Loyens loeff sabine kerkhof


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Presentation at Seminar
Doing Business: NL vs USA
(2012 April 19, Amsterdam)
Organised by:
- Leading Edge Alliance
- Bol International
- Van Oers International

Published in: Business
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Loyens loeff sabine kerkhof

  1. 1. THE NETHERLANDS – UNITED STATES A BRIEF OVERVIEW OF THE KEY DIFFERENCES BETWEEN US AND DUTCH CONTRACT LAWSabine KerkhofAttorney in Rotterdam, the Netherlands since 2001Practiced in the New York office in 2005 - 2009 April 18, 2012
  2. 2. LOYENS & LOEFF• Independent full-service law firm specialized in providing legal and tax advice.• Home market: Benelux.• Worldwide: 1,500 employees, including more than 800 legal and tax experts.• 12 branches in the major international financial centers, such as London, Tokyo and New York.• Recently opened a branch in Hong Kong. 2
  3. 3. INTERNATIONAL TRADE• The economies of the Netherlands and the US largely depend on international trade.• The Netherlands are one of the major investors in the United States and, vice versa, are the United States the largest investor in the Netherlands. As a result, a large number of commercial contracts is concluded between Dutch and US contract parties.Source: Economic Ties between the USA and the Netherlands of the Dutch embassy in Washington DC (see:http://economicties.org/key-findings/). 3
  4. 4. CONTRACTING WITH A US COUNTERPART (1)When contracting with a US counterpart, the commercial contract willusually provide which laws (Dutch law or the laws of a certain US state)govern the agreement and any disputes arising out of or in connectiontherewith.While these two legal systems have many points of convergence, there aresome important differences in the way they approach certain key issuesregarding the performance and interpretation of contractual duties andrights. 4
  5. 5. CONTRACTING WITH A US COUNTERPART (2)Three important differences between Dutch and US contract law are:1. pre-contractual liability;2. interpretation of contractual duties and rights; and3. penalties or liquidated damages.Before I will discuss these differences, I will briefly explain:1. the consequences of the choice of law for either Dutch law or the laws of a certain US state; and2. the consequences of a submission to jurisdiction of a Dutch or a US court or to arbitration. 5
  6. 6. GOVERNING LAW (1)Question: which law governs the commercial contract concluded betweena Dutch and a US counterpart?Note: US contact law does not exist. In the US contract law is usually amatter of an individual state‟s substantive law. Most US states haveenacted the Uniform Commercial Code (UCC) which contain amongstothers rules regarding sales contracts. 6
  7. 7. GOVERNING LAW (2)1. Choice of lawIn principle, when the commercial contract contains a choice of lawprovision, the chosen law will govern the contractual rights and obligationscontained therein.A Dutch court may, however, give effect to mandatory rules the laws ofanother jurisdiction with which the situation has a close connection, if andinsofar as, under Dutch law or of the laws of that other jurisdiction, thoserules must be applied, irrespective of the chosen law. 7
  8. 8. GOVERNING LAW (3)2. United Nations Convention on Contracts for the International Sale of GoodsThe Netherlands and the US are party to the United Nations Conventionon Contracts for the International Sale of Goods. The UN Conventionprovides a uniform text of law for international sales of goods and appliesto contracts concluded between international parties, unless the partieshave explicitly excluded the applicability of the UN Convention. The UNConvention does not apply to contracts for services.In the event that the commercial contract does not exclude the applicabilityof the UN Convention, the UN Convention will determine e.g. the validity ofthe commercial contract and the non-performance by a party of hisobligations thereunder. The chosen law continues to play a (minor) role ascertain matters (e.g. compatibility with the public policy) are not governedby the UN Convention. 8
  9. 9. GOVERNING LAW (3)To the extent that the commercial contract does not contain a choice of lawprovision, but excludes the applicability of the UN Convention, the laws ofthe jurisdiction with which the matter has the closest connection will beapplied by a Dutch court. 9
  10. 10. CHOICE OF VENUE; JURISDICTION/ARBITRATION (1)Question: which court or tribunal has jurisdiction to hear disputes arisingout of or in connection with the commercial contract?Jurisdiction of a Dutch or a US courtIn principle, the court designated in the commercial contract as the courtthat has exclusive jurisdiction to hear any dispute arising out of or inconnection therewith, is valid and binding under Dutch law insofar as suchlaws are applicable. The parties may always bring claims before theprovisional measures judge (voorzieningenrechter) of a competent Dutchcourt. 10
  11. 11. CHOICE OF VENUE; JURISDICTION/ARBITRATION (2)Note: There is no treaty between the Netherlands and the US regardingthe acknowledgement and enforcement of a judgment rendered by a Dutchcourt in the US and vice versa. In the absence of an applicable treaty, ajudgment rendered by a US court will not be enforced by Dutch courts. Inorder to obtain a judgment which is enforceable in the Netherlands theclaim must be re-litigated before a competent Dutch court. The Dutch courtwill, under current practice, generally grant the same judgment without re-litigation on the merits. 11
