10 Jul '23
On 2 June 2023, the Dutch Supreme Court delivered its judgment on the interpretation of a settlement agreement and the dispute resolution method agreed therein, namely binding advice.
The plaintiff was the lessor of a business premises. The defendant leased this business premises since 10 December 2010. The agreed lease term was 31 December 2019. The lease included a provision on compensation for appreciation of the premises from the lessor to the lessee. In early 2018, the lessee indicated its desire to terminate the lease. The parties therefore entered into a settlement agreement to give effect to the value increase provisions.
This involved the parties separately engaging a binding advisor, a third party charged with giving a binding opinion. These appraisers would then jointly discuss the results with each other and ultimately reach a binding opinion on the increase in value. This took place and eventually, in accordance with this binding opinion, the lessee sent the lessor an invoice for the increase in value. The lessor disagreed with this invoice and invoked the extrajudicial annulment of the binding opinion.
In the lawsuit subsequently brought by the lessee, the lessor argued that, among other things, the principle of hearing both sides of the argument had been violated because before the final report was issued, the lessor had not received a draft report, while the lessee had. The subdistrict disagreed and upheld the lessee's claim for compliance with the settlement agreement. The claim for a declaratory judgment that the binding opinion had been set aside, as well as the claim to have the binding opinion set aside, was rejected by the subdistrict court. The court of appeal also upheld this decision.
The Supreme Court ruled otherwise. According to the Dutch Supreme Court, the court of appeal misjudged that, based on the Haviltex-standard (which is a standard formulated by the Supreme Court that defines how a contract should be interpreted) for the interpretation of the settlement agreement, not only circumstances regarding the settlement agreement can be relevant, but also the circumstances relating to the lease agreement. According to the Supreme Court, the binding advisors must be independent and this entails that the clients, i.e. both lessee and lessor, must be given the opportunity to respond to a draft report.
A settlement agreement is therefore unfortunately not always the end of a dispute. If parties have a discussion about the interpretation of such an agreement, not only the circumstances of the settlement agreement will be relevant, but also previous circumstances. It is important to keep this in mind when drafting a settlement agreement and therefore include it in the settlement agreement, for instance, in the recitals. In addition, in case of binding advice, parties should both be given the opportunity to respond to a draft report to comply with the principle of hearing both sides.
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