In this series of blogs FORT’s insolvency and restructuring specialists explain various Dutch legal concepts and dos and dont’s that may be of use to you if you are faced with a Dutch counterparty in financial distress. In this blog I will discuss the right of suspension (opschortingsrecht).
The right of suspension explained
Suppose you have ordered goods, but only receive part of your order. Your supplier nevertheless requests full payment. Or a second example: you have agreed to regularly deliver goods to a customer. After a while the customer is in arrears of payment. You would of course want to reduce the risk of paying for goods that will never be delivered or of delivering goods that will never be paid for.
That risk arises in particular when you are confronted with a counterparty that is unwilling or unable to fulfil its obligation. The question is whether you are obliged to live up to your end of the deal. The answer is short: No! On certain conditions you have the right to suspend your obligation.
Conditions for exercising your right of suspension
In order for you to suspend your obligation, several conditions must be met. First, you must have a due claim against your counterparty. This implies that your counterparty must be in default of, for example, delivery or payment. Furthermore, there must be a cohesive relation between the due claim and the obligation that is to be suspended. That cohesive relation is assumed to be present when the obligations stem from the same or similar agreements between the parties involved. Finally, the suspension must be proportionate. For example, the delivery of 200 computers should not be suspended when the customer is only a few days late with its payment of an insignificant amount of the overall purchase price.
If these conditions are met, it must be examined to what extent the right of suspension applies. Parties may deviate from the standard legal provision. Hence, parties may mutually agree to restrict or extend the right of suspension or to exclude it as a whole. If your counterparty intends to deviate from the standard legal provision, this is usually defined in their general terms and conditions.
Please be aware of these conditions and the possibilities of deviating from the provisions of Section 6:52 of the Dutch Civil Code. These aspects should be considered before invoking the right to suspend your obligation. You could be held liable for all the loss incurred by your counterparty if the right of suspension is invoked improperly.
All in all, the right of suspension is an effective remedy. It can prevent harmful situations arising from default on the part of your counterparty.