In Dutch law, contracts are interpreted according to the Haviltex standard. This means that not only the literal text, the so-called grammatical interpretation of an agreement, is considered, but also the parties' intentions. A small party, such as a self-employed person, cannot be expected to engage a lawyer to arrange every detail of an agreement. Conversely, the larger and more professional a contracting party is, the more weight should be placed on grammatical interpretation. However, the case below demonstrates that this rule does not always apply.
The situation in this case is as follows. A Russian bank granted a loan to A. As security for this loan, C and D pledged their shares in a Dutch private limited company to the bank.
A defaults on the loan, whereupon the Bank initiates legal proceedings (arbitration) in Moscow. The Russian arbitrator establishes the debtor's default and rules that the loan is due. A has appealed this ruling.
In the meantime, the Bank wants to liquidate its rights under the pledge agreement and requests the notary to auction the pledged shares, but the notary refuses. The bank summons the notary and C and D.
The dispute concerns how the pledge agreement should be interpreted. The agreement stipulated that the bank could only proceed with foreclosure of the shares if A were in default. “evidenced by a court decision of a competent court”. The Bank argues that this clause should be interpreted grammatically. The Russian arbitrator was authorized to rule on the dispute, the recognition of the Russian arbitrator was not the subject of the dispute, and the default was established by this authority. So what is the notary waiting for?
The court, however, reaches a different conclusion. First, the Dutch (interim relief) judge interprets the clause of the deed of pledge as intended to protect the pledgors (C and D). Moreover, these are pledgors who provide security for a third party, not for themselves. Under such circumstances, it should not be too easily established that there is default and grounds for enforcement of the pledges. The provision must therefore be interpreted as meaning that it must concern a irrevocable Decision of a competent court. Since the appeal is still pending, the Dutch court concludes that this condition is not met. Therefore, the lien cannot be liquidated. The court therefore disregarded the grammatical interpretation.
This ruling is a prime example of how Dutch law looks beyond the mere letter of the document. To prevent disputes like this, it's important to draft contracts properly and steer them toward the (often grammatical) interpretation desired by the parties. By including clear definitions and provisions that steer toward a grammatical interpretation, ambiguities like these can be minimized. Consult your lawyer for this.
Read the ruling discussed above here.
