By: Sander Schouten @AMS Advocaten
When parties are in conflict about the interpretation of a contract, lawyers and judges in the Netherlands will firstly apply the Haviltex criterion (named after case law with the same name). According to this famous criterion not only the literal interpretation of the wording of a contract is relevant but also are the underlying intentions of the parties and what they may expect from each other. The importance of the Haviltex criterion is underlined in a recent ruling from the Dutch Supreme Court. Sander Schouten, solicitor contract law, explains.
Dispute about contract interpretation
In this case the two contract parties, a retailer and one of their suppliers, are in disagreement about a Dutch contract which contains a so-called entire agreement clause. This clause implies that all arrangements between parties are laid down in the contract an therefore parties cannot derive rights from any previous (oral) arrangements. The legal dispute in this case is whether the supplier can claim performance of commitments regarding orders made by the retailer which are not laid down in the contract. The retailer invokes the entire agreement clause and argues that they are not bound to other oral commitments.
Court of Appeal: literal interpretation prevails
The Court of appeal considers that while both parties operate in a professional capacity and have negotiated the content of the contract, the Court attaches great importance to the literal meaning of the chosen wording. This implies that the supplier is bound to the entire agreement clause and cannot rely on the orally made commitments.
Supreme Court: intentions of parties prevail
The Supreme Court adopts a more lenient approach. Even when the literal interpretation of a contract outweighs other interpretations, there may be relevant factors which can lead to a different interpretation after all. The intention of the parties and the mutual expectations remains decisive at all times. The literal meaning of a disputed contract provision obviously enables a judge to form a preliminary opinion. However, if a party gives reasons for contesting that, a judge must offer this party the opportunity to bring forward evidence to substantiate his claim.
Dutch law firm contract law
Vague wording in contracts can cause long and expensive litigation. Amsterdam based law firm AMS Advocaten focuses not only on litigation, but they also advise their clients, for example when concluding a contract.
This original article is available here.
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