As Europe emerges from lockdowns and people and businesses attempt to adjust to a new reality, it remains clear that the consequences of the coronavirus (COVID-19) affect virtually everyone. The outbreak of the virus, the subsequent measures to address it, and the economic downturn are causing unrest and uncertainty.
COVID-19 related events, and in particular the responses of governments worldwide, have had a profound impact on business. The same goes for M&A transactions that were negotiated before or during the initial stage of the COVID-19 outbreak and successive lockdowns. Do the current events provide a basis for a defence based on unforeseen circumstances (Section 6:258 Dutch Civil Code)? And if so, should it lead to a re-negotiation, or a court-ordered amendment, or dissolution of the agreement? Stibbe acted as counsel in two of the first three cases tried in the Netherlands in which these questions took center stage.
On 29 April 2020, the Netherlands Commercial Court (NCC) rejected, in favour of our client (the seller), the purchaser’s unforeseen circumstances defence. Central to the case was a letter of intent, in which the parties had agreed that the purchaser had to elect, on a certain date, to either consummate the transaction or pay a EUR 30 million fee to the seller. The NCC found that the purchaser had to pay the fee to the seller in any event. It then left for substantive proceedings the assessment of the question whether an enforceable share purchase agreement had come into effect between the parties.
Two weeks later, on 14 May 2020, the Amsterdam District Court decided that the unforeseen circumstances defence deployed by the purchaser (our client) was premature. The sellers in that case had claimed specific performance of a signing protocol, which made signing of the share purchase agreement subject only to obtaining warranty and indemnity insurance. The District Court held that the purchaser should sign the share purchase agreement and see whether the parties could work towards closing of the transaction.
Former Dutch Supreme Court Justice Coen Drion has written a blog (in Dutch) about these two cases for the Nederlands Juristenblad. While observing that it is still too early to tell, he derives from these two cases that each assessment of an unforeseen circumstances defence will be an overwhelmingly fact-driven exercise.
See also Professor Gerard van Solinge’s comment in Het Financieele Dagblad (in Dutch, FD subscription required).