  12. 12. CHOICE OF VENUE; JURISDICTION/ARBITRATION (3)ArbitrationIf the commercial contract contains a provision pursuant to which theparties agree to submit disputes to arbitration in the US, the enforcementin the Netherlands of an arbitral award rendered in the US will be subjectto the provisions of the Convention on the Recognition and Enforcement ofForeign Arbitral Awards of New York, 1958. 12
  13. 13. DIFFERENCES BETWEEN US AND DUTCH CONTRACT LAW:PRE-CONTRACTUAL LIABILITY (1)Question: does pre-contractual liability exist for parties who havenegotiated a contract, but in the end no contract was signed?USAGeneral rule: no liability for the contents of a contract that has not beensigned or otherwise entered into.However: liability for the performance of the contract terms may beincurred by a party if that party has induced its counterpart to rely upon arepresentation that the contract will be executed. 13
  14. 14. DIFFERENCES BETWEEN US AND DUTCH CONTRACT LAW:PRE-CONTRACTUAL LIABILITY (2)For example, if one party negotiating an agreement provides assurancesor other representations to its counterpart that it will sign a contract, andthat counterparty commits an act or relies in some manner upon thatpromise to sign the contract, the party who made such representationsmay be held liable for the performance of that contract or other damageseven though the contract was never formally entered into. Other actsinducing a party to rely on some or all of the conditions found within anunsigned contract may also cause liability for the inducing party to arise.Aside from issues of reliance described above, under the relevantprinciples of common law parties generally will not be held to the terms ofan agreement prior to its formal execution. 14
  15. 15. DIFFERENCES BETWEEN US AND DUTCH CONTRACT LAW:PRE-CONTRACTUAL LIABILITY (3)THE NETHERLANDSUnder Dutch contract law a party may be held liable for the performance ofthe terms of a contract if such party breaks off the contract negotiationsduring the advanced stages of contract negotiations.Unlike in the US, this type of pre-contractual liability does not depend onwhether there has been reliance by one party on anothers representations- but rather it is a question of contractual "good faith". According to Dutchcase law, the pre-contractual good faith principles found withinNetherlands contract law may prohibit parties from walking away from acontract where they have negotiated the terms to a fairly advanced level. 15
  16. 16. DIFFERENCES BETWEEN US AND DUTCH CONTRACT LAW:PRE-CONTRACTUAL LIABILITY (4)This Netherlands legal doctrine allows for a negotiating party who has notsigned a contract to be held liable for the performance of the terms thereof,if it is found that this party has broken off the negotiations in badfaith. Remedies for this aspect of pre-contractual liability have beengenerally accepted in Dutch case law to include variable levels of possibledamages. Where a party is found to have negotiated in bad faith they maybe held liable to pay compensation ranging from reimbursing acounterparty for the costs the of negotiations to full damages for lost profits(the latter being considered an extreme result). 16
  17. 17. DIFFERENCES BETWEEN US AND DUTCH CONTRACT LAW:INTERPRETATION (1)Question: can draft versions of a contract, which wereexchanged during negotiations prior to the signing of the contract, be usedto explain the intent of the parties?USAGrammatical interpretationWhere the language of a contract is plain and unambiguous its meaningshould be determined without reference to extrinsic facts or aids. Theintention of the parties must be gathered from the language of theexecuted version of the contract, and from that language alone. 17
  18. 18. DIFFERENCES BETWEEN US AND DUTCH CONTRACT LAW:INTERPRETATION (2)Parol evidence ruleIn addition, US contract law generally follows the parol evidence rule.According to the parol evidence rule a writing intended by the parties to bea final embodiment of their agreement cannot be modified by evidence ofearlier or contemporaneous agreements that might add to, vary, orcontradict the writing. This rule operates to prevent a party fromintroducing previous extrinsic evidence of negotiations to modify thecontent or explain the meaning of an express agreement. 18
  19. 19. DIFFERENCES BETWEEN US AND DUTCH CONTRACT LAW:INTERPRETATION (3)ExceptionsExceptions to this rule exist, for example where it can be proven from thecontract language itself that an ambiguity exists. Parties must, however,meet a high threshold before they are allowed to introduce extrinsicevidence such as prior drafts of a contract or letters of intent signed beforeentering into the main contract. 19
