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    IT contract law: a Dutch approach

  • EN
  • The freedom to contract what you like is quite broad in the Netherlands, especially in a B2B context. When moving your assets from the UK to the Netherlands, you may thus be inclined to just keep using the contract terms and conditions you are already familiar with. Nevertheless, the possible consequences of different legal systems could create challenges for your business. Also in the field of IT contracts.

    We in the Netherlands are used to doing business in English. Drafting and negotiating contract wording in English come naturally to us. This is especially true in the IT business, where for decades we have been working with contract wording (whether translated in Dutch or not) that is an identical copy of US/UK law-influenced contract wording. However, simply importing legal terms from one jurisdiction into another, or simply translating legal terms from one language to another, can be troublesome. These legal terms are part of a different autonomous legal system, where these terms have their own position and significance in a wider legal foundation.

    Especially the difference between the UK common law approach and the Dutch civil law approach may deserve some extra attention in this respect. To avoid misinterpretations during IT contract negotiations and/or disputes, it is important to be aware of these differences. For illustration purposes, we have added some examples that explain a typical Dutch approach to contract law.

    • Besides contract wording and applicable law, each contractual relationship is governed by the principles of reasonableness and fairness. Depending on the circumstances at hand each party is therefore required to take into account the legitimate and reasonable interests of the other party when exercising its contractual rights.
    • Aforementioned principles of reasonableness and fairness also play a major role in interpreting (IT) contracts in the Netherlands. If parties disagree on the legal meaning of a specific provision (especially when vague terms are used such as "good performance", "user-friendly", "innovative" or "state-of-the-art"), the starting point for contract interpretation is the so-called Haviltex doctrine as developed by the Dutch Supreme Court. According to this doctrine it is decisive what the parties can both reasonably attribute in the given circumstances to the relevant contractual provision and what they can reasonably expect from each other in this respect. In interpreting a contractual provision a court will take note for instance of statements made by the parties pre- and post-signing of the contract.
    • The Dutch contract law doctrine in terms of remedies when the other party does not duly perform its contractual obligations is focused primarily at demanding performance, also in court. In most cases the Dutch Civil Code only allows remedies such as termination for cause or damages if first a (unsuccessful) demand for performance was made. This Dutch approach differs from more punitive approaches in most common law jurisdictions. If parties wish to exclude a certain remedy that is available under the Dutch Civil Code, they should do so explicitly as the contractual rights and obligations are in principle not limited to the four corners of the contract itself, not even if an 'entire agreement' clause was agreed upon.
    • Under Dutch law there is a vital difference between the an efforts obligation (reasonable efforts, best efforts) and the obligation of result, each having distinctive legal consequences. In an efforts obligation, the importance lies in the fact that a party took enough effort to reach a result, whether the result was reached or not. The burden is on the other party to prove that not enough effort was taken. In an obligation of result, only the question if the result is achieved, counts, which substantially eases the burden of proof. Basically the burden of proof even shifts to the party that did not achieve the result agreed upon; he needs to prove why he is not to blame for this failure. A warranty obligation is merely an obligation of result that in principle also applies in a force majeure event. Limiting your liability for not meeting a warranty obligation or obligation of result is allowed, of course to the extent the limitation can be considered reasonable and fair under the given circumstances.
    • The Dutch Civil Code distinguishes between two types of termination: (i) cancellation (in Dutch: opzegging), also referred to as termination for convenience; and (ii) rescission (in Dutch: ontbinding), also referred to as dissolution or termination for cause. The legal consequences are quite different, the most important being that under the Dutch Civil Code rescission results in an obligation for the parties to undo their performance under the contract. For services rendered that by nature cannot be returned, that obligation to undo the performance results in an obligation to compensate the other party for the actual value of the services received. You can imagine that this raises a lot of questions, including disputes as a result thereof.
    • In terms of damages the Dutch Civil Code (and most insurance policies) distinguishes between death and personal injury on the one hand (including financial loss as a result thereof) and pure financial/economic loss on the other hand. Nevertheless, in IT contracts that are governed by Dutch law we have become quite used to using US/UK terms such as direct damages, indirect damages and consequential damages (including Dutch translations thereof, even translations into legal terms used in the Dutch Civil Code). However, the legal meaning of these terms under Dutch law is not necessarily the same as under US/UK law. The legal difference is quite delicate, but just remember that an exclusion of liability for indirect and consequential damages under Dutch law may include damages that would qualify for compensation as direct damages under UK law.
    • In the Netherlands parties are quickly bound by general terms and conditions, especially in a B2B context. In the Netherlands there are several widely-adopted sets of general terms and conditions, both in the IT industry (with a battle of forms between supplier-friendly terms and customer-friendly terms for decades now) as in the Healthcare & Life Sciences industry (with mostly customer-friendly terms). Some are quite usable and provide a source of inspiration for good IT contracts; others often prove not to be fit for purpose.

    How we can help

    We understand this may all be a lot to digest. Do you need a tour guide to be able to enjoy the benefits of good IT contracts governed by Dutch law that safeguard your best interests? We have an experienced IT team with extensive knowledge on Dutch contract law and a profound understanding of IT and the importance thereof for the Healthcare & Life Sciences industry. We are happy to help you with addressing any legal challenges in this respect that come along with moving your assets to the Netherlands. Please contact Louis Jonker to discuss the possibilities.