Good governance: The intention of the parties

What can parties expect when they bring a dispute over a contract before a Dutch court? And how can they take that into account when negotiating and drafting the contract?

Although the parties might think they have clearly written down their agreements, sometimes it turns out that they have different opinions over the interpretation of these agreements afterwards. What can the parties expect when they bring a dispute over a contract before a Dutch court? And how can they take that into account when negotiating and drafting the contract?

Quite often the parties have different opinions about the interpretation of a contract. Mostly, this concerns a provision which the parties interpret differently or a subject that was not included in the contract. In this case the contract has to be interpreted.

The highest court of justice of the Netherlands (Dutch Supreme Court, Hoge Raad) decided that for the interpretation of a written contract regard must not only be given to the linguistic meaning of the text but also to what the parties have assured each other and what they could reasonably deduce from each other’s statements and conduct. In addition to the text, the intentions of the parties are also of great importance. This is also known as the “Haviltex-criterion”, derived from the Haviltex-judgment given by the Dutch Supreme Court.

The company Haviltex purchased a flower cutting machine from a supplier. According to the contract, the machine could be given back up for a refund of NLG 20,000 until 1 year after the purchase. After a few months, Haviltex returned the machine to the supplier without giving any reasons. The supplier, however, refused to refund the money as according to him the machine could not be returned without reasonable cause. Despite the fact that this requirement was not included in the contract, the supplier was proven right. According to the Supreme Court, Haviltex could have expected that he could not just return the machine without reasonable cause.

In a number of successive decisions, the Supreme Court indicated that different factors play a role for determining the intentions of the parties. Thus, it can be relevant what the social circles of the persons in question are, what their knowledge of the law is and whether they had legal assistance when drafting the contract. In addition, significance will be attached to the context of the clause and the parties’ conduct after the conclusion of the contract (the performance). Determining the facts and circumstances of the realisation of a contract is essential for a lawyer.

If a contract has been carefully concluded between commercial parties or if the contract is relevant for the legal status of third parties, more importance will be attached to the linguistic explanation of the wording. This doesn’t mean, however, that the Haviltex-criterion (the intentions of the party) will be completely neglected. Finally, the Supreme Court decided in 2013, that the interpretation according to the Haviltex-criterion cannot be rendered irrelevant by including a so-called ‘entire agreement clause’ in the contract.

Because of the important role of the Haviltex-criterion, Dutch contracts are usually shorter than British or US contracts. As great emphasis is attached to the intentions of the parties in addition to the actual wording of the contract, establishing the details in writing is of relative less importance.

Action

• Make sure that what you intended will be included in the contract. Seek expert legal advice to do so.
• Make sure your intentions are laid down in e-mail or other correspondence and save it.

More information

Would you like to know more about drafting contracts and General Terms & Conditions? Are you involved in a dispute or proceedings about the termination of contracts or their interpretation? Please contact: