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The qualification of a (commercial) contract

The qualification of a (commercial) contract

The qualification of a (commercial) contract

27.05.2021 NL law

The Dutch Civil Code provides for several nominate contracts, for example: contractor agreements, purchase agreements, lease contracts, agency agreements and employment contracts. For these nominate contracts, the Dutch legislator has formulated specific legal rules in the Dutch Civil Code. In some cases, these legal rules are mandatory; i.e. the contracting parties cannot derogate from these legal rules. The purpose of these codified legal rules is often to protect weaker contracting parties.

However, innominate contracts (contracts without specific legal rules) also play a part in the Dutch legal system. Therefore, the qualification of a contract is important when determining the mutual rights and obligations of contracting parties. In Dutch legal practice, conflicts about the qualification of (commercial) contracts arise frequently. For example, contracting parties agree on a qualification clause for a distribution agreement (which is an innominate contract), although they effectively execute the contract as if they had agreed on an agency agreement (which is a nominate contract).

The subject of this blogpost concerns the question as to how and according to what elements the qualification of a contract takes place. 

Two-step process: interpretation and qualification

Contracting parties often agree on a qualification clause in a commercial contract. This may mean, for example, that contracting parties specify that the contract at hand is not an agency agreement, meaning that the (partially mandatory) legal rules in section 7.7.4 DCC concerning agency agreements do not apply.

Until recently, Dutch literature and case law were divided on the question of whether a qualification clause is relevant to the qualification of an agreement.  In the Groen/Schoevers judgment, the Dutch Supreme Court ruled that relevant to the qualification of an agreement is: “what the parties envisioned at the moment they concluded the contract also taking into account the way the parties executed the contract effectively and how parties had given substance to the agreement” (HR 14 November 1997  ECLI:NL:HR:1997:ZC2495).

On the basis of this judgement, some writers and judges were of the opinion that the parties’ intention is relevant to the qualification of an agreement. See for example Court of Appeal Arnhem-Leeuwarden 10 July 2018 ECLI:NL:GHARL:2018:6333, where the question  was whether a contract for services (innominate contract) or an employment contract (nominate contract) was involved. The Court of Appeal took into consideration the parties’ intentions, stressing that the parties had agreed upon a qualification clause for a contract of services.

However, in the Inscharing judgment, the Dutch Supreme Court ruled that this was not (legally) correct. See HR 20 December 2019 ECLI:NL:HR:2019:2034), concerning the qualification of a lease contract. In this judgment, the Supreme Court ruled that in order to qualify a contract, the deciding factor is not whether the contracting parties intended the contract to be covered by certain statutory provisions.

Based on this judgment, the qualification of a contract is governed by two steps: firstly the determination or establishment of the content of the contract and the mutual rights and obligations it entails (this is the interpretation of the contract). Secondly, the judge has to establish whether the contract can be characterised as a nominate contract (this is the qualification of the contract).

The first question, i.e. the question concerning the content of the contract (i.e. the rights and obligations parties have agreed upon) is governed by the Haviltex method. According to this standard, this question must be answered by identifying the meaning that the parties, in the given circumstances, could reasonably give to these provisions and what they could reasonably expect from each other in this respect.

The second step – the qualification of the contract – however concerns the factual content of the contract as well as the performance of the contract. The question is then whether the contract fits the statutory description of a nominate contract. In order to make this qualification, the parties’ intentions (i.e. whether the parties had the intention for the contract to be covered by certain statutory provisions) are not relevant; see also an earlier judgment of the Supreme Court (Tax division) 25 March 2011 ECLI:NL:HR:2011:BP3887 (Gouden Kooi). In this judgment, the Supreme Court already ruled that the manner in which the parties to the contract qualified themselves (the description of the contract) is not relevant to the qualification of the contract.

The general opinion in the literature is that these judgments are logical.  In case of a nominate contract, (partially) mandatory statutory rules often exist in respect of the protection of weaker contracting parties. Avoidance of these (partially mandatory) rules concerning the protection of commercial agents (and lessees) through the use of a qualification clause is not acceptable.

Furthermore, most writers are of the opinion that the aforementioned two-step process is not only reserved for the qualification of a lease contract. The general opinion is that the Inscharing judgment also applies to other contracts. In the recent Participatieplaatsen Amsterdam judgment HR 6 November 2020 ECLI:NL:HR:2020:1746 – concerning the qualification of an employment contract – the Supreme Court applied in fact the two-step process of the Inscharing judgment.

Conclusion

The qualification of a contract is important to the mutual rights and obligations of contracting parties. In the case of a nominate contract, (partially) mandatory statutory rules exist to protect weaker contracting parties. It is important to prevent parties from avoiding these mandatory statutory rules through such parties agreeing upon a qualification clause.

In the Inscharing judgment, the Supreme Court offered clarity by executing a two-step process. In order to qualify a contract, the parties’ intentions are not relevant. The content of the contract, and how the parties executed the contract effectively, is at the crux of the qualification of a contract.

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