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Contractual provisions excluding annulment due to error, duress, fraud or undue influence

Contractual provisions excluding annulment due to error, duress, frau

Contractual provisions excluding annulment due to error, duress, fraud or undue influence

14.12.2020 NL law

In Dutch legal practice, contracting parties often agree on provisions including an arrangement in which they waive their right to invoke the nullity of the contract in question. By doing so, the parties intend to exclude an eventual contractual annulment arising from error, duress, fraud or undue influence.

The consequences of annulment can be significant for the parties involved. Therefore, contracting parties often opt to include such provisions excluding annulment. The question, however, is whether such an exclusionary clause is valid and, if so, under what circumstances it can be invoked.

Exclusion of claims for error (art. 6:228 DCC) or duress/fraud/undue influence (art. 3:44 DCC)

Error

A contracting party who believes to have erred in concluding an agreement may invoke art. 6:228 DCC and claim the annulment of the agreement in question.

Literature is divided on the question of whether an appeal to error by the parties can be contractually excluded. Some writers are of the opinion that this is not possible; such a provision would be contrary to the contracting party’s right of self-determination, as it would violate the formation of free will. Error is aimed specifically at redressing a mistakenly formed will.

The general principle in literature and jurisprudence, however, is that contractual exclusion of an invocation of error is possible, but only within the limitations of reasonableness and fairness (art. 6:248 BW); see also AG Bakels’ opinion in Supreme Court 13 April 2001, NJ 2001/326 (Braat/Ros). Whether reasonability and fairness preclude reliance on this type of clause depends on numerous circumstances; the nature and further content of the contract in which the clause is included, the social position and mutual relationship between the parties, the manner in which the clause was concluded, and the extent to which the other party was aware of the purport of the clause.  In this respect, it is also important whether the party in question has acted in good faith. If, for example, one party (party A) deliberately provided the other party (party B) with incorrect information, or deliberately withheld information, reasonableness and fairness will (in most cases) stand in the way of a reliance (by party A) on such a term. However, if both parties have misrepresented themselves in concluding the contract (mutual error) or one of the parties has inadvertently provided incorrect information, reliance on such a clause may be possible.

This approach (also called the “casuistic approach”) is consistent with Section II-7:215(2) DCFR. According to Section II-7:215(2) DCFR, contractual exclusion of an invocation of error is possible, but within the limitations of good faith and fair dealing. See also Section 4:118(2) PECL: “Remedies for mistake and incorrect information may be excluded or restricted unless the exclusion or restriction is contrary to good faith and fair dealing.”

Duress, fraud and undue influence

A contracting party who believes to have entered into an agreement as a result of duress, fraud or undue influence may invoke art. 3:44 DCC and claim the annulment of the agreement in question.

The general principle in literature and jurisprudence is that contractual exclusion of an invocation of duress (art. 3:44(2) DCC), fraud (art. 3:44(3) DCC), or undue influence (art. 3:44(4) DCC) is not possible. Such a provision is considered to be contrary to public order or morality, and for that reason the provision is void (art. 3:40 DCC). See also AG Bakels’ opinion in Supreme Court 13 April 2001, NJ 2001/326 (Braat/Ros), par. 2.30. Furthermore, when duress, fraud or undue influence is a result of an intentional act, it would be contrary to the standards of reasonableness and fairness (art. 6:2 DCC) if that party responsible for that intentional act relied on the provision; therefore the provision will have no legal effect in this case (art. 6:248(2) DCC).

Some writers however, argue that the (contractual) exclusion of the remedy of annulment in SPAs is possible in cases of fraud, and any such provision should not be considered void for being contrary to public order or morality (art. 3:40 DCC). These writers do not share the opinion that this type of provision would run contrary to the contracting party’s right of self-determination (or other grounds for art. 3:40 DCC). They further argue that a claim for damages in order to equalise the situation with the other party is (mostly) within the realm of possibility with regard to fraud (art. 6:162 DCC). According to their standpoint, such a provision could still not apply if it would be unacceptable according to standards of reasonableness and fairness (art. 6:248 DCC).

The general principle in literature and jurisprudence is consistent with Section II-7:215(1) DCFR. See also Section 4:118(1) PECL: ’’Remedies for fraud, threats and excessive benefit or unfair advantage-taking, and the right to avoid an unfair term which has not been individually negotiated, cannot be excluded or restricted.”

Conclusion

Whether or not parties may contractually exclude reliance on a ground for annulment depends on the nature of that ground for annulment. Contractual exclusion of an invocation of error is possible, but within the limits of reasonableness and fairness (art. 6:248 DCC), while it is generally assumed that the exclusion of an invocation of duress, fraud or abuse of circumstances (art. 3:44 DCC) is not within the realm of possibility.

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