Short Reads

Amsterdam Court of Appeal denies bank’s claim that it was entitled to cancel a credit facility on the basis of an allegedly unsatisfied condition precedent

Amsterdam Court of Appeal denies bank’s claim that it was entitled to cancel a credit facility on the basis of an allegedly unsatisfied condition precedent

Amsterdam Court of Appeal denies bank’s claim that it was entitled to cancel a credit facility on the basis of an allegedly unsatisfied condition precedent

14.04.2016 NL law

 

The bank argued that the client should have understood the condition precedent provision in such a manner that, given market practice, a satisfactory outcome of the bank’s internal credit verification process was part of the condition precedent. This argument did not uphold before the Court of Appeal.

Amsterdam Court of Appeal 9 February 2016 (ECLI:NL:GHAMS:2016:461)

 

In 2007 a Dutch bank entered into a credit facility agreement with its client under which an amount of EUR 10,000 was made available. By the end of that year, the client expressed its wish to expand its business and entered into negotiations with the bank about an increase of the credit facility. On 27 December 2007, the bank made a formal proposal to the client to amend the existing credit facility agreement resulting in an increase of the credit facility to EUR 50,000.

The amended credit facility agreement contained a provision stipulating that “the entry into of the credit facility agreement is subject to verification of [client] data”. The client informed the bank about the nature of its new business activities by an email dated 8 January 2008. The bank responded with a letter in which it argued that it had insufficient understanding of the relationship between payments received into the client’s bank account and the nature of the client’s business activities. The bank indicated that such lack of understanding posed a risk which could not have been foreseen at the time of the entry into of the credit facility agreement. Finally, the bank stated that it intended to terminate its relationship with the client and, as a result, the bank would no longer be obligated to provide loans under the credit facility agreement.

In response to these events, the client filed an application with the District Court against the bank claiming compensation for damages resulting from the bank’s failure to comply with its obligations under the credit facility agreement. The bank argued that it was under no obligation to provide loans under the credit facility agreement because, as indicated in its letter, the condition precedent had not been satisfied on the basis that its internal credit verification process had not been completed to its satisfaction. The District Court denied the claim.

Following an appeal by the client, the Court of Appeal had to determine whether the bank was in a position to successfully invoke the condition precedent based on the bank's argument that its internal credit verification process had not been completed to its satisfaction. For this purpose, the Court of Appeal had to determine whether the satisfactory completion of the bank’s internal credit verification process fell within the scope of the condition precedent. Given the fact that the verbatim wording of the condition precedent provision did not contain an explicit reference to the bank’s internal credit verification process, the Court of Appeal used the so-called “Haviltex-criterion”  to interpret the condition precedent provision. The bank argued that the client should have understood the condition precedent provision in such a manner that, given market practice, a satisfactory outcome of the bank’s internal credit verification process was part of the condition precedent. The client argued to the contrary.

The Court of Appeal rejected the bank's argument and held that the bank should have informed the client of the fact that its interpretation of the condition precedent provision implied a condition that the bank’s internal credit verification process had to be satisfactorily completed. On the basis of the court’s interpretation of the condition precedent provision, it ruled that the bank was not in a position to invoke the condition precedent.

The ruling of the Court of Appeal demonstrates that, in spite of market practice, a bank may not assume that a client shares its understanding of a condition precedent provision. Therefore, banks must ensure that any condition precedent provision is phrased with as much clarity as possible.

Related news

25.04.2018 EU law
25 April 2018: Stibbe sponsors LPEA Insights conference in Luxembourg on 'Building the Real Economy'

Conference - LPEA, Luxembourg Private Equity and Venture Capital Association, organises a conference in Luxembourg, which brings on stage General Partners (GPs) and Limited Partners (LPs) to discuss and showcase the private equity sector from the perspective of local practitioners, together with additional contributions from guest speakers specially invited to the event. Stibbe Luxembourg is a proud sponsor of this event, which some of our lawyers will attend.  

Read more

09.05.2018 EU law
Proposed EU Directive to help companies move across borders

Short Reads - On 25 April 2018 the European Commission proposed a new directive, amending the EU Directive 2017/1132 on company law. The proposed rules should support companies in moving from one EU country to another, i.e. cross-border mergers, divisions or conversions. However, the proposed rules for cross-border divisions and conversions will also require companies to get prior consent from a competent national authority before moving. Who will act as such authority is not clear yet.

Read more

11.04.2018 NL law
Court of Appeal: Deed of pledge does not cover all present receivables

Short Reads - 's-Hertogenbosch Court of Appeal denies pledgee's claim that all present and future receivables of the pledgor were pledged to it by a deed of pledge dated 20 January 2014 and ruled that the receivables listed in the schedule attached to the deed of pledge were leading to establish on which receivables a right of pledge was created.

Read more

10.04.2018 NL law
Inkoop van eigen aandelen door beursvennootschappen

Articles - Nu de financiële crisis aan zijn eind lijkt te zijn gekomen, en veel beursgenoteerde ondernemingen een goed gevulde kas hebben, lijkt de inkoop van eigen aandelen weer in zwang te raken. Onder strikte voorwaarden is de inkoop van eigen aandelen door een uitgevende instelling uitgezonderd van het in de Market Abuse Regulation geformuleerde marktmanipulatieverbod en het verbod op het gebruikmaken van voorwetenschap. In dit artikel bespreekt Roderik Vrolijk vanuit een praktisch perspectief deze uitzonderingen.  

Read more

Our website uses cookies: third party analytics cookies to best adapt our website to your needs & cookies to enable social media functionalities. For more information on the use of cookies, please check our Privacy and Cookie Policy. Please note that you can change your cookie opt-ins at any time via your browser settings.

Privacy – en cookieverklaring