Interpretation of contracts - under Dutch law

How do you interpret contracts - in the Netherlands?

The Dutch legal system takes a unique approach to the interpretation of contracts, going to great lengths to give effect to parties’ true contractual intentions, even if they are not properly reflected in the wording of the contract.

When is the Haviltex rule used to interpret contracts under Dutch law?

Under the so-called Haviltex rule, the literal wording of a written contract is not necessarily decisive in determining parties’ rights and obligations. Where the facts or circumstances of a case so require, a contractual provision may be given a meaning other than its literal meaning. What will be decisive is the meaning that the parties were entitled to reasonably expect of the provision, and of each other, in the given circumstances.

Can you argue for another meaning than the literal wording of a contract under Dutch law?

Decisive for the interpretation of a contractual provision to which Dutch law applies, is the meaning that the parties were could reasonably expect of the contract provision, and of each other, in the given circumstances. In the Netherlands, the courts have firmly rejected the so-called parol evidence rule, even in commercial settings. This means that parties are free to argue and adduce evidence to prove that an interpretation other than a literal interpretation of a given contractual clause is more in line with the parties’ intentions. This will even be the case where the contract in question contains a so-called entire agreement clause. If your business is based in an English speaking country such as the UK, the US, Australia, Canada, New Zealand or Singapore, this will likely come as a shock to you. In common law countries, where the parties have entered into a written contract, they will generally not be able to depart from the wording of the contract, for example if it turns out that the written contract does not accurately reflect an agreement or representation made by the parties during the negotiation of the contract. Lawyers call this the parol evidence rule.

Should you include an entire agreement clause under Dutch law?

Under Dutch contract law entire agreement clauses are often included in contracts to entrench or supplement the parol evidence rule:

This Agreement constitutes the entire agreement between the Parties and supersedes and replaces all previous drafts, agreements, arrangements and understandings between them, whether written or oral, relating to this subject matter.

While the literal meaning of a contract’s wording will not be decisive, the Dutch courts still recognise the need for legal certainty, especially in commercial contexts. For this reason, the literal meaning of a contract’s wording will always be given significant weight, particularly where the parties to the contract are commercial parties and where the contract was carefully negotiated.

Another legal principle which is of great significance in the interpretation of contracts under Dutch law is the overarching guiding principle of reasonableness and fairness which can be used to supplement a contract’s provisions or to prevent reliance on a provision if such reliance would be unacceptably unreasonable or unfair in the given circumstances.

The Supreme Court of the Netherlands held that in commercial contracts between professional parties the most obvious grammatical interpretation in the wider context of the agreement shall be of decisive importance, though counter evidence could be permissible. In a judgment handed down on April 5, 2013 (Lundiform/Mexx) the Supreme Court of the Netherlands ruled that under certain circumstances there is no reason to attribute great importance to the specific wording of a contract. These circumstances are if such wording:

1. had not been the subject of negotiation
2. was part of general terms drafted by the legal department of one party, and
3. the other party was not assisted by a lawyer when entering into the agreement.

The Supreme Court of the Netherlands ruled that under Dutch contract law an entire agreement clause in a contract does not necessarily change that. The reason for this is that the meaning of such a clause depends on all relevant circumstances, including:

1. the wording of such a clause
2. the nature, content, purpose and level of detail of the contract, and
3. the way the clause was negotiated and became part of the agreement.