When interpreting a contract, the ‘actual intention’ of the parties is what matters

In a recent ruling, the Court of Appeal in Amsterdam held that the actual intention of the parties in concluding an agreement should be taken into account in the interpretation of that agreement. Lawyer Mathijs van Riet discusses the interpretation of agreements and looks at the case.

Contract takeover and credit facility

A group of companies (the “Group”) had various credit facilities with two Dutch banks, for a total amount of more than € 21 million. € 1.1 million of this amount had been earmarked as a bank guarantee for a debt the Group owed to a foreign bank.

In 2013, the Dutch banks transferred the entire credit facility to the new shareholder of the Group. At the time of this contract takeover The takeover of the legal relationship as laid down in a contract.
» Meer over contract takeover contract takeover, the Dutch banks agreed that if it appeared on the transfer date that the entire debt was less than € 21 million, the Group would be allowed to use the difference as credit and withdraw it.

Lower debt to the foreign bank

In the end, the Group’s debt to the foreign bank turned out to be significantly lower. This debt was not € 1.1 million, but around € 850,000. The Group and the shareholder felt entitled to this difference and claimed payment of this difference by the Dutch banks to them.

Interpretation of agreements

Since the Haviltex ruling by the Dutch Supreme Court, it is common practice to consider not only the literal text of the contract when interpreting agreements according to Dutch law. In brief, the Supreme Court ruled that, in addition to the text of the agreement, the intentions of the parties in concluding that agreement are also important, and that all relevant circumstances concerned should be taken into consideration.

Commercial contracts

The Haviltex standard has further developed over the years. For example, it has been assumed in case law that for large, commercial contracts in the preparation of which the parties have been assisted by lawyers, this could constitute a specific circumstance in which more attention should be paid to what the parties have laid down in writing.

Actual intention of parties

The Court of Appeal in Amsterdam implicitly acknowledged that the takeover contract was open to more than one interpretation and therefore looked for the ‘actual intention of the parties.’ In this case, the Court of Appeal took into consideration that prior to the conclusion of the agreement the Group, the shareholder and the Dutch banks had exchanged emails and conducted negotiations with each other on a regular basis.

According to the Court of Appeal, it was demonstrated from the emails that the total debt of € 21 million was a maximum, which in the relationship between the parties involved (the Group, the shareholder and the Dutch banks) was not dependent on what the foreign bank could actually claim from the Group. It was therefore not relevant to the interpretation of the takeover contract that the foreign bank ultimately had a lower claim on the Group. For this reason, the Court of Appeal rejected the claim of the Group and the shareholder.

Assistance in contracting and litigation

When interpreting contracts, not only the text of the agreement is relevant, but also the intentions of the parties in concluding the contract. All relevant circumstances should therefore be taken into account in the interpretation of an agreement.

Do you have any questions about contracting or litigation in the Netherlands? The lawyers of AMS Advocaten have many years of experience and will be happy to speak to you!