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Exclusion of liability for indirect damage in the Netherlands

Exclusion of liability for indirect damage in the Netherlands

The exclusion of liability for indirect damage in the Netherlands is a common practice. This is not without reason; the potential damages that can arise from, for example, a defective product or service can be enormous. The best way to limit damages is to have an appropriate set of standard terms and conditions written specifically for your situation. General terms and conditions are written one-sidedly and are intended to be used repeatedly for different agreements with different parties. It is reassuring to know the risks you are contracting. As a side note, it is at least as important that you correctly declare the terms and conditions applicable to the contract under Dutch law. As a rule, you do this at the latest before or during the conclusion of the contract and (preferably) by sending a proper notification of the (exclusive) applicability of your general terms and conditions. Merely ‘having’ a good set of general terms and conditions is usually not enough in the Netherlands to successfully invoke them.

The concept of indirect damage under Dutch law is the subject of legal debate in the Netherlands due to the lack of a clear definition and the potential for ambiguity. Reduced to its essence, indirect damages refer to damages that are not the direct consequence of a breach of contract but rather result from secondary effects such as lost profits or diminished goodwill. As such, disputes over indirect damages in the Netherlands can be complex and costly for businesses. In this article, our Dutch contract law solicitor explains more about the exclusion of liability for indirect damages in general terms and conditions.

Limiting liability in standard terms and conditions in the Netherlands

Limiting liability is often done in general terms and conditions. In B2B situations, the general rule (subject to exceptions based on reasonableness and fairness) is that liability can be limited to a great extent. You can limit liability in general terms and conditions in a separate clause on liability. For example, you can limit your liability per incident, per year, or to the amount covered by your insurer. Incidentally, the latter is not very popular in insurance practice because it opens the door to larger claims against the insurer and leaves the insurer less protected. Note that there is a high degree of contractual freedom here and you can exclude liability to a large extent in the general terms and conditions. At the same time, you can limit the extent of your damages to a large extent by setting limits on what you are or are not liable for.

What is the difference between direct and indirect loss under Dutch law?

As a specialist in contract law, I find that direct and indirect damages are often overlooked, especially when it comes to ‘small print’. However, the difference has a major impact on the risks you may face as a business owner. Direct damage and indirect damage are somewhat difficult to define, as Dutch law does not contain definitions of these terms. However, it is good to be aware that if you do not ‘indemnify’ yourself (i.e. exclude liability) for indirect damage, then this property damage may well be compensated. It is important for you as a business person to know what damage you exclude, or what damage the other party will not indemnify you for, if (for example) something goes wrong in a commercial contract, or if there is an imputable defect.

Indirect damage is often excluded altogether in the user’s general terms and conditions, for example in general terms and conditions of sale and delivery or in a service contract. As a rule, this means that lost profits, lost turnover, and lost savings are excluded. At the same time, it should be emphasized that other claims for damages may also arise, such as loss of data, loss of production capacity, and/or corrupted data. In most cases, the indirect loss is also understood to mean the cost of repairing a loss caused by a defect in a purchased product or service.

What is the definition of property loss in the Netherlands?

Property damage can best be defined as losses suffered and/or lost profits. The basic principle is that the claimant should, as far as possible, be put in the position he was in before the loss occurred. In short, any loss of profit (and this is usually the sticking point) can be recovered from you as the party at fault, if not excluded.

Exclusion of liability for indirect damage under Dutch law

The exclusion of indirect damage in general terms and conditions is a common practice. This is not without reason; the potential damages that can arise from, for example, a defective product or service can be enormous. The best way to limit damages is to have an appropriate set of standard terms and conditions written specifically for your situation. General terms and conditions are written one-sidedly and are intended to be used repeatedly for different agreements with different parties. It is reassuring to know the risks you are contracting. As a side note, it is at least as important that you correctly declare the terms and conditions applicable to the contract. As a rule, you do this at the latest before or during the conclusion of the contract and (preferably) by sending a proper notification of the (exclusive) applicability of your general terms and conditions. Merely ‘having’ a good set of general terms and conditions is usually not enough to successfully invoke them.

