When buying a property, a buyer may assume the accuracy of the seller’s disclosures. The seller must also provide the buyer with correct information which may be relevant to the purchase. We call this: the duty of disclosure in the Netherlands. If the buyer has any doubts about the properties of the item, or if they wish to obtain certain information that may be important in relation to their decision to buy, they must investigate this. We call this ‘the obligation to investigate’. The duty to disclose and the duty to investigate are communicating vessels. Our contract law attorney in the Netherlands, Remko Roosjen, often receives questions on this point, which relate to the sale of real estate and ships, as well as other matters. In a recent Supreme Court ruling on the sale of a sailing charter vessel, both the duty to disclose in the Netherlands and the duty to investigate were once again the subject of discussion. Remko Roosjen discusses this Supreme Court case.
Duty to disclose in the Netherlands and the duty to investigate
The duty to disclose in the Netherlands and the duty to investigate are not new phenomena. A classic judgment in the field of the duty to disclose and the duty to investigate is Van Geest/Nederlof (HR 21 December 1990, NJ 1991, 251). In this case, Ms Van Geest bought a second-hand car which, following an ANWB inspection, was found to have been involved in a car accident. The damage had not been properly repaired. The seller (Nederlof) was aware of this, but concealed it. Ultimately, the buyer was disappointed. The question arose as to whether or not this was erroneous at the time of purchase.
Duty of disclosure in the Netherlands overrides duty to investigate
According to the Supreme Court, the point is that, when one party should have provided the other party with certain information before the conclusion of a contract in order to prevent the other party from misrepresenting itself, good faith will generally prevent the party from arguing, in order to ward off a claim of error, that the other party is partly to blame for the error’s occurrence. In short, the buyer may rely on the accuracy of the seller’s communications. The seller’s duty of disclosure in the Netherlands thus takes precedence over the buyer’s duty of investigation. If a buyer has doubts, or wants to be certain of something, it is up to them to investigate further. Which party is most to blame should therefore not be considered (as ruled by the Court of Appeal).
Non-compliance under Dutch law
In legal jargon, when an item does not comply with an agreement, this is called ‘non-conformity’. According to Article 7:17 of the Dutch Civil Code, an item does not comply with the agreement if, partly in view of the nature of the item and the statements made by the seller about the item, it does not possess the properties which the buyer could expect on the basis of the agreement. The buyer may expect the goods to possess the properties necessary for their normal use, the presence of which he or she did not have to doubt, as well as the properties necessary for a special use as foreseen in the agreement.
Remedies against non-conformity in the Netherlands
Inso far as conformity is concerned, there are several actions you can take in the Netherlands. These include: dissolving the contract (there must first be default, however); voiding the contract; or, for instance, negotiating a different price. In addition, you can claim a refund of your purchase price and, if possible, you can still claim damages. In short, several remedies are possible in the occurrence of non-conformity under Dutch law.
Duty of disclosure in the Netherlands
When considering whether or not a buyer has been properly informed, our lawyers who specialise in contract law first look at the so-called duty of disclosure. The seller is obliged to properly inform the buyer about the property he or she is selling. If there is a defect in what is being sold (if, for example, asbestos is present in a house, a car has been involved in an accident or the ground is polluted), the seller has a duty to point this out to the buyer, or to ‘inform’ him or her of it. The seller must play an active role in this. If the seller fails to do so, the buyer may be led astray and proceed to the purchase based on incorrect information.
Duty to investigate in the Netherlands
The other side of the coin to the duty of disclosure is the duty to investigate. If the buyer was aware or could reasonably have been aware at the time of concluding the contract that the item did not comply with the contract, the buyer must also take action and investigate further. The buyer thus has a duty to investigate. The scope is, of course, different in each case; however, the buyer may only expect to find those properties of an item the presence of which he or she does not have to question.
Buying a ship in the Netherlands
The new Supreme Court case dealt with the purchase of a ship. In essence, taking the Van Geest/Nederlof case into consideration, the conclusion was that the seller’s duty of disclosure prevailed over the buyer’s possible duty of investigation. In addition, a limited extent of defects in an item did not in itself prevent non-conformity; nor did the circumstance that the defects had been remedied.
In this case, the parties entered into a purchase agreement for a sailing vessel. The vessel was a Koftjalk vessel, built in 1910. The agreement contained, inter alia, the following provisions on the risk of possible defects and the obligation of the buyer and the sellers respectively to examine and disclose:
The actual delivery of the sold property to the buyer will take place in the condition it is in at the conclusion of this agreement (…).
Purchaser will be given the opportunity before delivery to dry-dock the vessel for inspection of the underwater hull, costs of dry-docking, cleaning, survey, and inspection costs shall be borne by Purchaser.
Costs of any repairs of or to the underwater hull prescribed by such surveyor shall be at the Seller’s expense and risk (…).
(…) Buyer intends to use the sold as a seagoing sailing charter vessel.
