- NCC 20/014 (C/13/681900)
- Rechtbank Amsterdam
LETTER OF INTENT (MEMORANDUM OF UNDERSTANDING) - BETWEEN A DUTCH COMPANY AND A UNITED STATES COMPANY BASED IN NEW YORK - REFERENCE TO UNIDROIT PRINCIPLES TO INTERPRET APPLICABLE DOMESTIC LAW (DUTCH LAW)
HARDSHIP – COVID-19 PANDEMIC - MAY RESULT IN A FUNDAMENTAL CHANGE OF CIRCUMSTANCES
HARDSHIP - REFERENCE TO ART. 6.2.3 OF THE UNIDROIT PRINCIPLES TO INTERPRET ART. 6:258 OF THE DUTCH CIVIL CODE - ACKNOWLEDGMENT OF A GENERAL DUTY TO RENEGOTIATE THE CONTRACT
HARDSHIP - ADAPTATION OF CONTRACT BY COURT - ONLY IF THE PARTIES FAIL TO REACH AN AGREEMENT - REFERENCE TO COMMENT 7 TO ART. 6.2.3 UNIDROIT PRINCIPLES - THE COURT HAS TO SEEK TO MAKE A FAIR DISTRIBUTION OF THE LOSSES BETWEEN THE PARTIES - NOT NECESSARY IN THE CASE AT HAND
In late December 2019 Claimant, a US company based in New York, and Defendant, a Dutch company, signed a letter of intent (LOI) according to which Defendant would acquire Claimant’s 50% stake in an equestrian show-jumping business ("the Business"). The LOI provided that either party could refuse to execute this agreement (hereinafter "the Transaction Agreement" or "Agreement"), before the deadline set for 2 March 2020, by paying the other party a EUR 30 million “fee”.
When Defendant failed to sign the Transaction Agreement within the agreed deadline, Claimant initiated a summary proceeding before the Rechtbank Amsterdam seeking, in the first place, an order for Defendant to take the 50% stake of the Business and pay for it the agreed price of EUR 169 million (hereinafter “the Main Claim”) or, in the alternative, an order to pay the EUR 30 million "fee" (hereinafter “the Alternative Claim”). Defendant objected that the Transaction Agreement was never concluded and that the EUR 30 million "fee" should be reduced or modified in some way by the Court in accordance with Art. 6:258 of the Dutch Civil Code, due to the COVID-19 pandemic and its devastating consequences on the Business.
The Court, after stating that the law applicable to the dispute was Dutch law, dismissed Claimant´s Main Claim on the ground that there was no enforceable contract entered into by the parties.
As to the Alternative Claim, the Court affirmed that the payment of the EUR 30 million "fee" could be enforced against Defendant also in the current COVID-19 pandemic. In the opinion of the Court, even if the COVID-19 crisis, especially in Europe and North America, could be considered an unforeseen circumstance pursuant to Art. 6:258 of the Dutch Civil Code, however, at such an early stage of the trial and on a preliminary basis, it could not be affirmed that this circumstance was such as to make it unacceptable for the Claimant to seek strict performance by Defendant.
The Court, after pointing out that there was no well-established case law on COVID-19 and its impact on existing business transactions, referred to recent writings by Dutch scholarship, all acknowledging the extraordinary impact of the pandemic and thereby justifying the recourse to Art. 6:258 of the Dutch civil code, which in their view imposes first of all on the parties a duty to renegotiate the terms of their agreement, as confirmed by Art. 6.2.3 of the 2016 UNIDROIT Principles and Art. 6:111 PECL, defined as “the general international standard on this topic”.
According to this approach, only if the parties fail to reach an agreement, the Court may intervene to adjust the contract so that the harm deriving from such unforeseen circumstances is borne by the parties in a 50/50 allocation. In support of its view the Court quoted in extenso Comment 7 to Art. 6.2.3 UNIDROIT Principles 2016, which affirms the possibility for the Court “to adapt the contract with a view to restoring its equilibrium (paragraph (4)(b)). In so doing the court will seek to make a fair distribution of the losses between the parties. This may or may not, depending on the nature of the hardship, involve a price adaptation. However, if it does, the adaptation will not necessarily reflect in full the loss entailed by the change in circumstances, since the court will, for instance, have to consider the extent to which one of the parties has taken a risk and the extent to which the party entitled to receive a performance may still benefit from that performance”. In the case at hand, however, stressing that in a summary proceeding its assessment can only be made on a preliminary basis without prejudice to a subsequent action on the merits, the Court decided not to adjust the Transaction Agreement and exclusively to rely on the parties´ judgment which were experienced professionals, ably counseled by an array of experts, and which expressly stated that “each of [them] confirms that the fee … is reasonable and waives any and all rights to claim the contrary”.