If your IT supplier structurally fails to deliver, you can claim performance, serve a notice of default, suspend your payments, rescind the contract and claim damages under the Dutch Civil Code. In most cases the supplier must first be in default through a written notice of default (Article 6:82 of the Dutch Civil Code), unless a strict deadline was agreed or the supplier has said it will not perform.
Where your operations are at risk, summary proceedings (kort geding) under Article 254 of the Dutch Code of Civil Procedure can give provisional relief within weeks. If the supplier is heading for insolvency, your claim usually becomes an ordinary unsecured claim, so source code escrow arranged in advance matters most.
Table of contents
Can you still claim performance?
You do not have to move straight to rescission when an IT supplier fails to deliver. You can also claim performance: the supplier must then still do what was contractually agreed. That may involve delivering software, installing a system, or handing over source code and data. The statutory basis is Article 3:296(1) of the Dutch Civil Code, under which a party obliged towards another to give, do or refrain from something may be ordered by the court to render that performance.
Claiming performance is worthwhile above all where the project is well advanced and continuing the relationship still seems feasible, or where an alternative supplier is hard to find. Record as specifically as possible what the supplier must deliver and by when.
If the supplier is in fact no longer able to perform, for instance because of insolvency or because essential knowledge and resources are lacking, a claim for performance offers little prospect. Rescission combined with damages is then the more obvious route.
When is the supplier in default?
For rescission and for certain claims in damages, it is in many cases necessary that the supplier is in default. That is not always so: the law provides exceptions, for instance where a strict deadline applies or where the supplier has already made clear that it will not perform.
Where no exception applies, default arises through a written demand giving the supplier a reasonable period for performance. That is the notice of default under Article 6:82(1) of the Dutch Civil Code. What counts as a reasonable period depends on the nature of the performance: a few days may suffice for fixing a bug, whereas completing a migration is another matter. A vague or unreasonably short period may mean that default does not validly arise.
A workable notice of default contains at least:
- a description of the failure;
- a reference to the contractual obligation you are relying on;
- a clear deadline for remedy or delivery;
- a statement that the supplier will be in default if performance is not forthcoming;
- where appropriate, an announcement of further legal steps.
The exceptions are set out in the law. Article 6:82(2) provides that a written notice holding the supplier liable suffices where performance is temporarily impossible or a reminder would be pointless. Article 6:83 lists the situations in which default arises by operation of law, including on expiry of a strict deadline or where the supplier itself states that it will not perform.
Can you suspend your payments?
If the supplier does not deliver, you may be able to suspend your own payment obligation. You then withhold payment of an outstanding invoice until the supplier performs. There must, however, be sufficient connection between your payment obligation and the supplier's failure; where both obligations arise from the same IT contract, that connection is generally present (Articles 6:52 and 6:262 of the Dutch Civil Code).
Suspension is not a licence to stop all payments. The measure must match the failure and be proportionate. Suspend too much or for too long and you risk being in breach yourself. Announce the suspension in writing and explain which failure you are relying on.
Example: "As the agreed delivery of module X did not take place on [date], we are suspending payment of invoice [number] until you have remedied this failure. This is without prejudice to our other rights, including the right to damages and to rescission."
When can you rescind the contract and get your money back?
Rescission is not the same as termination by notice. Rescission concerns a failure to perform the contract and aims to unwind the contract wholly or in part. Termination by notice, by contrast, ends the contract for the future, is founded on the contract itself or on its nature, and does not require any failure.
Where continuing the relationship is no longer worthwhile, rescission may be an option. Article 6:265(1) of the Dutch Civil Code grants that power on any failure, unless the failure, given its special nature or minor significance, does not justify rescission. As long as performance remains possible, the power arises only once the supplier is in default; once again, the notice of default is the pivot.
After rescission the parties are in principle released from obligations not yet performed. What has already been delivered or paid must, where possible, be reversed. This restitutionary obligation is laid down in Article 6:271. An advance payment therefore qualifies for repayment to the extent that no usable counter-performance stands against it. For clients who paid a substantial sum at the start of an implementation project, that is often the most important foothold.
Which loss can you claim?
Rescission does not automatically result in compensation for all loss. In addition to the restitutionary obligations, Article 6:277 of the Dutch Civil Code confers a right to compensation for the loss you suffer because the contract is rescinded rather than performed by both parties, the so-called positive contractual interest. You must, however, sufficiently substantiate that loss and its connection with the failure.
In practice the heads of loss vary:
- additional costs of a replacement supplier;
- costs of remediation or further investigation;
- internal hours spent on the failed project;
- delay and project costs;
- lost turnover;
- any reputational harm.
