Recently, the Dutch Supreme Court ruled that the so-called Haviltex principle also applies to the interpretation of commercial contracts including the ‘entire agreement clause’.
Interpretation of contracts. Haviltex principle vs. linguistic interpretation
When parties to a contract share different opinions as to the interpretation and explanation of a contract, in most cases it is caused by the fact that the intentions of the parties are in conflict, the contract itself gives rise to various interpretations or simply because the parties have not foreseen a certain situation. As opposed to common law, where the actual wording of a contract clause in most cases is decisive, under Dutch law it is the intention of the parties to the contract which forms the basis for the interpretation of a contract clause. In this respect, the Dutch Supreme Court has formulated the aforementioned Haviltex principle.
This principle entails that for the interpretation of contractual clauses, the meaning that the parties under the given circumstances towards each other could reasonably attribute to these clauses and what they could reasonably expect from each other, will be decisive. Depending on the facts and circumstances, more weight can be attributed to the text or wording of a clause (linguistic interpretation) instead of the parties intentions (Haviltex principle). Circumstances which could lead to the linguistic interpretation to be more decisive as regards the interpretation of a contractual clause are:
1. the nature of the contract (e.g. is it a commercial contract entered into between professional parties);
2. the volume or size of the contract and the detail of the contract;
3. the way the contract was entered into (e.g. extensive negotiations or no negotiations and contract was signed directly);
4. were the parties advised and/or assisted by (legal) advisers or lawyers;
5. the entire agreement clause.
The Entire Agreement Clause
Typically, the entire agreement clause is stipulated together with other so-called boiler plate clauses at the end of a contract. The purpose of the entire agreement clause basically is to limit the interpretation of the clauses in the contract. In general, the entire agreement clause stipulates that the respective contract contains all rights and obligations of the parties to the contract and that any and all verbal or written agreements made before the contract was entered into shall have no effect and shall be superseded by the contract. At the face of it, such an entire agreement clause is far-reaching and there appears to be little room for interpretation. This however might well be the case under certain common law systems, under Dutch law the effect of the entire agreement clause remains relative depending on the facts and circumstances. For instance, when the entire agreement clause is a mere standard clause or boiler plate clause and the contract itself (and therefore the entire agreement clause) has not been part of an extensive negotiation, in practice little weight will be attributed to the entire agreement clause. This is where, the Haviltex principle is used. For the interpretation of a clause, the intentions of the parties will then be decisive.
Dutch Supreme Court ruling – entire agreement clause has relative effect
The case that has lead to the supreme court ruling of April 5th, 2013 (in Dutch), dealt with the following facts and circumstances. Lundiform B.V. (‘Lundiform’) and Mexx Europe B.V. (‘Mexx’) had entered into an agreement pursuant to which Lundiform would deliver certain hardware to Mexx to furbish thirty new shops of Mexx. Lundiform takes the position that Mexx has guaranteed that it would purchase the hardware as bought and manufactured by Lundiform. In support for this, Lundiform refers to a written statement of the purchase manager of Mexx dated before the contract and the conduct of Mexx before entering into the contract. Mexx defends by referring to the entire agreement clause thereby stating that the statement of the purchase manager and the conduct of Mexx before the contract is of no relevance anymore and is superseded by the entire agreement clause.
The Dutch Supreme Court rules that a linguistic interpretation in this case is not decisive if it is established that what Lundiform has stated is correct that (i) parties have not negotiated the contract, (ii) Lundiform was not advised or assisted by a lawyer and (iii) the contract itself was a mere standard contract or template that was drafted by the legal department of Mexx. The supreme court confirms that the Haviltex principle remains the starting point of the interpretation of commercial contracts. Even if for the interpretation of a clause, the linguistic meaning is important, it might well be that other circumstances could lead to a different meaning of the clause than the linguistic meaning.
The entire agreement clause can be of relevance when interpreting a contract of which the entire agreement clause is a part. The exact relevance or meaning of this clause depends however on the facts and circumstances of the case, such as the wording of the contract, the nature, the contents and the detailedness of the contract and the way in which the entire agreement clause was agreed upon and eventually became part of the contract. The supreme court further ruled that the entire agreement clause is not an interpretive clause as such and that the clause might have such a specific meaning under Anglo-American law, but that this clause does not have such a specific meaning under Dutch law. Under Dutch law, the entire agreement clause does not automatically preclude significance given to statements made or conduct occuring before entering into the contract.
Should you have any questions or need more information on the above, or have other questions relating to Dutch corporate and commercial law, please contact Peter Keegstra.