The first half of 2020 has been shockingly different for everyone, including the courts. From 17 March 2020 onwards, the Dutch courts have been ordered to close to prevent the spread of COVID-19. Physical hearings could only be held in case of extraordinary circumstances. In other cases, hearings were held over videoconference. Effective 1 June 2020, the courthouses have become accessible to lawyers and parties again, but only if the court orders a courtroom hearing. Some restrictions will still apply, such as a maximum number of attendees.
Nevertheless, the Netherlands Commercial Court (“NCC”) has been very active in the first half of its second year.
In the first six months of 2020, the NCC rendered judgment in three cases. One of these cases included the first public hearing held by the NCC using videoconference equipment. Also, the NCC Court in Summary Proceedings (“NCC CSP”) rendered the first judgment in the Netherlands on the consequences of the COVID-19 crisis for a contract.
On 25 June 2020, the NCC hosted a webinar on “COVID-19 – a judge’s perspective on effective case management, contracts and remedies”. Participants from all over the world attended.
First case of 2020
On 4 March 2020, the NCC ruled that the claimant (a Russia based company) is barred from bringing its claims under Russian law as a result of entering into a Settlement Agreement governed by English law (see the judgment).
This is the first NCC judgment given by a three-judge panel: the NCC District Court. The first two judgments were given by a single judge (the NCC CSP). Also interesting to note: the case started with a writ of summons (in Dutch) submitted to the ‘normal’ Civil Section of the Amsterdam Court. Only afterwards, the parties reached agreement on transferring the case to the NCC.
The case concerned the Russian company Subsea Survey Solutions LLC and Amsterdam based defendant South Stream Transport B.V. The conflict between parties focussed on the scope of the release and full discharge provision in their Settlement Agreement.
Claim, counterclaim and judgment
Southstream was working on a project called ‘Turkstream’, the construction of an offshore pipeline across the Black Sea which directly connects the gas reserves in Russia to the Turkish gas transportation network. For this project, they entered into a contract with Subsea to do a series of surveys to collect data on the parts of the seabed where the pipe will be laid. A second contract followed, as well as some amendments.
On 16 April 2018, Southstream and Subsea signed an agreement to terminate all contracts and settle all their disputes: the Settlement Agreement that is at the centre of this case.
Subsea initiated proceedings in April 2019, claiming payment by South Stream of over EUR 22.000.000 for alleged non-contractual damages caused by South Stream by ‘the involuntary standby of Subsea’s vessel with geotechnical equipment in the years 2014 to 2018’ on the basis of Russian statutory liability laws. In addition, Subsea claimed a further EUR 11.000 in extrajudicial costs and costs of proceedings.
In response, South Stream requested the court to (i) dismiss Subsea’s claims as all of Subsea’s claims are barred by the full and final discharge with regard to any claims arising from their contracts in the Settlement Agreement and (ii) order Subsea to compensate South Stream for its full legal defence costs plus statutory interest. This counterclaim amounted to at least EUR 400.000 and was based on Clause 11 of the Settlement Agreement:
“Each Party hereby indemnifies, and shall keep indemnified, the other Party against all costs and damages (including the entire legal expenses of the Parties) incurred in all future actions, claims and proceedings (…).”
The NCC found that by signing the Settlement Agreement, the parties intended to terminate the contractual relationship between them, as well as to settle all of their disputes including non-contractual claims based on Russian law. Subsea’s claims were therefore dismissed. Furthermore, following Clause 11 of the Settlement Agreement, Subsea was ordered to compensate South Stream, in full, for any costs and damages incurred in connection with this claim together with statutory interest pursuant to English law.
Second case of 2020
On 14 April 2020, the NCC CSP denied a motion submitted by the defendant, stating that the CSP could not deal with the case as no valid NCC agreement was in place (see the judgment). In the subsequent 29 April 2020 judgment, the NCC CSP denied the main claim and allowed the alternative claim for payment of a fee of EUR 30.000.000 while rejecting the defendant’s position that this fee should be modified, mitigated or reduced in light of the current COVID-19 circumstances (see the judgment).
The case concerned a conflict between the New York based company McCourt Global Sports & Media LLC and Tennor Holding B.V, based in Amsterdam, about the consequences of an unsigned Transaction Agreement. The parties signed a Letter of Intent (“LOI”) stating that they intend to enter into the transaction wherein McCourt will sell and deliver shares and Tennor will pay the price of EUR 169.000.000, but both parties are free to elect not to do so. If a party elects to not go through with the transaction, that party will owe the other a fee of EUR 30.000.000. The LOI does not stipulate anything about dispute resolution, but it does designate Dutch law as the governing law. The LOI refers to the Transaction Agreement (setting out the proposed transaction) as an annex. McCourt signed the Transaction Agreement and delivered it to Tennor, but Tennor declined to sign it.
McCourt primarily claimed that Tennor should be ordered to fulfil the agreement and thus complete the transaction and pay for the shares or, alternatively, be ordered to pay the EUR 30.000.000 fee for walking away.
Judgment of 14 April 2020: motion on competence of NCC CSP
In a preliminary statement before submitting its statement of defence, Tennor claimed that since the LOI (which was the only signed agreement) did not contain an NCC clause, the case should be referred to Amsterdam District Court CSP (‘Team Kort Geding’) for further proceedings in Dutch at the ordinary non-NCC court fee rate.
Under Article 30r Dutch Code of Civil Procedure, Dutch is the language of the motion on this preliminary issue. Therefore, the judgment on the motion was given in Dutch. However, as a courtesy, the NCC CSP also provided an English version of the judgment.
