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Sustainability of exoneration clauses and commercial contracts

Sustainability of exoneration clauses and commercial contracts

Sustainability of exoneration clauses and commercial contracts

24.03.2021 NL law

In Dutch legal practice, contracting parties often agree on exoneration clauses in commercial contracts.  Exoneration clauses limit or exclude the debtor’s liability. In most cases, it is not possible to conclude an agreement without exoneration clauses, as commercial transactions often result in a high risk.

Under certain circumstances, however, exoneration clauses may be unreasonable to the other party to the contract. Thus, it is important that exoneration clauses can be dismissed. Article 6:248 (2) DCC offers this possibility. Whether or not this provision applies and provides protection for the counterparty depends on the circumstances of the case.

The subject of this blogpost is under what circumstances it is possible to dismiss exoneration clauses in commercial contracts, and whether or not commercial parties can easily succeed in the dismissal process.

Exoneration clauses and art. 6:248 (2) DCC

The point of departure under Dutch law is that contractual parties enjoy contractual freedom. Furthermore, these agreements are to be honoured (“pacta sunt servanda”). Exoneration clauses in commercial contracts are therefore to be honoured, unless their strict application would be  unacceptable according to the standards of reasonableness and fairness (art. 6:248 (2) DCC).

In the Saladin/HBU judgment, the Dutch Supreme Court ruled that judges should take into consideration the following circumstances in the assessment of an exoneration clause: the severity of the fault, the nature and seriousness of the interests involved in any conduct,  the nature and the further contents of the contract in which the clause appears, the social position and mutual relationship between the parties, the manner in which the clause came into being, and the extent to which the counterparty was aware of its purpose; see HR 19 May 1967, ECLI:NL:HR:1967:AC4745, NJ 1967/261.

In subsequent judgments, the Dutch Supreme Court ruled that judges should also take into consideration the following circumstances; the stipulation’s purpose, and the buyer’s behavior with regard to the defects or the loss suffered as a result and whether or not the insurance covers the loss.

Whether or not art. 6:248 (2) DCC provides protection to the counterparty, depends on all the circumstances of the case, and is not limited to the aforementioned circumstances. In the assessment of an exoneration clause, the Court does not always consider all the aforementioned circumstances, but only the circumstances that are important to the case, as well as the issues have been put forward by one of the parties. Therefore, it is difficult to predict whether or not exoneration clauses will stand up in court.

However, based on settled case law, the first aforementioned circumstance – the severity of the fault – is very important to the question whether or not exoneration clauses will stand up in court.  If the party who relies on an exoneration clause acted intentionally or was willfully reckless, invocation of an exoneration clause in commercial contracts will be unacceptable according to the standards of reasonableness and fairness in principle (under art. 6:248 (2) DCC). For intentional or willfully recklessness, it is not required that the party who has relied on the exoneration clause was aware of the actual occurrence of the damage; “subjective awareness” is not required. Deliberate recklessness exists if the acting person was aware of the possible occurrence of the damage, and this person accepted this risk; see HR 5 September 2008, ECLI:NL:HR:2008:BD2984NJ 2008/480 (BT Nederland/Scaramea). However, exoneration clauses in commercial contracts in the case of employee faults are valid in principle.

Based on settled case law, exoneration clauses in commercial contracts cannot easily be dismissed under art. 6:248 (2) DCC. See HR 15 October 2004, ECLI:NL:HR:2004:AP1664, NJ 2005, 141 (GTI/Zürich). Most writers agree with this judgment, as legal uncertainty is especially harmful to commercial parties who conclude contracts much more often than consumers.  Therefore, it is very important (especially for commercial parties) that they can trust what they have agreed upon and that exoneration clauses stand up in court. Furthermore, contractual parties in commercial (B2B) relationships are much more frequently in an equal position than is the case in business to consumer (B2C) relationships. For this reason, art. 6:248 (2) DCC is less appropriate in these cases.

Recently, the Supreme Court of the Netherlands has again confirmed that exoneration clauses in commercial contracts cannot easily be dismissed under art. 6:248 (2) DCC; see HR 29 January 2021 ECLI:NL:HR:2021:153. The Court of Appeal had dismissed the exoneration clauses with regard to a lease. The Supreme Court, however, ruled that the circumstances established by the Court of Appeal did not make clear why invocation of the exoneration clauses would be unacceptable according to the standards of reasonableness and fairness. The Supreme Court ruled hereby that the party who relied on the exoneration clause was not, nor should have been, aware of the defect concerned.

Conclusion

Whether or not exoneration clauses in commercial contracts stand up in court depends on all the circumstances of the case. The Dutch Supreme Court has defined relevant circumstances that judges should take into consideration in the assessment of an exoneration clause. The severity of the user’s fault with regard to the exoneration clause in commercial contracts is a particularly relevant circumstance to weigh. Invocation of an exoneration clause will not in principle be successful if the party who relied on the exoneration acted intentionally or was willfully reckless.

Exoneration clauses in commercial contracts cannot easily be dismissed under art. 6:248 (2) DCC. This seems to be reasonable, as legal uncertainty is especially harmful to commercial parties who conclude contracts much more often than consumers.

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