Enterprise Division can overrule arbitration

If valid arbitration has been agreed between parties, in principle the ‘normal’ courts have to declare themselves incompetent. However, a recently published ruling shows that this obligation does not always apply to the Enterprise Division. Dutch corporate lawyer Hidde Reitsma explains.

Parties in deadlock

Shareholder A and shareholder B, who each own 50% of the share The portion of registered capital of a private or public limited company
» Meer over share shares, operate, thorough the company, a well-known pub serving meals in Amsterdam. Shareholder A is also managing director of the company. From 2011 onwards, the shareholders no longer see eye to eye. Decisions of the General Meeting of Shareholders are blocked intentionally, which means the parties are in deadlock.

Disputes first submitted to a mediator

Both in the articles of association A document, drawn up when a Dutch company or legal person is set up, and which regulates the operations of the company and defines its purpose.
» Meer over articles of association Articles of Association and in the shareholders’ agreement, shareholder A and shareholder B had agreed that disputes should first be submitted to a mediator, and if that did not resolve matters, the dispute would be resolved by one or more arbitrators. Generally speaking, except if there are exceptions, all regular courts have to declare themselves incompetent. Because the Enterprise Division is part of the regular court system, that should also apply to the Enterprise Division.

Investigation into the policy of the company

Nevertheless, shareholder A decided to address the Enterprise Division and requested the Enterprise Division to transfer one or more shares held by shareholder B – so that shareholder A would become the majority shareholder – and entrust these to a person to be appointed by the Enterprise Division and to order an investigation into the policy and procedures of the company.

Mediation and arbitration agreed

The other party’s defence was primarily that the Enterprise Division should declare itself incompetent, as both parties agreed, in the articles of association and the shareholders’ agreement, to mediation and arbitration.

Arbitration stipulation can’t obstruct Enterprise Division

The Enterprise Division rejected this argument and stated that the powers entrusted to the Enterprise Division pursuant to articles 2:344 – 2.359 of the Civil Code of The Netherlands cannot be transferred to an arbitrator, because these powers can interfere directly with the so-called ‘corporate order’. These powers can include taking injunctive relief measures, suspending, respectively nullifying decisions or dissolving a legal entity. As these powers are the exclusive domain of the Enterprise Division, arbitration proceedings can never obstruct the access to the Enterprise Division, according to the Enterprise Division.

Arbitrators granted same powers

It has been argued in literature that it is not unthinkable that arbitrators can be granted virtually the same powers as the powers vested in the Enterprise Division under the law. The issue is whether this is consistent with the principle behind the right to institute an inquiry. Arbitration proceedings after all have to be specifically and explicitly agreed which means the parties commit to this.

Corporate Lawyer in the Netherlands

As a large number of stakeholders can thus be granted access to the Enterprise Division based on the law, access to the Enterprise Division can never be ruled out completely in a contract. The possibility remains that two different legal authorities can address the same legal issue. This seems undesirable and promotes legal uncertainty. For further information about arbitration and proceedings at the Enterprise Division, contact one of the corporate lawyers at AMS.