Is notice of default required for default to occur?

Russell Advocaten B.V.
Amsterdam, Netherlands

Has your counterparty not fulfilled its contractual obligations yet? Here’s what you have to do before you can lodge a claim.

If your counterparty does not fulfil its contractual obligations, you can institute various actions. You can, for instance, terminate the agreement or claim fulfilment and/or damages. Before you submit any of these claims, the counterparty must be officially notified of being in default. So when is that the case?

Notice of default

In principle, the counterparty can only be in default after having been notified of default. This means, the counterparty must be notified of not having fulfilled its obligations and of getting the chance to fulfil them within a reasonable period.

This must, in principle, be done by sending a written reminder. If the counterparty still does not fulfil its obligations after the receipt of the notice of default, default will occur.

However, if it appears that the counterparty cannot meet its obligations or it can be seen from its conduct that a reminder will be useless, notice of default can also be given by means of a written notification. This notification merely has to show that the counterparty is being held liable for non-fulfilment of the obligations. This notification does not need to take the form of a written reminder and no reasonable period for fulfilment needs to be given either. Default will occur after the notification has been given.

When is notice of default not required?

A notice of default is not always required for default to occur. Under the following circumstances a notice of default is not required:

The agreed period for fulfilment has expired. This period is also referred to as “strict deadline”. A contract has to include that obligations must be fulfilled within a certain period. It is not necessary to agree upon a particular date, but it must be clear for both parties that a certain period is agreed upon. One example of a clause containing a “strict deadline” is a date that is set for providing rental property or a payment term on an invoice. Default will occur when the period for fulfilment has expired without fulfilment by the counterparty.
The requirement for fulfilment results from a wrongful act or serves for damages towards non-fulfilment of another obligation. The obligation for fulfilment from a wrongful act can consist of payment of compensation or of restoring a certain situation. Default will occur when the obligation is not fulfilled immediately.
It can be derived from the communication of the counterparty that it will fail to meet its obligations. The counterparty does not have to declare explicitly that it will not meet its obligation but it only has to be understood from its statements. One example is that the counterparty denies its obligation for fulfilment or will only fulfil the obligation under a certain condition that has not been agreed upon. The statement must be provided by the counterparty and be directed to the other party of the agreement. In this situation, default will occur when the statement has been received.

Our advice

In principle, a notice of default is required for default. However under the aforementioned circumstances, default can occur without a prior notice of default. If you have doubts as to whether one of these circumstances applies to your particular situation, it is preferable to notify your counterparty of default in writing.

More information

Would you like to learn more about notice of default? Or do you have any other questions regarding the fulfilment of contracts? Please contact Russell Advocaten. We will gladly answer your questions:

Metatags

You can only lodge a claim against your counterparty when it is in default. It must be notified of default, i.e. sent a written reminder for payment and fulfilment of the agreement. If it is clear however that the counterparty fails to fulfil the agreement or it can be derived from its conduct that a reminder will be useless, a written notification will be sufficient as notice of default. Then, the claim can be lodged without a written reminder.