Introduction
A recent ruling by the Roermond District Court on July 11, 2018 (ECLI:NL:RBLIM:2018:6440) underscores the importance of properly and clearly recording agreements between parties in commercial contract practice. The facts Viewgres is a company engaged in, among other things, commercial mediation in tiles and flagstones. X B.V. is a wholesaler and is engaged in the sale of natural stone and ceramics for indoor and outdoor use. In 2014, Foshan, based in China, produced 2-centimeter-thick ceramic tiles for outdoor use (hereinafter: the product(s)). On July 7, 2010, Viewgres entered into an "exclusive importation and sales agreement" with Foshan (hereinafter: the exclusivity agreement). Under this exclusivity agreement, Viewgres had the exclusive right to sell the products to customers in Europe.
As of 2013, the parties did business with each other on the basis of oral agreements. Viewgres purchased the products for its own account and risk from Foshan and resold them to X B.V. X B.V. then marketed the products under its name. On August 11, 2014, the parties entered into a cooperation agreement. X B.V. argues that the parties intended by the cooperation agreement that Viewgres transferred its exclusivity - which stemmed from the exclusivity agreement with Foshan - entirely to X B.V., so that only X B.V. , to the exclusion of any other customer, could sell Foshan's products in Europe.
As the exclusivity agreement expired as of Jan. 1, 2016, and was not renewed by Foshan, Viewgres could not fulfill its obligation under the cooperation agreement, transferring its exclusivity to X B.V. , after Jan. 1, 2016. Viewgres disputes that the cooperation agreement transferred its full exclusivity right to sell Foshan's products to X B.V. Viewgres takes the position that the parties intended the cooperation agreement to give X B.V. a cost advantage, and thus a competitive advantage, by circumventing the double anti-dump tax. Anti-dump tax had to be paid on both Foshan's sales price and the commission charged by Viewgres.
If X B.V. could order directly from Foshan and pay the commission separately through the Netherlands to Viewgres, it did not have to pay anti-dump tax on the commission. Thus it gained a cost advantage over other customers, who did not have such an agreement with Viewgres. Viewgres relinquished its exclusivity only to X B.V. so that X B.V. was enabled to order directly from Foshan and obtain the tax advantage.
The court's opinion
The court noted that the parties were in dispute over the interpretation of the cooperation agreement. When answering the question what the contents are of the obligatory agreements made by the parties, it comes down to the meaning which the parties, under the given circumstances, could reasonably attribute to these agreements and to what they could reasonably expect from each other in this respect. Decisive are all circumstances of the case, valued according to what the standards of reasonableness and fairness imply. Examples are the wording and context of the provision, the history of its formation, the nature and performance of the agreement, and the capacity and expertise of the parties.
This means, among other things, that the interpretation of a written contract should not take place based solely on the linguistic meaning of the wording in which it is stated. In practical terms, the linguistic meaning that the wording in which these provisions are stated, read in the context of that writing as a whole, normally have in (the relevant circle of) society, is often of great importance when interpreting that writing. In the opinion of the Court, the text of the cooperation agreement does not provide any leads for X B.V. , that Viewgres transferred its exclusivity entirely to X B.V. . It is established that the text of the cooperation agreement was drafted by Viewgres' lawyer and that the parties negotiated the text of the cooperation agreement. The court deduces from the handwritten remarks that the parties negotiated extensively about several provisions (in particular about the minimum purchase obligation proposed by Viewgres and the penalty clause). The final cooperation agreement contains many changes - proposed on behalf of X B.V. - compared to the draft version(s). The court notes that no changes were proposed and/or included in the recitals to the cooperation agreement.
X B.V. has not substantiated from which provision of the cooperation agreement it appears that Viewgres would have fully transferred its exclusivity to Viewgres. In addition, the Court deduces from X B.V.'s testimony at the hearing that X B.V. was aware that Viewgres also continued to supply Foshan products to other customers during the term of the cooperation agreement. After all, X B.V. stated that X B.V. heard from another Viewgres customer that Foshan had severed its relationship with Viewgres. According to the Court, it is hard to see why X B.V. did not object to Viewgres supplying other customers, if for it the essence of the cooperation agreement was that Viewgres had transferred its exclusive right entirely to it.
In view of the foregoing, the court concludes that the cooperation agreement must be interpreted as meaning that the parties (only) intended to offer X B.V. a tax and thus competitive advantage and that, in order to be able to achieve this, they agreed that Viewgres would relinquish its exclusivity right vis-à-vis X B.V., not, however, that Viewgres would transfer its exclusivity entirely to X B.V.
Practical advice
Clear and careful wording of contracts is important. It regularly happens that discussions arise about the interpretation of provisions in a commercial contract between two Dutch companies, even though the contract has been drafted in the Dutch language and Dutch law applies to it. Extra vigilance is required when Dutch law is declared applicable to a contract, but the contract has been drafted in another language. This need not always involve an international agreement (if one of the contracting parties is a company established abroad). Dutch companies that are part of an international group of companies often use model contracts in another language or draw up the contract themselves in the language used within the group of companies.
The reason may be supervision and control by the parent company or a Legal Department, or the fact that the contract serves as a basis for other contracts to be concluded with foreign counterparties. The Supreme Court, the highest court in civil cases, considers that in a commercial contract between professional parties, great weight can generally be given to the linguistic meaning of the contract provisions. However, the other circumstances of the case may mean that a different (than linguistic) meaning can and should be attached to the provisions of the contract.
Decisive at all times remains the meaning which the parties, in the given circumstances, could reasonably attribute to these provisions and what they could reasonably expect from each other in that respect. The careful drafting of contracts is even more imperative in commercial relationships than in other cases. More is required than "cut and paste" from models. The contract must be tailored to the specific case. Customization is therefore required.
If you have any questions about this article or if you have other corporate law questions, please feel free to contact Marc Janssen or other members of the Corporate Law Section without any obligation.