The concept of indirect damage is the subject of legal debate in the Netherlands due to the lack of a clear definition and the potential for ambiguity. Reduced to its essence, indirect damages refer to damages that are not the direct consequence of a breach of contract but rather result from secondary effects such as lost profits or diminished goodwill. As such, disputes over indirect damages can be complex and costly for businesses. In this article, our contract law solicitor explains more about the exclusion of liability for indirect damages in general terms and conditions.

Limiting liability in general terms and conditions under Dutch law

In B2B contracts, unless the (reluctant) restrictive or additional effect of reasonableness and fairness prevents it, or in situations where intent or conscious recklessness comes into play, liability can be severely limited or even excluded. It is always advisable to study general terms and conditions carefully and not to accept them blindly. Conversely, as a supplier of a service or product, it is advisable to exclude liability for indirect damage in general terms and conditions.

If a discussion about the applicability of general terms and conditions (and the exclusion of indirect damage) turns out to be a pointless exercise – for example, because you are dealing with a (much) larger counterparty and they do not want to deviate from their terms and conditions – ask for tailor-made solutions in a separate addendum or in a separate purchase or service agreement. After all, they want to do business with you too, and you can achieve more by sharing the opportunities and risks openly. In our experience, some things are possible even if you insist on using general terms and conditions. With very limited exceptions, a separate contract negotiated by you will prevail over a set of general terms and conditions that exclude liability for indirect damages.

Exclusion of indirect damages in the Netherlands

What are the most important things to remember about liability exclusions in general terms and conditions? Here are the key points:

  • Make sure you know which general terms and conditions apply, yours, your counterparty’s or industry’s terms and conditions. Be aware that the applicability of general terms and conditions can be a complex issue, and get proper advice on this from a lawyer experienced in contract law.
  • Indirect damages are not clearly defined and can lead to legal disputes in the Netherlands.
  • Exclusion clauses for indirect damages should be unambiguous and specific, taking into account the commercial context and reasonableness.
  • Effective exclusion clauses require careful consideration of exclusion criteria, contractual obligations, risk assessment and commercial impact.
  • Exclusion clauses that violate Dutch law are void and unenforceable, and liability limits should be clearly defined to avoid excessive exclusion of liability.
  • When discussing liability limits in general terms and conditions, it is advisable to set up a separate contract in addition to the set of general terms and conditions in which you divide the risks with regard to liability more (tailor-made).

Make sure you know which terms and conditions apply – yours, your counterparty’s or industry terms and conditions. Be aware that the applicability of general terms and conditions can be a complex issue and seek appropriate advice from a lawyer experienced in contract law.

Is there an exclusion of liability for indirect damage?

When we talk about contractual liability, we are usually talking about an agreement that has not been properly, timely or fulfilled. In certain circumstances, liability can be excluded in contracts or general terms and conditions. Such a clause is also known as an exculpatory clause.

Whether such a clause can be upheld depends on the specific circumstances of the case in which it is invoked. For consumers: A contractual provision that excludes liability in a contract or in a set of general terms and conditions is on the so-called grey list in the Dutch Civil Code. Terms on this grey list are considered to be unreasonably onerous. Consumers can invoke the voidability of such a (disclaimer) clause. In B2B situations, however, this works differently.

EXONERATION CLAUSE OR EXONERATION PROVISION IN GENERAL TERMS AND CONDITIONS

Freedom of contract is one of the pillars of Dutch contract law. This means that the exclusion of liability for indirect damage in general terms and conditions also falls under this freedom of contract. At the same time, you are completely free to decide with whom you do business and to make other substantive agreements. However, agreements must not be contrary to mandatory law, public order or morality. There are also limits to freedom of contract and to the extent to which liability can and may be excluded, for example for indirect damage. Whether such an exclusion of liability is permissible, in other words whether an exculpatory clause is admissible, is usually judged by the court on the basis of criteria formulated by the Supreme Court in the Saladin v HBU judgment of 1967. This case sets out the principles for limiting liability. However, such a clause may be disapplied if reliance on it is unacceptable in terms of reasonableness and fairness.

