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Contract Interpretation under Dutch law: The High Court’s Latest Verdict

Contract Interpretation under Dutch law: The High Court's Latest Verdict

In the dynamic world of commercial contracting, the Dutch High Court’s decision on August 25, 2023, has sparked widespread discussion and commentary. This landmark ruling revisits the foundational “Haviltex” criterion, a cornerstone for interpreting contractual actions. The decision has piqued the interest of legal professionals across the Netherlands, reaffirming the Haviltex criterion’s pivotal role in Dutch contract law. Although the case took place in the field of family law, it is also relevant to the business market, insofar as contracts are made under Dutch law. It is good to be aware that in Dutch law, reasonableness and fairness play an important role, and that the intention of the parties in a contract usually prevails (even if things are written differently).

Whether the so-called “Haviltex criterion” (named after a landmark case in the 80s) for interpreting contractual provisions can be explicitly excluded in a contract, leaving only the contract’s text as the basis for interpretation, has long been debated within the realm of contract law. In the recent ruling, the Dutch Supreme Court was unable to evaluate a contractual interpretation provision to this effect because there was no complaint in cassation regarding the interpretation applied by the appellate court to the said provision. Contrary to what many legal scholars currently believe, this ruling does not conclusively allow for the outright exclusion of the Haviltex criterion. This blog post will delve into what can indeed be inferred from the ruling.

What Does the Haviltex Criterion Entail?

The Haviltex criterion transcends mere textual analysis of contract provisions, advocating for a comprehensive consideration of all relevant circumstances. Stemming from a seminal 1981 ruling, this approach emphasizes understanding the mutual intentions and reasonable expectations of the contracting parties. It underscores the importance of context, including the parties’ social circles and their legal acumen, in interpreting contractual relationships and identifying potential gaps that need addressing. Over the past four decades, the Haviltex principle has remained robust, undergoing refinements that enhance its applicability. It proves especially valuable when contracts are the result of negotiations, offering clues to decipher the intended meanings and expectations of the parties. Communications such as emails and draft agreements play a critical role in this interpretative process. However, the Haviltex criterion also extends to non-negotiated agreements, like standard terms and conditions, where a more objective interpretation may be warranted.

What was the Dutch court case about?

The case concerned the interpretation of family law agreements. The arrangements were set out in a settlement agreement in September 2009. The settlement agreement contained the following provisions:

‘In the execution of this agreement, the literal text of this agreement, notwithstanding the Haviltex criterion, shall prevail over any intention of the parties, so that in the event of any dispute arising in any way from this agreement, even if only one of the parties considers that a dispute exists, the competent court shall interpret and apply the provisions contained in this agreement solely on a literal basis.

and:

“Spousal maintenance shall cease on the date on which the wife reaches retirement age, i.e. on 24 May 2021”.

This last provision was incorrectly drafted for several reasons. Firstly, because in 2009 the retirement age was still 65; this was subsequently changed. Secondly, the wife would not reach the then applicable retirement age of 65 on 24 May 2021, but on 25 May 2022.

How did the Dutch judges rule?

The Dutch district court (“rechtbank”) sees this as a manifest error and rules that the agreement shows that the parties intended the maintenance to continue until the then applicable retirement age of 65, which in the wife’s case was 25 May 2022.

The court of appeal (“gerechtshof”) took a different view. It ruled:

‘5.5.1. The Court of Appeal first noted that it was not disputed by the parties that, based on the provisions in the preamble to the settlement agreement concluded between them in September 2009, they had excluded an interpretation of the provisions of the agreement by the Haviltex criterion and that, in the event of a dispute between the parties, the court should interpret the relevant provision of the settlement agreement only grammatically. However, there is a dispute between the parties as to what should be the result of the grammatical interpretation of the provisions of Article 1.7. Concerning the end date of the spousal maintenance to be paid by the husband to the wife.

5.5.2. based on the content of Article 1.7. of the settlement agreement, the court thinks that the only fact in this Article that cannot be interpreted in two ways is the end date of the spousal maintenance to be paid by the husband to the wife. The term ‘retirement age’ is, in the Court’s view, open to multiple interpretations, which is not permissible in view of the exclusion of the Haviltex criterion.

The Supreme Court (“Hoge Raad“) upheld the judgment of the Court of Appeal. The Supreme Court noted that no complaint had been made against how the Court of Appeal had interpreted the contract and the interpretation clause. Indeed, part of the cassation plea complains, in particular, that, even in the case of a grammatical or objectified interpretation of Haviltex, the plausibility of the legal consequences of a certain interpretation should be considered, which the Court of Appeal did not do (r.o. 3.2.2):

“To the extent that the plea complains that the Court of Appeal, by this judgment, disregarded the grammatical or objective standard of interpretation as referred to in the case law of the Supreme Court, by disregarding the plausibility of the legal consequences of the interpretation of Article 1.7 given by the Court of Appeal, it ignores the fact that the preamble to the Settlement Agreement contains the aforementioned own, contractual standard of interpretation. The plea does not criticize the Court of Appeal for interpreting this contractual standard incorrectly or incomprehensibly.

