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The NCC on COVID-19 as an unforeseen circumstance

Blogs 07 May 2020
One of the first published decisions of the Netherlands Commercial Court (NCC) – the new, interna-tional division of the Amsterdam District Court which has previously been the subject of several articles of ours – is an interesting one for several reasons. Not only does the judgment in preliminary relief proceedings show how various Dutch legal principles are applied in an international commercial dispute (in an English ruling), but it also becomes clear how an appeal to unforeseen circumstances due to COVID-19 turns out in actual practice. The correlation between COVID-19 and commercial contracts has already been the subject of an extensive article published by us.

ECLI:NL:RBAMS:2020:2406 dealt with two questions: (i) was an agreement concluded between claim-ant, from New York, and the Amsterdam-based investment company Tennor about the sale and purchase of 50% of the shares in an equestrian (jumping) sports company for the amount of EUR169 million, and (ii) what should be done with the cancellation fee owed by Tennor to claimant pursuant to the letter of intent as agreed upon between the parties.

(i) Was an agreement concluded?
The NCC answers question (i) in the negative. The NCC first briefly summarizes how an agreement is concluded under Dutch law: by what is by reasonably acting parties to be considered as an offer and the acceptance thereof under the given circumstances. There are no procedural requirements attached to offer and acceptance thereof, but the circumstances of this situation – including in particular the circumstance that the involved parties in this dispute are experienced in the area of mergers and acquisitions, but also the purchase price involved and the extensive negotiations between the parties – have led the NCC to attach substantial importance to the lack of a duly signed contract in this dispute. The circumstances brought forward by the claimant to argue that a contract was indeed concluded – for example that Tennor expressed very little doubts during the negotiations, that Tennor’s advisors constantly acted as spokespersons, that no provisions were mentioned and that the expectation was created that the deal would be closed and that Tennor had already made mention on the deal in the press – were unconvincing to the NCC.

According to the NCC, the parties had clearly agreed a duel mechanism for the conclusion of the deal in the letter of intent: either by signing the contract or by payment of a 30 million euro fee by Tennor. Although Dutch law does not dictate any procedural requirements for offer and subsequent acceptance, the NCC feels that this duel mechanism is, however, important for the question of how the claimant can prove that an agreement was concluded, namely by proving that the conclusion mechanism was effectuated one way or the other. In this, claimant fails.

(ii) What will happen to the fee owed by Tennor?
The NCC subsequently addressed the question of what should happen to the fee owed by Tennor to claimant pursuant to the letter of intent that was in fact agreed upon. This amounts to 30 million euros. Tennor relies on articles 6:94, 6:248 and 6:258 of the Dutch Civil Code. The NCC discusses each of those articles independently and briefly reflects a number of important Dutch legal principles. For example, the NCC states that the starting point is the contractual freedom between the parties – the parties themselves determine what they have agreed – and that only in the event that a contract has an impact that is unacceptable according to the principles of reasonableness and fairness there is a basis to intervene. And those principles are determined by the parties as well; the judge must find a solution that ties in as closely as possible with what the parties have agreed and intended, meaning that it involves the same advantages, disadvantages and risk allocation. In short, the judge must assess the necessity to intervene in order to restore the contractual balance and equally distribute the negative consequences (as we defined it in our article about COVID-19 and commercial contracts).

After a thorough consideration of the circumstances and arguments mentioned by both parties, the NCC concludes that by upholding the fee of 30 million euros owed by Tennor, the contractual balance remains intact. In summary: parties have knowingly put the risk of the obligation to pay the fee with Tennor in case Tennor would cancel the deal, just as it did. That is was – again, knowingly – limited at 30 million euros. The other substantial (financial) consequences of cancellation of the deal will subsequently remain at the risk of the claimant. Tennor is therefore ordered to pay 30 million euros. Tennor’s request to have the NCC’s ruling declared not to be provisionally enforceable because of an alleged recovery risk and a declaration of the intent to appeal in case of an unfavourable ruling in the first instance, is rejected by the NCC. The NCC’s judgment relies heavily precisely on the (according to the NCC) serious interest of the claimant, while the alleged recovery risk has not been made plausible by Tennor.

Conclusion
This ruling of the NCC can be considered a prelude of the way in which the intentions on which the NCC was founded will be shaped in actual practice. An international commercial dispute with substantial financial interests will be settled on the basis of comprehensible, extensive explanations in English on Dutch legal principles, such as the conclusion of an agreement (and within that sphere, for example, the role of any expectation that an agreement will be concluded that may or may not have been given), the mechanism of reasonableness and fairness within the framework of (commercial) contracts, the balancing of interests in preliminary proceedings and those within the framework of the decision to declare a ruling provisionally enforceable or not. The knowledge that this comprehensive approach is being taken, can only make it more appealing to parties to record in their commercial contracts that they will put any disputes that may arise before the NCC.

BASE frequently advises and litigates in matters regarding (international) commercial contracts, also in English (for example in arbitration proceedings). For more information or advice on this subject, please contact Max Luiten or one of the other lawyers of the Corporate & Commercial Litigation department.

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