According to the Supreme Court, this assessment must take account of numerous circumstances, including:

  • the seriousness of the fault, also in relation to the nature and seriousness of the interests involved in the conduct
  • the nature and other content of the contract in which the clause appears
  • the social position and mutual relations of the parties
  • the manner in which the clause was concluded; and
  • the extent to which the other party was aware of the scope of the clause.
  • Legal framework for the exclusion of indirect damage in standard terms and conditions

Defining exclusions of liability for indirect damage requires careful analysis of the contractual implications as well as the legal implications under Dutch law. Here are three important considerations to take into account when developing strategies for limiting liability in general terms and conditions:

The reasonableness of an exclusion of liability: Dutch case law has tended to focus on the specific circumstances of the case and the extent to which an exclusion of liability is unreasonable or unacceptable under the standards of reasonableness and fairness.

The context of the contract: When interpreting exclusion clauses, judges will take into account the commercial context surrounding the contract, including any negotiations or subsequent conduct of both parties.

General vs. specific disclaimers: A general disclaimer of “indirect loss” may not be sufficient if it does not specify what types of indirect loss are excluded (think of loss of data, for example).

Given these considerations, it is important for companies to draft their exculpatory clauses carefully, accurately and clearly.

Important considerations when drafting a disclaimer under Dutch law

Drafting effective exculpatory clauses under Dutch law requires careful consideration of the exclusion criteria, contractual obligation, limitation clauses, risk assessment and commercial impact. Exclusion clauses should be drafted clearly and accurately to ensure that they are reasonable and enforceable. Key considerations when drafting exclusion clauses include identifying the risks to be excluded, defining the scope of the exclusion clause, ensuring that the clause does not conflict with legal (mandatory) requirements or public policy and/or morality, and informing all parties of its existence.

Excluding indirect damages in general terms and conditions under Dutch law

Ensuring compliance with the law when drafting exclusion clauses requires a good understanding of the relevant legal requirements and public policy considerations. Contractual compliance is crucial, as exclusion clauses that violate Dutch law will be considered void and unenforceable. Risk assessment is also essential to identify potential risks and liabilities that may arise from the exclusion of indirect damages. Limits of liability should be clearly defined to avoid excessive exclusions of liability.

In addition, contract negotiation plays a crucial role in drafting exclusion clauses to ensure compliance with the law. Both parties should agree on the terms of the contract, including the exclusions, before it is signed. Dispute resolution mechanisms should also be provided for in the event of problems with the interpretation or enforcement of such clauses. In summary, to ensure compliance with the law, careful consideration should be given to all aspects involved in drafting an effective exclusion clause under Dutch law.

By looking at case studies and examples, companies can learn from past cases where the courts have condemned poorly drafted exclusion clauses or clauses that are contrary to public policy considerations. By analyzing these cases, companies can gain insight into how best to protect their interests without breaking the law or risking reputational damage as a result of unfair contract terms.

LIMIT LIABILITY WITH A disclaimer under Dutch law

Our Dutch law firm in Amsterdam advises organizations on the applicability of general terms and conditions, exculpatory clauses, and commercial contracts. The exclusion of liability and indirect damages in general terms and conditions in the Netherlands is also an important part of our contract law team. From sale and purchase agreements to complex IT contracts, our lawyers have the knowledge and expertise you need. We can also draft general terms and conditions for you so that your opportunities and risks are clear, and your interests are best served.

Dutch Lawyer specializing in the exclusion of indirect loss in standard terms and conditions

If you are looking for an experienced contract lawyer in the Netherlands, particularly in the area of the exclusion of indirect damages, we are happy to help. Our Dutch contract lawyer, Remko Roosjen, has been working in the field of commercial contract law for many years and advises and litigates in the field of national and international contracts.

+31 (0)20 – 210 31 38
remko.roosjen@maakadvocaten.nl

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.