The Life Cycle of a Business (7): Disputes with Suppliers and Clients

A business disagreement becomes legally relevant as soon as one of the parties fails to fulfil its obligations under the agreement. The law refers to this as a failure in the performance of an obligation (Article 6:74 of the Dutch Civil Code). Think of a supplier who delivers late, a service provider who delivers poor-quality work, delivered goods that turn out not to meet what was agreed, or a client who fails to pay. This is also known as breach of contract.

Many disputes can be prevented, or at least kept manageable, by making clear arrangements in advance. A clear contract is essential in this respect. Do not only set out the core performance (what is to be delivered, when and at what price), but also include arrangements on what happens if things go wrong. Consider provisions on payment terms, delivery conditions, limitations of liability and penalty clauses. Equally important are arrangements on dispute resolution: which court has jurisdiction in the event of a conflict? Will mediation or arbitration be attempted before proceedings are initiated? The clearer these arrangements, the less room there is for discussion afterwards.

If a dispute does arise, going to court does not always have to be the first step. In many cases, it is advisable to first try to reach a solution between the parties themselves (out of court). The first step is usually to send a notice of default: a written demand giving the other party a reasonable period of time to still perform.

If the other party does not respond, you may consider entering into negotiations or engaging a mediator. Mediation is an accessible and often faster way of reaching a solution, without the matter immediately escalating into legal proceedings.

If out-of-court options do not produce a result, the remaining option is to go to court. There are several routes:

• In urgent situations – for example, if a supplier threatens not to deliver essential goods – you can initiate summary proceedings to quickly obtain interim relief. A final ruling on the dispute requires proceedings on the merits, which usually take longer but lead to a final judgment.
• An important instrument for securing your position is a prejudgment attachment. This allows you to attach assets of the other party (such as bank accounts or real estate) even before the court has ruled on the substance of the case. This does, however, require prior leave (permission) from the preliminary relief judge. Once the attachment has been made, you must initiate proceedings on the merits within a period set by the court.

Disputes with suppliers and clients are sometimes unavoidable. What matters in any case is having good contracts: the clearer the arrangements, the stronger your position when things go wrong. If a dispute threatens to escalate, act in good time. Send a notice of default, explore out-of-court options and seek legal assistance when necessary. Whether it concerns summary proceedings, proceedings on the merits or a prejudgment attachment, an attorney at law can help you take the right steps.

Do you have questions about a dispute with a supplier or client, or would you like to know what your legal options are? Please feel free to contact Jarno de Graaf or Manon Hoekstra, attorneys at law in Corporate Law.

This blog is part of the blog series ‘The Life Cycle of a Business’.

1. Which legal structure should I choose? The VOF, CV, BV and NV explained.
2. How do I incorporate a company? The key requirements for a VOF, CV, BV and NV.
3. The listed company
4. What is the difference between a statutory director and a managing director?
5. How do you work together within a company? The importance of clear arrangements
6. Why are businesses acquired?
7. Disputes with suppliers and clients
8. How is the departure of a shareholder arranged?
9. How can I prevent bankruptcy?
10. In what ways can a company be dissolved?

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