Impossibility to set-off a contribution claim of a jointly and severally liable co-debtor against a counterclaim against one of these co-debtors

The Supreme Court recently issued a ruling (HR 24 September 2021, ECLI:NL:HR:2021:1359) that may be of interest to parties who wish to set-off claims against counterclaims.

Background

In summary, the situation is as follows. The claimant has two claims: one claim of approximately EUR 2.5 million against company H (for which all Group Companies (see below) are jointly and severally liable) and one claim of approximately EUR 3.7 million against company F. The claimant, company H, company F and six other companies (F and the other six companies hereinafter referred as: the Group Companies) are all jointly and severally liable towards the bank for all obligations under the group loan agreement (the loan provided by the bank to the Group Companies) (the Loan Agreement). Eventually, the Group Companies repay all amounts outstanding under the Loan Agreement. Subsequently, company H and the Group Companies are declared bankrupt and a discussion arises about whether the claimant has an obligation to contribute as jointly and severally liable co-debor under the Loan Agreement. In arbitration an arbitral tribunal determined that the claimant indeed has such an obligation and that therefore, the Group Companies have a claim of EUR 3.7 million, which is an amount exactly equal to the claimant’s claim against company F.

The claimant subsequently declares that it sets-off its claim of EUR 3.7 million against company F, as well as her claims against the other bankrupt companies (i.e. the claim of EUR 3.7 million against company F and the claim of EUR 2.5 million against company H and the Group Companies), against the contribution claim of the Group Companies of EUR 3.7 million. The claimant argues that this set-off is possible, while the bankruptcy trustee argues to the contrary. Eventually, the arbitral tribunal indicated that its earlier ruling was not intended to allow the claimant to set-off the amount owed to the Group Companies against the claimant’s claim against company F. The arbitral tribunal limited the claimant’s claim against the Group Companies by the amount of the claimant's claim against company F on the grounds of (among other things) reasonableness and fairness and not with the intention make a set-off of equal amounts possible.

Judicial procedure: District Court and the Court of Appeal

The claimant primarily seeks a declaratory judgment which entails that the Group Companies' contribution claim of EUR 3.7 million has been set-off against its claim of EUR 3.7 million against company F and that the Group Companies' claims for costs of legal assistance of EUR 60,000 and for arbitration costs of approximately EUR 95,000 have been set-off against its claim of EUR 2.5 million against company H. Alternatively, the claimant seeks for a declaratory judgment which entails that the Group Companies' contribution claim of EUR 3.7 million and the other claims of the Group Companies have been set-off against its claim against company H of EUR 2.5 million.

The District Court finds that the requirements to set-off have not been met, as the reciprocity requirement has not been met since the claimant desires to set-off its claim against F with claims of the other Group Companies. Nevertheless, the District Court grants the primary claim on the grounds of reasonableness and fairness stating that the claimant should not be limited in her options to set-off as a result of the consolidated method chosen by the bankruptcy trustee. The District Court bases this judgment on four circumstances: (i) the consolidated method of calculating the the contribution claim, (ii) is the fact that it concerns a joint claim, (iii) payment to the bankruptcy trustee in his capacity as bankruptcy trustee of one of the seven Group Companies results to a discharged payment towards the other six Group Companies as well and (iv) the bankruptcy trustee has not made clear which part of contribution claim should be allocated to company F.

In appeal, the Court of Appeal does not agree with the District Court's judgment and dismisses the primary claims. The Court of Appeal ruled that the claimant cannot set-off its claim against company F against the contribution claim of the Group Companies because the legal requirements have not been met. The Court of Appeal states that the circumstances referred to by the District Court are insufficient to conclude that set-off should nevertheless be possible on the grounds of reasonableness and fairness. Unlike the District Court, the Court of Appeal states that there is no joint claim within the meaning of section 6:15 DCC. The first three circumstances mentioned by the District Court therefore do not apply. The Court of Appeal further rules that the circumstance that the bankruptcy trustee has not made clear which part of the contribution should be allocated to company F (which is disputed by the bankruptcy trustee) does not result in a joint claim but that  each of the Group Companies has a separate claim against the claimant. The Court of Appeal further rules that in assessing whether the set-off as desired by the claimant restraint must be exercised and that the interests of the bankruptcy estates of the Group Companies must also be considered as the desired set-off results in the other Group Companies’ (undisputed) contribution claims not being satisfied. However, the Court of Appeal (partially) granted the alternative claim and ruled that the claimant partially set-off the Group Companies' claims against its claim of EUR 2.5 million against H, for which all Group Companies are jointly and severally liable.

Judicial procedure: the Supreme Court

The Supreme Court ruled that the Court of Appeal did not incomprehensibly concluded that each of the Group Companies has a separate contribution claim against the claimant and that, although a payment by the claimant to the bankruptcy trustee could satisfy the contribution claims, the bankruptcy trustee acts as bankruptcy trustee of each of the seven Group Companies. The Supreme Court considered in this regard that the Court of Appeal considered that the bankruptcy trustee did not intend to institute a joint claim and that the claimant had no grounds to expect otherwise. The calculation method used by the bankruptcy trustee does not result in a different conclusion.

The Supreme Court subsequently discussed the claimant’s argument that the Court of Appeal did not sufficiently address the claimant’s argument entailing that the bankruptcy trustee did not make clear which part of the contribution claim is to be allocated to company F and that the bankruptcy trustee frustrated a proper defense of the claimant by using this calculation method. In this context, the Supreme Court considers that the Court of Appeal did not provide insufficient grounds for its decision as the Court of Appeal established and considered that (i) the bankruptcy trustee in the arbitration procedure calculated the claims per Group Company and subsequently compiled these separate claims resulting in one total claim and (ii) although the claimant argued that this method is not transparent, the claimant did not contest that this method of calculation is in accordance with current case law. The Supreme Court therefore concludes that the Court of Appeal is, apparently, of the opinion that there is no ground for the claim which the claimant makes against the bankruptcy trustee, being that the bankruptcy trustee frustrated a proper defense of the claimant by using this calculation method.

Conclusion

The judgment of the Supreme Court makes it clear that it is important for parties who desire to set-off claims to assess whether the requirements are met, including the requirement of reciprocity. In addition, the judgment of the Supreme Court makes clear that if those legal requirements are not met, it will not be readily assumed that set-off is nonetheless possible on the grounds of reasonableness and fairness.

If you are a party that has a claim that you would like to set-off against a counterclaim and you need advice, you can contact Lucas Lustermans (l.lustermans@ploum.nl or +31619850096) or Joost Kool (j.kool@ploum.nl or +31610177339).