Be cautious with lost turnover and reputational harm: these heads are generally harder to prove than direct costs, and many IT terms exclude consequential loss altogether. From the outset, therefore, keep all relevant documents: the contract, planning documents, emails, invoices, timesheets, remediation quotes and quotations from alternative suppliers. The more concretely the loss can be calculated, the stronger your claim.
When are summary proceedings worthwhile?
If you need relief quickly, summary proceedings may offer a way forward. That is conceivable where your business continuity is at risk, an important deadline is approaching, or the supplier appears financially unstable. The basis is Article 254 et seq. of the Dutch Code of Civil Procedure.
In summary proceedings, provisional relief may in the right circumstances be sought, such as an order to deliver, to hand over source code and data, or to repay a sum. The court does not give a final ruling on all points in dispute in these proceedings. Summary proceedings can nonetheless provide a rapid solution, and in practice often serve as a means of pressure, until the matter is possibly dealt with in proceedings on the merits.
What if the supplier becomes insolvent?
In an insolvency, recovery against the supplier is uncertain. Once the court has declared the supplier bankrupt under the Dutch Bankruptcy Act (Faillissementswet), a claim for repayment or damages will generally have to be recovered from the estate as an ordinary unsecured claim, alongside those of other creditors. It is also uncertain whether ongoing work will be continued: in practice the trustee in bankruptcy will often not take over a development or delivery obligation.
If you do not hold the source code, you will equally be unable to arrange maintenance or further development independently. For business-critical bespoke software in particular, a supplier's insolvency can therefore hit your own operations directly.
How does source code escrow protect you?
For bespoke software it is therefore important to make arrangements about continuity in advance. Source code escrow can help: the source code is deposited with an independent escrow agent and is released when a contractually agreed event occurs, such as insolvency or a serious failure to perform.
An escrow arrangement is only useful if it is specific. Work through at least the following points:
- Who acts as escrow agent?
- Which version of the source code is deposited?
- How often is the deposit updated?
- Which events trigger release?
- Do you also obtain a right to use and modify the code after release?
- Are documentation, build instructions and the necessary credentials included?
A deposit containing outdated code, without documentation or without an accompanying right of use, offers little protection in practice.
What should you check as a customer?
Before you serve a notice of default under Article 6:82 of the Dutch Civil Code or suspend payment, work through these checks:
- Which obligations, deadlines and acceptance arrangements does the contract set, and is any deadline a strict one (Article 6:83)?
- What exactly has not been delivered, or delivered late or defectively, and since which date?
- Do the supplier's general terms limit liability or exclude consequential loss?
- Is the invoice you want to withhold connected to the failure (Article 6:262)?
- Have you kept the contract, emails, invoices, timesheets and replacement quotes?
- Is there an escrow or other continuity arrangement for the source code and data?
What can we do for you with a non-delivering IT supplier?
Our IT lawyers advise and litigate on IT contracts and software continuity:
- We review your IT contract, general terms and project file.
- We draft the notice of default or the written announcement of suspension.
- We prepare the rescission statement and calculate your claim for repayment and damages.
- We bring summary proceedings for delivery or release of source code and data.
- We file your claim with the trustee if the supplier is declared bankrupt.
Summary
- You can claim performance (Article 3:296) or, once the supplier is in default, rescind the contract (Article 6:265).
- Default usually requires a written notice of default with a reasonable period (Article 6:82), unless Article 6:83 applies.
- You may suspend a connected payment, but only proportionately and announced in writing.
- After rescission, advance payments are reversed (Article 6:271) and you can claim the loss caused by the rescission (Article 6:277).
- In insolvency your claim is usually unsecured; source code escrow protects continuity.
Frequently asked questions
When should I send a notice of default?
As soon as it is clear that the supplier is not performing properly and no strict deadline has been agreed. Without default you will in many cases have no right to rescind or to claim damages (Articles 6:74 and 6:265 of the Dutch Civil Code). State the failure, the obligation you rely on and a reasonable period for remedy.
Can I suspend payment of invoices?
Often you can, if your payment obligation and the failure arise from the same IT contract (Article 6:262 of the Dutch Civil Code). Suspension must be proportionate and announced in writing; suspend too broadly and you risk being in breach yourself.
Can I claim damages in addition to repayment?
Yes. Alongside restitution under Article 6:271, Article 6:277 entitles you to compensation for the loss caused by the rescission. Direct costs are generally easier to prove than lost turnover or reputational harm.
What happens if my supplier becomes insolvent?
Your claim for repayment or damages generally becomes an ordinary unsecured claim against the estate, and the trustee in bankruptcy usually does not continue development work. Without the source code you cannot arrange maintenance yourself.
