Written contracts may be interpreted differently in different states. When you are considering business in the Netherlands, possibly applying Dutch law and giving jurisdiction to a Dutch court, it is important to know how contracts are interpreted there. Contractual interpretation is a hot item in the Netherlands. As soon as there is a dispute regarding the validity of a contract, often also the interpretation of specific provisions is subject of debate. All parties want to interpret the contract in a way which is positive for them, but who is ‘right’?
In a case dating back to as early as 1981 (the Haviltex-case), the Dutch Supreme Court ruled that the question on how a written contract must be interpreted cannot only be answered by looking at the pure linguistic meaning of the provisions in the contract. Decisive is the meaning which both parties could have reasonably attributed to the provisions in the given circumstances and what they could reasonably expect from each other in that respect. This is called the ‘Haviltex-principle’.
Years later, in April 2013, the Dutch Supreme Court stressed the importance of the Haviltex principle for commercial contracts in the case Lundiform/Mexx. The Court ruled that great significance may be attached to the linguistic wording of the provisions in the contract if:
The Court continued by emphasizing that even though significance may be attached to the wording of the provisions, the given circumstances can require that a different meaning must be attached to the words used. The meaning which both parties could have reasonably attributed to the provisions in the given circumstances and what they could reasonably expect from each other in that respect remains, also for commercial contracts, decisive.
When you want to do business with Dutch parties in the Netherlands, the contracts are often drafted in English as both parties understand this language. Additionally, Dutch law might be applicable and the Dutch court might have jurisdiction as regards disputes arising from the contract (or parties have chosen Dutch law as the applicable law and designated the Dutch court as having jurisdiction). Be warned in such case that in any dispute the Court will attach great significance to the meaning of the parties as explained above.
Therefore, it is important to realise that the English provision might have a different meaning than its Dutch counterpart. Both parties in that case could have had a different meaning in mind. For example, the breach of a warranty according to English law gives right to damages, while the breach of warranty (‘garantie’) in Dutch law also includes the right to terminate the entire contract. In such cases, courts will look at the circumstances of the case and the statements made by both parties before entering into the contract to find the meaning of the provision.
In this respect, pre-contractual negotiations are of great significance for the interpretation of a contract according to Dutch law. Ensure that the contract including the meaning of specific provisions is clear for all parties concerned. In order to prevent ambiguities as much as possible, it could be very helpful to insert the Dutch meaning of the word between brackets or in a list of definitions.
Even though it might be hard to erase all uncertainties, clear pre-contractual negotiations and assistance by a lawyer or other legal advisor is a step in the right direction.
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For questions regarding negotiatons, contractual interpretation or any other issue related to contract law, please feel free to contact Daniëlle Blox or the loss, liability and dispute practice group.