Netherlands: Dutch Supreme Court Confirms Applicability Of Haviltex Principle To Commercial Contracts And Considers 'Entire Agreement' Clause

Ruling's significance

The Supreme Court confirmed in a judgement of 5 April 2013 that commercial contracts too should be interpreted on the basis of the Haviltex principle. The parties' statements and conduct before the conclusion of an agreement are also relevant in interpreting commercial contracts, even if the circumstances justify great significance being given to the contractual wording chosen by the parties. An 'entire agreement' clause would not automatically change this.

Background

The case involved a contractual dispute between Lundiform B.V. and Mexx Europe B.V. Lundiform had agreed to supply "hardware" for a number of new Mexx shops. Lundiform's position was that Mexx had guaranteed in the agreement that it would purchase the hardware procured or produced by Lundiform. Lundiform partly based this position on a written statement by a person involved in drawing up the agreement and on the parties' conduct before entering into the agreement. Mexx relied on the wording of the agreement as a basis for interpretation, referring to the 'entire agreement' clause, and argued that any statements by parties involved in the formation of the agreement and any conduct of the parties were therefore not relevant.

The Supreme Court's decision

The appeal proceedings before the Supreme Court focused on (a) the standard for interpreting the agreement between Lundiform and Mexx and (b) the relevance of the 'entire agreement' clause in the agreement.

As has been ruled in other cases, the wording chosen by the parties in a commercial agreement does in certain circumstances have great significance. In this decision, the Supreme Court found no reason to attach great significance to the wording chosen if, as Lundiform argued, (i) the parties did not negotiate about the agreement, (ii) at least one party was not assisted by a lawyer during the formation of the agreement, and (iii) the agreement was a 'standard contract' drawn up by the legal department of one of the parties.

The Supreme Court went further and confirmed that the "Haviltex principle" also extends to the interpretation of commercial contracts. Accordingly, even if circumstances justify that great significance is given to the meaning of the wording chosen by the parties, the other circumstances of the case may require that a different meaning – not based on the wording chosen – should be attached to the provisions of the agreement. The decisive factor remains what meaning the parties could reasonably attach to those provisions in the given circumstances and what they could reasonably expect from each other in that respect. Evidence disputing the most logical, language-based explanation of the contract remains possible.

The Supreme Court also specifically addressed the relevance of the 'entire agreement' clause in the agreement between Lundiform and Mexx. The Supreme Court confirmed its finding in an earlier decision that such a clause can be a relevant circumstance in interpreting the agreement that it forms part of. The circumstances of the case will determine the significance of an 'entire agreement' clause, including the wording of the clause, the nature, content, purpose and degree of detail of the agreement containing the clause, and the manner in which the clause was discussed during the negotiations and became part of the agreement. The Supreme Court noted in this connection that an 'entire agreement' clause is not an interpretive provision as such. The clause does not automatically preclude significance being given to statements made or conduct occurring before the conclusion of the agreement.

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