Does the High Court’s Decision Redefine Contractual Interpretation?

The recent High Court verdict allows for the exclusion of the Haviltex criterion under certain conditions. This development invites scrutiny to avoid overinterpretation. The ruling does not fundamentally alter the landscape of contract interpretation but rather reinforces the nuanced application of the Haviltex principle. It serves as a reminder that this criterion, in many cases, acts more as an ally than an adversary in understanding contractual obligations.

Navigating the Practical Application of the Haviltex Norm

Legal practitioners often seek to guide the application of the Haviltex standard, aiming for clarity in contractual relationships. This involves a delicate balance between subjective intentions and objective understandings, ensuring contracts serve their intended purpose while remaining fair and comprehensible to all parties involved.

Strategies for Contractual Clarity under Dutch law

To circumvent the limitations of the Haviltex criterion, parties might consider a three-tiered approach to contract drafting:

  1. Incorporate a clause that either mirrors the one described in the August 25, 2023, ruling or explicitly adopts a ‘literal’ interpretation standpoint.
  2. Define what ‘grammatical’ or ‘literal’ interpretation entails, ensuring the plausibility of legal outcomes remains a relevant factor.
  3. Include an entire agreement clause to prevent prior arrangements from becoming part of the contract, potentially aiding in a linguistic interpretation by default.
  4. Contact a Dutch contract lawyer

This methodology offers a more robust framework for contractual interpretation, steering clear of simplistic exclusions that might still fall under the scrutiny of the Haviltex criterion.

Conclusion

The absence of a definitive judgment from the Dutch Supreme Court regarding the contractual exclusion of the Haviltex standard does not render the decision irrelevant. From this case, it can be deduced that the Supreme Court, implicitly, and the Court of Appeal, explicitly, have agreed—consistent with existing lower court rulings and scholarly literature—that parties can contractually exclude the Haviltex norm.

This suggests, albeit cautiously, that parties are free to determine the standard of interpretation within their contract. However, it’s important to note that (a) the supplementary effect of fairness and reasonableness (in Dutch: “redelijkheid en billijkheid”) cannot be contractually excluded and may still exert a corrective influence in certain cases. Furthermore, (b) following Advocate General Valk, the interpretation standard agreed upon by the parties is itself subject to the Haviltex interpretation. In other words, the exact meaning of the contractually agreed standard of interpretation must first be determined using the Haviltex principle.

In summary, if parties wish to exclude the Haviltex norm in a specific case, they have solid grounds to do so. However, clarity and consistency in drafting such a provision are crucial to avoid inadvertently broadening its application.

Contact our Dutch Law firm

For any legal inquiries or support in the Netherlands, please feel free to contact our adept team at MAAK Advocaten. Committed to excellence, our Dutch lawyers provide superior legal services tailored to your distinct needs. You can reach our law firm in the Netherlands through our website, by email, or phone.

Our approachable and skilled staff at MAAK Attorneys will be delighted to assist you, arranging a meeting with one of our specialized attorneys in the Netherlands. Whether you need a Dutch litigation attorney or a Dutch contract lawyer in Amsterdam, we are eager to guide you through the legal intricacies and secure the most favorable results for your situation.

Contact details

Remko Roosjen | attorney-at-law (‘advocaat’)
+31 (0)20 – 210 31 38
remko.roosjen@maakadvocaten.nl

The information on this legal blog serves purely for educational purposes and should not be taken as specific legal guidance. While we endeavor to maintain accurate and current information, we do not assert its absolute completeness or relevance to your particular situation. For advice tailored to your legal concerns, we urge you to engage with a licensed attorney. Please note that the blog’s content may change without notice, and we are not liable for any inaccuracies or missing information.

Remko Roosjen

Remko Roosjen

Remko Roosjen is a Dutch contract attorney in the Netherlands and creates close working relationships with clients, providing pragmatic solutions across on all legal matters in the Netherlands. Remko is a partner of our commercial law firm in Amsterdam, the Netherlands. His specialist areas include Dutch contract law, including Dutch commercial contracting and legal disputes, including civil litigation, arbitration and mediation. Remko is a sharp, creative Dutch attorney with extensive cross-border experience representing both foreign plaintiffs and defendants. Visit Remko's profile via the website or via his LinkedIn Profile.