Any defects known to the Buyer that may prevent this from happening are at its risk. (…)
The buyer has the right to inspect the sold property internally and externally before the actual delivery. The sold property shall be transferred with all corresponding rights and claims, visible and invisible defects (…).
Notwithstanding the foregoing, the Seller warrants that it has given the Buyer such information concerning the sale as it is required to disclose to the Buyer in accordance with current commercial practice.
The Buyer accepts that the results of the investigation into those facts and circumstances which, according to prevailing commercial practice, belong to its area of investigation are at its risk.”
Destruction of contract on grounds of mistake and rescission
At some point, rust appeared and lead to leaks. The buyer held the sellers liable for this. A claim for damages ensued, as well as a claim for annulment or dissolution of the purchase agreement on the grounds of error (Article 6:228 of the Dutch Civil Code) and non-conformity (Art. 7:17 Dutch Civil Code). In short, this was on the grounds of failure to inform correctly about defects.
Court and court on duty of disclosure and duty to investigate
The District Court and the Court of Appeal dismissed the claims. According to both courts, the claim based on error could not stand because (in summary) the buyer failed to make use of putting the sailing vessel in dry dock and inspecting it. If the buyer erred here, this remained for his account under Article 6:228 paragraph 2 of the Civil Code, according to the District Court and the Court of Appeal. The fact that there may still have been a prior duty of disclosure was thus circumvented by the District Court and the Court of Appeal. The Court of Appeal ruled on the alleged non-conformity of the sailing vessel that the defects were of too limited a significance for this.
Supreme Court: misunderstanding that the duty to disclose prevails over the duty to investigate
The case came before the Supreme Court, which overturned the Court of Appeal’s judgment, citing established case law that the seller’s duty to disclose in the Netherlands prevailed over the buyer’s duty to investigate, if any. Among other things, a 2008 judgment held that:
“The starting point is that, in general, a buyer, including an imprudent buyer, will not be able to rely on the fact that he did not sufficiently investigate the properties of the purchased item, if the seller had a duty of disclosure in this respect according to generally accepted standards, but failed to inform the buyer of any factual information known to the seller that was relevant for answering the question of what properties the buyer was entitled to expect from the purchased item in view of its intended use.”
The background is that the seller knows best the possible defects in an item he or she is selling and good faith then entails being truthful about this to the buyer.
The Supreme Court considered (para 3.1.5):
“The Court of Appeal has either misunderstood that in general it cannot be held against a buyer, even an imprudent buyer, that he has not sufficiently investigated the properties of the object of purchase, when the seller had a duty of disclosure in this respect according to generally accepted views, but has failed to inform the buyer of the factual information known to the seller that is relevant for answering the question which properties the buyer could expect of the object of purchase in view of its intended use, or has not provided sufficient grounds for its opinion that the aforementioned starting point is exceptional in the present case. Indeed, in the latter case, the court should have included the special circumstances of the case in its reasoning. Subsection 2 rightly complains in this respect that the Court of Appeal did not pay cognisable attention to [the buyer]’s reliance on (i) the flat thickness report handed over to [the buyer] by [the defendants] prior to the purchase, (ii) the circumstance that the ship was sailing ‘under Class’ at the time of purchase and the assertion made by [the buyer] in that respect that the class certification would have lapsed if [the defendants] had complied with their reporting obligation in respect of [the captain’s] report and (iii) art. 11 of the purchase agreement (see above in 2.1 under (ii)). Nor did the court adequately address (iv) the argument of [the buyer] in this regard as to the cause of the defects found in 2018 and the inaccuracy of [defendants’] statements in that regard and (v) the degree of expertise of the parties.”
The Supreme Court also assessed a rejection on non-conformity differently from the Court of Appeal. According to the Supreme Court, the court here misjudged that a limited extent of defects in an item does not in itself prevent a reliance on non-conformity from succeeding, nor does the circumstance that the defects were remedied and the item was subsequently used.
The Supreme Court considered (para 3.2):
“Part 4 disputes the Court of Appeal’s opinion in paragraph 3.7 that the defects to the ship’s hull in the plane of the vessel that came to light during the inspection on 2 April 2017, in view of their minor extent, the fact that they were remedied and the circumstance that [the sailing charter vessel] was subsequently sailed the entire season, do not constitute non-conformity within the meaning of Section 7:17 of the Civil Code. The section hits the mark. It correctly argues that the Court of Appeal has either failed to recognise that a minor extent of defects does not in itself preclude non-conformity, nor does the circumstance that the defects have been remedied and that [the buyer] subsequently sailed the entire season with the ship, or has insufficiently substantiated its judgment in this respect.”
Engage a lawyer in the Netherlands specialising in contract law
Would you like to seek advice on the duty of disclosure in the Netherlands and the obligation to investigate, or have you gone astray when buying a vessel? Contact our contract law specialist in the Netherlands, Remko Roosjen. Together with you, he will review the case and map out your legal position. Engaging a lawyer of our Dutch law firm is always non-binding at first. Our lawyers in the Netherlands will be happy to make an appointment with you.