  20. 20. DIFFERENCES BETWEEN US AND DUTCH CONTRACT LAW:INTERPRETATION (4)THE NETHERLANDSThe interpretation of contract provisions under Dutch law is, according tothe Dutch Supreme Court, not merely governed by the grammaticalinterpretation of the text of a contract (although the textual analysis may bepersuasive). The prevalent rule of contract interpretation under Dutch law is that theinterpretation of a term is guided by the meaning which the parties in thegiven circumstances might reasonably attribute to that clause. Essentiallythis means that an investigation may be conducted into what meaning theparties attributed to the relevant term at the time of contracting.Events which occurred before contract closure will play a central role inascertaining the intent of the parties and the evidence introduced onthis issue will often include prior drafts of the contract which werenegotiated but not signed, as well as correspondence exchanged betweenthe parties prior to the signing of an agreement. 20
  21. 21. DIFFERENCES BETWEEN US AND DUTCH CONTRACT LAW:PENALTIES OR LIQUIDATED DAMAGES (1)Often an international commercial contract contains a provision whichrequires one party to pay to the other party a specified sum in the case ofdefault.Example:Upon the occurrence of any event which constitutes a breach of the dutiesof party A, it shall without notice of default being required, forfeit to party Ba penalty in the amount of EUR 50,000 and, in addition, a penalty in theamount of EUR 5,000 for each day or part thereof that aforementionedbreach continues.Question: Is such clause enforceable in the US and in the Netherlands? 21
  22. 22. DIFFERENCES BETWEEN US AND DUTCH CONTRACT LAW:PENALTIES OR LIQUIDATED DAMAGES (2)USAIn the US a distinction must be made between:1.penalties; and2.liquidated damages.A clause requiring one party to pay the other party a sum of money as apunitive measure/punishment for failure to perform a contractual obligationor duty, is regarded as a penalty. In the US such penalty clause is held toviolate public policy and will not be enforceable. 22
  23. 23. DIFFERENCES BETWEEN US AND DUTCH CONTRACT LAW:PENALTIES OR LIQUIDATED DAMAGES (3)A penalty clause must be distinguished from a clause requiring liquidateddamages to be paid by a party breaching its contractual duties/obligationstowards the other party.The distinction between such clauses is that a liquidated damages amountis a defined sum within a contract which is a just or reasonable estimationof the damage which a party would likely suffer in the event of a breach. Incontrast, a penalty clause does not bear a connection to what may bereasonably anticipated as just compensation for a breach of contract - butrather is intended to act as security against non-performance or as ameans of punishing non-performance. Liquidated damages provisions areenforceable in contracts governed by the law of most American states. 23
  24. 24. DIFFERENCES BETWEEN US AND DUTCH CONTRACT LAW:PENALTIES OR LIQUIDATED DAMAGES (4)THE NETHERLANDSThe Dutch Civil Code contains the following definition of a penalty clause: "Any clause which provides that an obligor, should he fail in the performance of his obligation, must pay a sum of money or perform another obligation, is considered to be a penalty clause, irrespective of whether this is to repair damage or only to encourage performance."Pursuant hereto, penalty clauses as described in the Dutch Civil Code areenforceable. However, a contractual penalty may be mitigated by the court. 24
  25. 25. MISCELLANEAOUS1. Employment2. Product Liability3. Discovery in legal proceedings 25
  26. 26. EMPLOYMENTIn the event that the Dutch company decides to set up a branch or a USlegal entity through which it will enter the US market, it may wish to engagepersonnel for e.g. the marketing and sale of its products in the US.USA – THE NETHERLANDSContrary to the Netherlands, most employment in the US is “at-will”, whichmeans that there is no contractual agreement between the employer andthe employee. Either party can terminate the relationship at any time,without showing cause and without incurring any liability. There are,however, some important exceptions hereto:• collective bargaining agreements negotiated by labor unions;• employment contracts which are occasionally used for key employees;• termination involving unlawful discrimination or violation of public policy;• companies with written internal policies or employee handbooks that confer broader rights to employees, such as notice periods and severance. 26
  27. 27. PRODUCT LIABILITYWhen a Dutch company sells goods to a US counterpart and a person isinjured as the result of using such product, he or she may sue the Dutchcompany to recover money to compensate for the injury. This area of lawis known as products liability. Especially the high damages awarded inproduct liability cases, makes US product liability different from Dutchproduct liability.Both in the US and in the Netherlands the following applies:Everyone in the distribution chain can be sued for the full amount ofdamages; from the manufacturer, to the retailer who sold the product, tothe end user. However, just because the product distributor and retailercan usually be sued does not mean that they are ultimately responsibleeven though they may end up paying some or all of the damages.Ultimately, it is only the party that caused the injury, that is responsible. 27
  28. 28. LIMITATION OF EXPOSURE (1)1. Product safety plan.To limit the Dutch company‟s exposure to product liability suits in the US, itshould develop a plan that is aimed to address real safety concerns andalso to prepare the company for litigation.The product safety plan should (amongst others) include:a) the company‟s and its suppliers‟ manufacturing quality control programs;b) the adequacy of the company‟s product warnings and instructions; andc) the adequacy of the company‟s accident reporting and investigation procedures. 28
