Doing business in England. Commercial Contracts: the Dutch approach vs the English approach to contract interpretation

On Friday last, Ruth Andrew one of the lawyers from our alliance law firm in England, Mills & Reeve, ended her two weeks stay with Van Benthem & Keulen (VBK) in Utrecht as a means of enhancing the collaboration between the two firms. Ruth is a Principal Associate within Mills & Reeve, specialising in commercial contracting. During her stay, Ruth Andrew and the VBK professional support lawyer Sonja Kruisinga  studied the differences in the Dutch Approach vs the English Approach to contract interpretation. Ruth Andrews and Sonja Kruisinga explain…

The Dutch Law Approach

If you are used to contracts governed by Dutch law, you will be well aware that getting the contract terms right and expressed clearly in the contract is of utmost importance. In Dutch law commercial contracts that are carefully drafted by professional parties, the Dutch court will normally attribute great importance to the text of the contract itself. This means that if there is a contractual dispute, the words on the pages will be what you will, first of all, need to rely on. However, the parties’ intentions are decisive in the interpretation of the wording of a contract.

The Dutch courts will thus look to enforce what the parties have agreed. If you have a written contract, that will be the starting point for the courts. So, for Dutch contract law, the key is clarity of drafting. However, the Dutch courts may also take into account what has been said or negotiated before signing the contract, including drafts of contracts and other documentation. There are circumstances in which the written contract will not be the last word, for example if the contract is found to be invalid for mistake, misrepresentation, incapacity, threat, fraud or abuse of circumstances.

There is a tendency in the Netherlands to draft contracts in the English language, even if both contracting parties have their places of business in the Netherlands, for example if one of the relevant companies is part of an international group of companies. Contracts often contain an entire agreement clause, which means that, in principle, only the terms set out in the contract will be decisive and the court will not be entitled to take into account any other documentation. In addition, as of 1 January 2019, it is possible to resolve contractual disputes in the English language in civil court proceedings before the Netherlands Commercial Court in Amsterdam.

Contracting parties will also be able to rely on the provisions of the Dutch Civil Code, unless the parties have contractually deviated from it. In contrast to the English contract law, Dutch civil law has, for long, been codified in the Dutch Civil Code (Burgerlijk Wetboek). An English translation of the Dutch Civil Code is available. As for those issues that the contracting parties did not address in their contract, they can thus rely on the provisions of Dutch contract law.

The English Law Approach

But is the same true in England?  Speaking to our alliance firm, Mills & Reeve, the answer to that is “not really”.

If you are used to English law contracts, you will know that the key is getting the contract terms right and expressed clearly in the contract.  The contract document is paramount and, if there is a contractual dispute, the words on the page(s) are what you will need to rely on. 

The English courts will look to enforce what the parties have agreed.  If you have a written contract that will be taken to be what is written down. The courts will not normally look  beyond the “four corners” of the agreement to what may have been said or negotiated before contract signature, including older drafts of contracts and other documentation.  Look at almost all English law governed contracts and you will see a clause at the end which we call an “entire agreement clause”. This states that only the terms set out in the contract are deemed to be binding on the parties and form part of the contract.

Not only that, but the English courts will not be quick to help you if the contract wording is not as clear as you may like, or does not on the face of it now represent the deal a contracting party thought they had made.  Recent decades saw a brief move towards a suggestion that the English courts will take a more commercial and purposive approach to the interpretation of the contract, so helping the parties out if perhaps the wording was unclear. But subsequent cases have made it clear that the English courts are very reluctant to interfere if a disputed clause can work without any further inferences, even if that clause doesn’t quite match one of the parties’ intentions……

So, for an English law contract the key is clarity of drafting – state what you want as the court will be reluctant to look beyond the words on the page.

There are a few exceptions to this such as:

• custom: evidence of the customs of the locality or trade may be allowed to add to but not contradict a written agreement;
• validity: evidence that the contract is invalid for mistake, misrepresentation, incapacity or lack of consideration could make the written contract ineffective;
• evidence of additional terms: the presumption is that, if you have a written contract, the writing is intended to be the final contract.  But this might be set aside is if you can show that the contract is partly oral and partly in writing;
• rectification:  if both parties are agreed on the terms but the contract does not reflect the agreement, evidence to show the error could assist;
• mistake:  although this will only help if the document is fundamentally different to what you thought you were signing.  This is not an excuse not to read the document – it cannot be used if you have been careless in signing the contract!
• terms can sometimes be implied by:
  – the court: where a term is not included in the contract but the court considers that the parties must have intended to include it as
     being necessary to make the contract work – something so obvious it goes without saying;
  – law: certain English laws imply terms into contracts, to protect consumers for example.

So, in summary:

• whether you are working under English law or under Dutch law, always take care to make sure your contracts state what you want and what you have agreed.
• while the Dutch courts may help you out or by referring back to negotiating documents or the Dutch Civil Code, the English courts tend to be stricter in their approach to contracts.