How to make your contracts stand up in court
Netherlands Commercial Court, contracts, and international disputes: Ideas on how to make your contracts stand up in court. NCC is well positioned to serve as an English-language judicial institution that provides reliable, predictable guidance.
How can you make your contracts stand up in court? Obviously, there’s no one-size-fits-all solution. But we can’t stop there.
Any precise and reliable answer must involve an institution. In that institution, independent and impartial judges clarify and define what English-language business contracts mean. They help to shape how businesses think about legal relationships and how the abstract Civil Code terminology matches up with commercial and operational realities. They operate in a forum that is public and adversarial. That’s where the Netherlands Commercial Court (NCC) comes in.
In July 2017, we were asked to help set up NCC. We’ve come a long way. The NCC legislation is now before the Senate Justice and Security Committee, and the next steps are expected in mid-September. There’s a lot to say about what the NCC can accomplish. But in this article, “It’s all about contracts.”
What we have the opportunity to do is nothing less than create a vocabulary of contract. NCC can serve as an English-language judicial institution – one of the first in the world – in a civil law jurisdiction where English is not the official language, the Civil Code is not in English and most lawyers are not native English speakers.
Of course, we won’t be starting from scratch. Most of the ingredients are all around us. Many firms have a range of excellent standard language. But these ingredients have never been collected in an adversarial, litigation-tested, English-language environment.
This is where NCC can provide leadership. There won’t be any quick and easy solutions. It won’t be a top-down process. It will be driven by practitioners and cases and facts. It will be a gradual process of evolution. But it will be worth it.
To illustrate, let’s have a look at two common clauses:
- An indemnity allocates a specific risk. It typically deals with a known issue that is hard to quantify or put a price on, in terms of the likelihood of something bad happening or the gravity of the harm if it happens.
- A material adverse change clause is typically used where the parties make their bargain based on something specific, like a business plan. If something significant goes wrong, and it has a major impact on the basics of the bargain, the clause may provide relief.
Obviously, the key terms in such clauses are not in the Civil Code. That’s one reason why lawyers will say everything depends on the specific facts of the case – what the parties said and did and what a reasonable person of the same kind in the same circumstances would understand all of it to mean. And they will be right. But if these words are interpreted consistently in published English-language case law, and clearly linked to any relevant Civil Code provisions or baseline business law concepts, the business community in this jurisdiction will have a much better idea of what to expect. Just as it does now whenever it deals with terminology that is expressly equivalent to what is in the Civil Code. Consistent, published enforcement will provide reliable, predictable guidance.
So where does all of this leave us? Not with a ready-made solution. But what we do have is a clear path forward. Now it’s up to the legal and business communities to embrace the challenge and get things moving. Once again, “It’s all about contracts.”
We hope to meet you at the General Counsel Fall Conference on October 11th, 2018 in The Hague.
About the authors:
The authors are judges in the Amsterdam Court of Appeal and the s-Hertogenbosch Court of Appeal, and the prospective presidents of the NCC Court of Appeal and the NCC District Court, respectively.