Contracts closed under influence of an error
Under Dutch law (article 6:228 of the Dutch Civil Code), a contract which has been entered into under the influence of an error (dwaling) and which would not have been entered into had there been a correct assessment of the facts may be voidable.
Grounds to annul a contract because of a mistake - three circumstances
Mistake may result from:
- Misrepresentation: the error is attributable to information provided by the other party (article 6:228(a) of the Dutch Civil Code)
- Failure to inform: the error is attributable to a failure by the other party to disclose information which, in view of what he knew or ought to have known regarding the error, should have been disclosed (article 6:228(b) of the Dutch Civil Code), and
- Mutual mistake: both parties relied on the same incorrect assumption when entering the agreement (common error, article 6:228(c) of the Dutch Civil Code).
Under certain circumstances, a party may have a duty to provide relevant information, which overrides the obligation of the mistaken party to investigate the facts of its own accord.
How does the duty to disclose information affect a dwaling claim in Dutch law?
Under Dutch law, a seller or contracting party generally owes the other side a duty to disclose facts that are relevant to the decision to contract. This duty can, in certain circumstances, override the other party's obligation to conduct its own inquiry.
The duty to disclose information is particularly significant in commercial transactions. Dutch courts have held that a professional party with knowledge of facts material to the agreement must share those facts, even when the other side is also a professional. This approach contrasts with the common law tradition, where caveat emptor places greater responsibility on the buyer to investigate.
In practice, this means that a seller who withholds material information may find it difficult to argue that the other party bore the risk of its own mistake. The duty to disclose does not, however, remove all responsibility from the mistaken party. Where a buyer had ample opportunity to investigate and chose not to, Dutch courts may find that the risk of the mistake lies with that buyer.
Moreover, the duty to disclose and the duty to investigate interact dynamically. The stronger the seller's duty to speak, the less weight courts place on the buyer's failure to ask. Conversely, where the buyer is a sophisticated professional with access to expert advice, the courts may expect a higher degree of independent inquiry before the buyer can successfully invoke dwaling.
What role do standard terms play in protecting parties under Dutch contract law?
Standard terms in Dutch commercial contracts may be set aside if they contain a clause so unusual or unexpected that the other party could not reasonably have anticipated it. Dutch law refers to this as a "surprising clause" or verrassend beding.
In commercial dealings, parties generally expect that standard terms will apply and will have some sense of what those terms typically contain. A clause is therefore not lightly labelled surprising merely because it is unfavourable. However, a clause that departs significantly from what is customary in the relevant sector can qualify as unreasonably onerous.
Dutch legal doctrine holds that this principle has deep roots. Even before the current Civil Code, Dutch courts applied what became known as the Holleman/De Klerk doctrine, under which a surprisingly unusual clause simply did not form part of the agreement. The current framework incorporates the same logic, and comparable rules exist in German law, the CISG, and the Unidroit Principles of International Commercial Contracts.
The threshold for professional parties is notably higher. A business that accepts standard terms without reading them accepts the risk that those terms contain clauses it dislikes. Dutch doctrine specifically states that a professional counterparty must be aware of the importance of reading standard terms, and that deliberate acceptance without review transfers the risk of an unexpected clause to that party.
Transparency matters as well. The Dutch Supreme Court has confirmed, in line with the Court of Justice of the European Union, that a lack of clarity and intelligibility in a clause is itself a factor weighing against that clause. An exclusion of liability, for example, is more readily acceptable when the counterparty understood, or should have understood, what it was agreeing to and could properly assess the contractual risks it was taking on.
Defences against rescission of a contract under Dutch law
Under Dutch law the mistaken party will be prevented from rescinding the contract if it bears the risk of the mistake on account of the nature of the contract, social standards or the circumstances of the case.
Additionally, a contract may not be avoided on grounds of a misconception relating to future events.
How does good faith operate in Dutch contract law compared with other systems?
Dutch law applies the standards of reasonableness and good faith to all phases of a contractual relationship, including the pre-contractual negotiation phase, under article 6:2 of the Dutch Civil Code. This distinguishes the Netherlands from common law jurisdictions.
Under article 6:2 of the Dutch Civil Code, both parties to a contract must act in accordance with reasonableness and good faith. This obligation attaches from the moment serious negotiations begin, not merely after a contract is concluded. Consequently, a party that breaks off negotiations at an advanced stage without justification may face liability, even though no binding contract was ever formed.
English law takes a fundamentally different position. Leading English judgments have stated plainly that there is no general duty of good faith in English contract law, and certainly not in the negotiation phase. Each negotiating party is entitled to pursue its own interest. The only firm limit is a prohibition on misrepresentation. Dutch law, in contrast, expects a degree of fair dealing throughout. This difference has practical consequences for businesses choosing a governing law for their commercial contracts.
Furthermore, Dutch law already imposes a statutory disclosure obligation on sellers, as noted above. This makes the good faith framework especially relevant to dwaling claims, because a seller who fails to disclose material information may simultaneously breach the duty of good faith and trigger the conditions for annulment under article 6:228 of the Dutch Civil Code. In commercial practice, consulting a Dutch lawyer is advisable when assessing how these overlapping duties interact in a specific transaction.
Consequences of voidability under Dutch law
If you think that you may have entered into a contract in reliance on a mistaken understanding regarding a key issue, the contract might be voidable.