It is not uncommon that differences of opinion arise between parties about the interpretation of an agreement they have concluded with each other. Clauses in an agreement may be unclear, or subject to more than one interpretation. If this situation occurs, how are the clauses of an agreement to be interpreted?
The ‘Haviltex’ standard
According to Dutch law, the literal interpretation of an agreement is not decisive per se. It is equally important which meaning the parties could reasonably ascribe to (the clauses in) the agreement in the given circumstances, and what they could reasonably expect from each other. This is known as the ‘Haviltex’ standard. Relevant aspects may be the context in which the parties operate; the capacity of the parties; and previous correspondence and negotiations. However, other conduct, representations and circumstances that occurred after the agreement was concluded may also be relevant to its interpretation.
Dutch Supreme Court: not only concrete representations relevant to interpretation
In the past few years, the Dutch Supreme Court has expressed several opinions on the interpretation of agreements. A recent judgment dealt with the question whether a partner had transferred the beneficial ownership of his parcel of land to the company. In brief, a person who has beneficial ownership has a right to use a property, although he is not the legal owner of that property. Beneficial ownership of a property implies that any increase or decrease in its value will (also) be for the account of the beneficial owner.
In order to determine whether the beneficial ownership of the parcel of land had been transferred, the Supreme Court has looked at what the parties had agreed with each other. To this end, the Supreme Court has also looked beyond the concrete representations that were made by the parties. According to the Supreme Court, an important factor indicating that the beneficial ownership has been transferred is the fact that and the way in which the value of a property was entered as an asset in the company’s balance sheet. The value of a property can be gathered from the balance sheet.
With this judgment, the Supreme Court has clarified that when it comes to the interpretation of agreements, not only concrete representations and conduct between the parties matter, but other circumstances, such as the valuation in a balance sheet, may also be relevant. Therefore, the way in which the parties have performed the agreement is also relevant to its interpretation.
Do you have questions about the interpretation of an agreement? Please feel free to contact Isabel van Tuyll van Serooskerken.
