Home / News & Blogs / Are you cancelling your ICT contract? Beware!

Are you cancelling your ICT contract? Beware!

| 11 January 2021

If you want to cancel a contract, you will logically consult the agreed termination arrangements and check the date on which the agreement can be terminated as well as which notice period must be observed. However, it may be that termination in accordance with the contract is not always allowed. In a recent summary proceeding (available in Dutch only) it became clear once again that there may be numerous additional circumstances that probably prevent such termination from being accepted.

What was the issue at hand?

In this case, the summary proceeding concerns a dispute between the company Uniface, which supplies software to enable customers to develop their own software, and the company Pinkroccade, which develops and exploits software to support the business operations of local authorities, including the CiVision software. A Value Added Reseller agreement (VAR agreement) had been concluded between Pinkroccade and Uniface. On the basis of the VAR agreement, Uniface's software has been bundled with CiVision and Pinkroccade had issued a license to use the bundled software to approximately 100 municipalities.

For the years 2015 to 2019, the parties had made a temporary rate agreement in which a one-off fixed fee was paid. Then, with effect from the 1st January 2020, the pre-2015 old rate agreement would apply again, whereby a fixed annual fee per resident would be due. Uniface was of the opinion, however, that this tariff agreement needed to be recalibrated and that the compensation per resident should be proportionate to the compensation that Pinkroccade itself received from the municipalities. To recalibrate the rates, Uniface wanted to have access to the price agreements between Pinkroccade and the relevant municipalities. After it became apparent that a substantive response was not forthcoming, Uniface announced that it was forced to terminate the VAR agreement. In doing so, however, Uniface emphasized that it was still prepared to continue the agreement, provided that the rates would be recalibrated.

Pinkroccade subsequently stated that it did not agree with the termination of the agreement and the parties then attempted to reach an amicable (exit) settlement. When an amicable settlement turned out to be impossible, Pinkroccade turned to the preliminary relief judge and in this way demanded, among other things, to oblige Uniface to continue to comply with the VAR agreement, or to tolerate that Pinkroccade should in any case honor the current agreements with the municipalities.

The preliminary relief judge was of the opinion that it was not implausible that in a proceedings on the merits (proceedings in which a final judgment is made) that the termination would be ruled as unacceptable according to the standards of reasonableness and fairness. In addition, the consequences of the cancellation were particularly drastic. After all, the software was being used by approximately 100 municipalities, which depended on the software in the performance of their statutory tasks. The fact that the screens would not immediately switch to black after the end of the VAR agreement did not change this. After all, the municipalities were no longer able to use the software lawfully due to the absence of a license. In addition, there were also the necessary licensing problems because the parties had not agreed on the end date of various licenses. A definite answer about this problem could only be given in a proceedings on the merit.

Mandatory measure

An mandatory measure was imposed by the preliminary relief judge which meant that Uniface was obliged to comply with the VAR agreement until a court judge issues their judgement. The preliminary relief judge estimated that the proceedings on the merit could take about eighteen months. The mandatory measures apply until the 1st January, 2023 and Pinkroccade has until December 31, 2020 to institute proceedings on the merits.

Preliminary conclusion

Although this concerns a summary proceeding and a court judge will have to rule in the proceedings on the merit, it is already clear that the use of the contractually agreed termination scheme is not acceptable in all cases. In doing so, one should not only consider the interests of the contracting parties, but also the interests of any third parties, such as in this case, the municipalities. In addition, Uniface emphasized that the VAR agreement could still be continued, but only at revised rates. The termination of the VAR agreement was therefore primarily a lever to break open the tariff agreements. Clearly, cancellation is not the appropriate route to achieve this goal.

If you wish to cancel your ICT contract, it is advisable to discuss this with a lawyer. The termination may not be acceptable in itself or there may be reasons to use a longer notice period, for example because the parties have not yet made clear exit agreements and the service provision to third parties may therefore be jeopardized.