Introduction
Non-performance is the legal heart of almost every commercial contract dispute: a party fails to deliver, delivers late, or delivers defectively. In statutory terms this is a failure to perform an obligation (Section 6:74 of the Dutch Civil Code (DCC)). It sounds straightforward, but it is one of the most nuanced areas of contract law. The question is not only whether there is a failure to perform, but also which remedy is most effective, and in what order.
The law gives the creditor a robust toolkit: claiming performance, suspending performance, rescinding the contract, and claiming damages. These remedies can be combined, but the sequence and the timing determine the outcome. The four remedies and their conditions are set out below, with the leading case law for each.
When is there non-performance?
There is non-performance whenever an obligation is not performed, unless the failure cannot be attributed to the debtor (force majeure). Attribution follows from fault or from the law, the juristic act or generally accepted standards. For a successful claim for damages, the creditor must assert and, if necessary, prove that there was an obligation, that it was not (properly) performed, that the failure is attributable, and that damage resulted from it.
Non-performance must be distinguished from tort. Non-performance presupposes an existing obligation between the parties; a tort applies even without a contract. One and the same set of facts may give rise to both, and concurrence is possible, but where a contract is in place the contractual basis is usually the most direct route. Whether an obligation existed and what it entailed is determined by the interpretation of the contract. That interpretation is often the first point of contention: without an established obligation, there is no failure to perform.
Notice of default and default
Before rescission or damages for delay come into play, the other party must be in default. In most cases this requires a notice of default: a written demand setting a reasonable period for performance (Section 6:82 DCC). A period that is too short, an unclear formulation, or a notice of default for an obligation that is not part of the contract, these are common mistakes with far-reaching consequences.
In certain cases default arises by operation of law, without a notice of default (Section 6:83 DCC): where a strict deadline passes, where the obligation arises from tort or is aimed at damages, or where the creditor must infer from a communication that the debtor will not perform. But whether a deadline is genuinely strict is more often a matter of dispute than expected. In Supreme Court 4 October 2002 it was held that unilaterally setting a period is not enough: a strict deadline within the meaning of Section 6:83(a) DCC must have been agreed between the parties or must follow from the standards of reasonableness and fairness given the nature of the contract. Outside those cases, a properly drafted notice of default remains the safest route to default.
Claiming performance and damages
A creditor who retains an interest in the performance may claim performance, reinforced if necessary by a penalty payment. In addition, or instead, damages may be claimed (Section 6:74 DCC). In the case of delay this concerns additional damages alongside performance; where performance itself is no longer wanted, the claim may be converted into substitute damages (Section 6:87 DCC), which likewise presupposes default.
The difficulty rarely lies in the existence of the failure to perform, and more often in substantiating the damage and the causal link. In a case concerning a webshop that was never delivered, the failure was accepted and rescission was granted, but the damages claim largely foundered on the substantiation of causation. A party claiming damages is well advised to document the extent and attributability of each head of loss concretely.
Rescission
Where there is a failure to perform, the contract may be rescinded out of court or through the courts (Section 6:265 DCC). The structure of that provision was clarified in Supreme Court 28 September 2018: it consists of a main rule with an exception. The main rule is that every failure to perform gives a right to rescind; the "unless" clause creates an exception where the failure, given its special nature or minor significance, does not justify the rescission and its consequences. There is therefore no separate threshold of a failure of "sufficient weight"; the debtor's interests are protected through that "unless" clause, in respect of which the debtor bears the burden of assertion and proof.
Rescission creates obligations to reverse the performances already rendered (Section 6:271 DCC) and leaves the right to additional damages intact. The risk lies with the rescinding party itself: a rescission that later proves unjustified, for example because the failure fell within the "unless" clause, turns the rescinding party into the defaulting party. In a case concerning the failure to deliver collectible cards, the failure to perform was well substantiated, resulting in an award of both the purchase price and the lost profit.
Suspension
If the other party fails to perform, a party may suspend its own performance (Section 6:262 DCC, and more generally Section 6:52 DCC). In practice this is often more effective than litigation, because it creates immediate pressure. The suspension must, however, be proportionate: withholding an invoice of €5,000 over a defect worth €500 may be regarded as disproportionate, and there must be sufficient connection between the suspended performance and the counter-performance.
Reliance on a right of suspension does not, in principle, need to be announced in advance and may even be raised for the first time in proceedings. In Supreme Court 17 September 2010, however, it was held that the standards of reasonableness and fairness may require the suspending party first to state that, and on what ground, it is suspending, depending on what the other party knew or ought to have understood at that moment. A suspension that is not communicated therefore carries the risk that the other party does not fall into default and that the suspending party itself falls short.
What decides the outcome
The outcome of a dispute about non-performance is decided by the default, the remedy chosen and the substantiation of the loss. A party that gives notice of default correctly and in time, chooses deliberately among performance, rescission and damages, and establishes causation, stands strongest.