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Prescription of claims arising out of a court settlement

Prescription of claims arising out of a court settlement

Prescription of claims arising out of a court settlement

15.12.2015 NL law

On 27 November 2015, the Dutch Supreme Court rendered a judgment on the prescription of claims arising out of a court settlement (ECLI:NL:HR:2015:3423). The Supreme Court dismissed the argument that a court settlement would qualify as a court judgment and ruled that the normal rules for prescription of contractual claims apply.

Factual background

The claimant (the woman) and the defendant (the man) were once a happy couple. The relationship lasted for approximately 1.5 years, but as happens to most good things, the relationship came to an end. The woman had lent several amounts of money to the man, and when the relationship ended (late 2004), the man owed her approximately € 150,000.

Despite several promises made by the man to pay back this amount, the woman was never reimbursed. Half way through 2007, the woman decided to take measures. She attached some of the man’s assets and brought proceedings before the court, claiming repayment of the outstanding amount. These proceedings resulted in a court settlement, stipulating that the man would pay € 95,000 to the woman before 20 July 2008 in full and final settlement of the case.

Settlements in the Netherlands

In the Netherlands, a settlement can be reached either in or out of court. In Dutch proceedings, the court normally schedules a settlement hearing once the defendant has filed his statement of defence. This hearing gives the parties the opportunity to explore the possibility of an amicable solution. If a settlement is reached between the parties, they have the option of including the settlement agreement in the report of the hearing (article 87 (3) of the Dutch Code of Civil Procedure).

If the parties decide to do so, the agreement will automatically be enforceable without judicial intervention, whereas normally a contractual obligation can only be enforced if a court has confirmed that such an obligation exists. In other words, laying down the settlement agreement in the report has an advantage in enforcing the settlement. A bailiff is able to get directly involved at this stage, whereas he would normally only be of assistance if there is a court order.

Dutch rules on prescription of claims

Enforcement is not possible anymore if the limitation period has expired. Dutch law distinguishes between two grounds for prescription. First, a claim is time-barred if the claimant does not take action for a certain period of time, which normally is twenty years. This is the so-called ‘long-stop’ or ‘objective’ limitation period, which expires regardless of the claimant being aware of his claim. Secondly, a right of claim also expires if the claimant does not take action during a certain period of time after becoming aware of the claim being payable (and of the identity of the person against whom the claim can be enforced). This is the ‘short-stop’ or ‘subjective’ limitation period, which can differ in length for each type of claim. Usually this period is five or ten years. A claim is time-barred if one of the two limitation periods has expired (whichever occurs first).

The Supreme Court judgment deals with the latter form of prescription: the short-stop limitation period. In this regard, Dutch law contains another distinction: that between enforcing a right of claim arising out of an agreement (enforcing a contractual claim) and enforcing a court judgment (enforcing the judgment). The (short-stop) limitation period for contractual claims is five years, whereas the prescription period for judgments is twenty years.

The 27 November 2015 judgment

The 27 November judgment is therefore particularly significant. The woman had attached some of the man’s assets, but did not take any further action after the conclusion of the settlement in 2008. Late 2013, more than five years after the settlement amount became payable, the man brought summary proceedings asking the attachment to be lifted, on the grounds that the claim secured by the attachment had expired. The woman, however, stated that the claim had not expired. She argued the claim now formed part of the court report of the settlement hearing and that therefore the rules for prescription of judgments would apply.

Both the District Court and the Court of Appeal considered that the claim being enforced arose out of the settlement agreement, and therefore qualified as a contractual claim. Accordingly, the courts ruled that the prescription of the claims had expired because more than five years had expired before the woman taking further action. Both courts emphasized that the mere fact that the settlement is part of a formal report of the hearing, does not make it a judgment, let alone an enforceable judgment. They therefore lifted the attachments.

The Supreme Court confirmed this line of thought and upheld the earlier judgments. According to the Supreme Court, the courts correctly lifted the attachment because the claims secured by the attachment had expired five years after the date on which the settlement amount had become payable.

The judgment is somewhat ‘exotic’ in the sense that, normally speaking, one would not wait more than five years to take action after a settlement is reached. However, should a party decide not to take action within that period of time (for whatever reason), it is wise to interrupt the prescription period of the claim. Under Dutch law, this can be done by sending a written notice to the opposite party in which the claimant unequivocally reserves all his rights. After this interruption, a new limitation period of five years will start to run.

The post “Prescription of claims arising out of a court settlement” is a post of www.stibbeblog.nl.

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