Article 6:104 of the Dutch Civil Code is a special article whose application in case law is still underdeveloped. What is it about?
The article reads as follows: “If a person who is liable to another on the basis of an unlawful act or a failure to perform an obligation has enjoyed a profit as a result of that act or failure to perform an obligation, the court may, at the request of that other person, assess the damages based on the amount of that profit or a part thereof.”
In case law, the article has been applied to tenancy law. In 2010, the Supreme Court ruled on a case involving a tenant's subletting of a social housing unit. This was in violation of his lease agreement. The tenant demanded a larger amount from the subtenant than he himself would have had to pay to the (main) landlord, a housing association. The association terminated the contract. As compensation, the tenant had to pay the landlord his profit—approximately 13,000 euros—as compensation.
In itself, this ruling does not involve any significant financial interest, and it can easily be overlooked in corporate law practice, where there is often no case law reporting on tenancy law.
However, I believe the legal relevance of the ruling should not be underestimated. In the broadly based professional consultation at our office, we discussed the following case. As is customary, acquisition contracts stipulate that the seller of a company may not compete with the company acquired by the buyer. It's not without reason that the buyer paid a good price. However, what if the buyer operates in a growing, emerging market, and the seller disregards the agreed-upon non-competition clause and restarts a (prohibited) competing business in that growing market they left? In such a growing market, the buyer will find it very difficult to calculate the extent of their losses. After all, it's difficult to measure how much their turnover or profit has decreased due to the seller's actions. Nevertheless, the court will want to assume that the seller has suffered some losses. With that assumption, the court may award the profit the seller made from their contractually prohibited activities to the buyer. In this regard, given the considerations in the above case regarding the subletting situation, it is irrelevant whether the buyer of the company would also have earned the profit to be remitted. In other words, the principle of a concretely determined loss of profit is in jeopardy.
It is recommended to consider this article in strategic analyses of recovery actions. The development of case law is difficult to predict, however. The reason for this is that Dutch compensation law is based on the basic principle that only actual damages can be repaired. This is despite the fact that, under certain circumstances, the transfer of profits by a third party can exceed actual damages or losses. Moreover, compensation should not be considered a form of punishment, as Dutch law only allows for very limited punitive damages. The limits of the scope of Article 6:104 of the Dutch Civil Code will be further defined by case law. Nevertheless, this is an interesting article to test in legal practice: in cases of abuse, confiscate the benefits obtained through it, "reap them" in civil law.