The NCC CSP denied the motion. The court found that in this case, there is a valid NCC clause as agreed by the parties. Article 30r DCCP does not impose any requirement to the effect that an NCC clause is only valid if included in a document signed by the parties. The requirement of an ‘express’ agreement is also met when both parties have clearly expressed their agreement in favour of NCC and which expression was not, for example, hidden in one party’s general terms and conditions. Given the close connection between the Transaction Agreement and the LOI, the NCC clause included in the Transaction Agreement also applies to disputes in connection with the LOI. In its decision, the NCC CSP takes the facts that Tennor consistently uses English to communicate and is based in Amsterdam into account. However, considering the short time period for Tennor to submit its statement of defence, the NCC CSP allows a statement in Dutch as well as using Dutch at the hearing.
Judgment of 29 April 2020: claim and decision
McCourt’s main claim was denied. The NCC CSP found there was not a sufficient factual basis to attribute the advisers’ statements or conduct to Tennor, since there was nothing to suggest that Tennor itself said or did anything to communicate to McCourt that the advisers would be handling everything, including entering into the Transaction Agreement. Therefore, the court considered that there was not a sufficient likelihood of success on the merits so as to justify an interim measure ordering Tennor to perform its obligations under the (unsigned) Transaction Agreement and thus to pay EUR 169.000.000 for a 50% stake in an equestrian show-jumping business.
The alternative claim, however, was allowed. The NCC CSP considered that the LOI provided for situations such as the current crisis and decided that the fee was not a punishment nor extremely onerous as Tennor claimed. The court found no grounds to mitigate or reduce the EUR 30.000.000 fee due to the COVID-19 circumstances. Tennor invoked the articles 6:94, 248 and 258 DCC, which all only allow interference by the courts in the contract’s operation to avoid an ‘unacceptable’ impact, as assessed under standards of ‘reasonableness and fairness’. The NCC CSP decides to apply the principle of focusing on preserving the parties’ contractual equilibrium. The fee was instated to create certainty by allocating risk and expressing commitment. It capped Tennor’s exposure while leaving substantial risk with McCourt. If the fee were to be reduced in any business turndown, the fee’s purpose – comfort and confidence to get the deal done – would not be accomplished.
Therefore, Tennor will have to pay EUR 30.000.000 plus contractual and statutory interest to McCourt.
This is not the last we’ll see of this conflict, as Tennor has served a writ of summons initiating an action on the meritsof this case. The NCC CSP decided not to wait for the outcome of this case:
“The action on the merits, if progress to date is any guide, may be complex, hard fought and vigorously litigated. It will take time. The resolution will not be quick. But there is a sufficient likelihood that [Claimant] will be successful, as noted above. There is no need to await the outcome.” (judgment, paragraph 3.49)
Third case of 2020
On 13 May 2020, following an expedited hearing, the NCC CSP granted permission for the pledgee to sell and transfer the shares in a private transaction (instead of a sale at auction) (see the judgment).
This third case for the NCC this year concerned IHC, a Dutch ship-building group that is on the verge of going under.
Claim and decision
Glas Trust Corporation Limited, as the security agent of the banks who loaned IHC the money it needed to stay afloat in return for pledged shares, requested the NCC to grant permission to transfer pledged shares in a private sale. In principle, an enforcement sale is to be held by way of public auction (article 3:250 DCC). However, there is the possibility of using an alternative route if the provisional relief judge, on request of the pledgee or pledger, orders that the pledged asset is sold by foreclosure in a different way (article 3:251 DCC).
The rescue of IHC involved the transfer of the shares in IHC Merwede Holding B.V. (the operational top holding company of the IHC Group) to Stichting Continuïteit IHC. These shares were pledged to Glas Trust Corporation Limited as the security agent for the banks who agreed on the loan. It is not disputed that IHC Merwede is in payment default under the Facilities Agreements, that its parent IHC B.V. is in default under the guarantee it granted to the lenders, and that Glas has the right to enforce the pledge.
The NCC CSP agreed with all parties involved that the proposed private sale will deliver maximum value for the pledged shares and granted the requisite permission.
A comment on style
Reading the judgments of the NCC and the NCC CSP is a pleasure. The judgments are drafted in common language and provide clear explanations. For example, paragraph 3.29 of the 29 April 2020 judgment includes the phrase:
“The Court now comes to where the rubber meets the road. The above legal principles must be applied to the facts of the fee mechanism.”
In paragraph 3.32 of the same judgment, the court describes the agreed fee as something that ‘reassures and comforts’:
“That is the fee’s fundamental nature. It’s not punishment. It’s not about anyone doing anything wrong, or somehow violating their word, defaulting on their obligations or breaking the terms of the bargain. Instead, it’s an incentive. It’s an option. It expresses commitment. It reassures. It comforts. It engenders confidence. It restores trust.”
Although the judgments are no longer written from the first-person perspective (the judge’s point of view) as was the case in the first NCC CSP judgment, the NCC judges still accomplish finding a lively tone resulting in easy-to-read judgments. As I have mentioned before, this can only be welcomed.
With three cases resulting in four judgments, the NCC has been fairly in busy in 2020 compared to its first year (2019). However, no further hearings have been announced yet. It may be that this brief period of activity will be followed by a period of rest. Nevertheless, it seems that a firm foundation has been laid for a thriving commercial court. The swift proceedings, the high quality of the judgements and the fact that more and more contracts include an NCC clause, justify the expectation of more work for the NCC in the years to come.