  29. 29. LIMITATION OF EXPOSURE (2)2. Insurance.The Dutch company should obtain insurance against product liabilityclaims in the US. The fact that the Dutch company has a product safetyplan may decrease the amount of insurance premiums due. 29
  30. 30. DISCOVERY (1)In the event that the Dutch company has a dispute with its US counterpartregarding the performance of the commercial contract, it may be faced withdiscovery.Discovery is the pre-trial phase in a lawsuit in which each party can obtainevidence from the opposing party by means of discovery devices.Discovery should enable a party to procure evidence in admissible formdirectly relevant to the claims and defenses asserted in the pleadingsthrough the most efficient, non-redundant, cost-effective methodreasonably available. Discovery should not be an end in itself; it should bemerely a means of facilitating a just, efficient and inexpensive resolution ofdisputes. Often, however, discovery is used to „convince‟ the other party tosettle the dispute. 30
  31. 31. DISCOVERY (2)The discovery devices include:1.requests for answers to interrogatories;2.requests for production of documents; and3.requests for admissions and depositions.Discovery in the US is mostly performed by the litigating partiesthemselves, with relatively minimal judicial oversight.A duty to preserve evidence arises when there is knowledge of a potentialclaim, namely when litigation is pending or imminent, or when there isreasonable belief that litigation is foreseeable. 31
  32. 32. DISCOVERY (3)Once a party reasonably anticipates litigation, it must suspend its routinedocument retention/destruction policy and put in place a litigation hold toensure preservation of relevant documents.Sanctions are appropriate when there is evidence that a party‟s spoliationof evidence threatens the integrity of the court. 32
  33. 33. INTERNATIONAL TRANSACTIONS (1)A Dutch company that wishes to do business in the US can structure itsUS business activities in various ways:a. set up a separate US legal entity, e.g. a corporation (Inc.), or a limited liability company (LLC);b. enter into a joint venture with a US counterpart (either through a jointly owned legal entity or based on an agreement); orc. enter into commercial contracts with US counterparts. 33
  34. 34. INTERNATIONAL TRANSACTIONS (2)Distribution or agencyOften Dutch companies sell their goods through a US distributor or a USagent, whereby:1. the distributor will (directly) purchase the products from the Dutch company and resell them on the US market for its own risk and account; and2. the agent will sell the Dutch company‟s products in the name and on behalf of the Dutch company. In return for his services, the agent will receive a commission. 34
  35. 35. INTERNATIONAL TRANSACTIONS (3)Direct sales• Alternatively, the Dutch company may sell its goods in the US by entering into sales contracts with customers in the US directly.• Advantage of the direct sale of goods is that the Dutch company does not have to pay the distributor or agent for its services. 35
  36. 36. What Others Say About Us International Recognition & Awards This Benelux firm is synonymous with Loyens & Loeff is ranked first, based on the expertise in tax law ... clients appreciate the number of transactions, in the Mergermarket firm’s high-level service and expertise in all Benelux M&A League Table for 2011. areas of tax law". Consistent top 2 ranking since 2006. Loyens & Loeff achieves the highest score for Loyens & Loeff Belgium was selected as tax advice in the Netherlands in International Belgium Tax Firm of the Year by the Tax Review’s World Tax 2010. professional journal International Tax Review. Loyens & Loeff again scored highly in the Legal 500 in 2011: "Loyens & Loeff is Loyens & Loeff is the only Benelux-based firm outstanding, with its width of services and listed in the American Lawyer Global 100. large network of almost 400 tax specialists". Once again Loyens & Loeff is # 1 in Loyens & Loeff has been named the ‘Best PropertyNL’s compiled list of real estate Benelux Law firm’ of 2011 by the jury of the lawyers based on numbers of lawyers. We head International Legal Alliance Summit Awards the list way ahead of our competitors. (ILASA). Loyens & Loeff ranks second in Overfusies.nls Loyens & Loeff is a recommended law firm in League Tables for 2010, in terms of number of the 2012 edition of the IFLR Guide. deals. Amsterdam, 16-3-2012 Willem Bongaerts 36
  37. 37. Contact details Sabine Kerkhof Loyens & Loeff N.V. Blaak 31, 3011 GA Rotterdam P.O. Box 2888, 3000 CW Rotterdam T: +31 10 224 61 67 M: +31 653 58 80 74 Sabine.Kerkhof@loyensloeff.comAny advice contained herein (1) was not written and is not intended to be used, and cannot be used, for the purpose of avoiding any tax penalty that maybe imposed on the taxpayer, and (2) may not be used in connection with promoting, marketing or recommending to another person any transaction ormatter addressed herein.Although this information was composed with the greatest possible diligence, Loyens & Loeff cannot accept any liability for consequences arising from theuse of this information without its cooperation. 37