Top 4 issues to consider regarding a Dutch law construction contract

In the Netherlands, construction contracts are usually drafted on the basis of Dutch terms and conditions, such as the UAV 2012 and the UAV-GC 2005. Sometimes, international building contracts such as FIDIC are applied.

Whatever the terms and conditions that are used, it is the custom for Dutch law to be declared applicable. This entails a number of points of attention.

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1. Even without a signature one may be bound by a contract or by additional arrangements

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In the Netherlands a construction contract has no prescribed form. For the contract or additional arrangements to be valid it is not required that a written contract / annex is signed by both parties. Needed is an offer and the acceptance thereof (Section 6:243 of the Dutch Civil Code (DCC)).

Subsequently:

• A construction contract may arise from an oral instruction by the client.
• A draft construction agreement or a draft rider may apply between the parties. The acceptance thereof may follow, for example, from the circumstance that a contractor has begun to do the work included in that agreement and the client pays him according to the contractual payment   schedule.
• Additional arrangements to a (written) contract may be valid without being recorded in a rider to the contract. Such arrangements may be evidenced by, for example, the minutes of a construction site meeting.

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2. Not necessarily only what the contract says matters

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If a construction contract has been negotiated between the client and the contractor, its interpretation is not necessarily only a matter of a purely linguistic interpretation of the provisions of the contract. Decisive is the meaning the parties could reasonably ascribe to each other’s acts and representations and what they could reasonably expect from each other in that regard[1]. When explaining a contract made by two professional parties, the text must be accorded considerable significance but still all circumstances of the case must be taken into account[2], for example:

• Correspondence about the contract in which certain arrangements are discussed.[3]
• Whether a certain interpretation of an arrangement is in line with the purpose of the contract.[4]
• How the parties have acted after concluding the contract.[5]

In the construction sector, the above mentioned acts of parties are often recorded in minutes of construction site meetings. Subsequently, these minutes may play an (important) role in the interpretation of the contract.

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3. Gaps & mandatory law

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Dutch law may apply if an agreement contains gaps or where mandatory law is in place.

Some examples:

• Dutch law gives the contractor the right under certain circumstances, especially if the client does not pay him, to seal off the building site and to deny the client access to it (his right of retention,  Section 3:290 DCC). If nothing is set out in the construction contract regarding this situation, this right of the contractor will apply besides/on top of his contractual rights.
• Mandatory law stipulates that the contractor is liable for latent defects known to him and not disclosed by him (Section 7:762 DCC).
• The contractor may only demand a price increase if he has indicated in good time to the client the necessity for a resulting price increase, unless the client should have realized that necessity himself (Section 7:755 DCC).

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4. It’s the reasonableness and fairness!

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Last but not least, reasonableness and fairness play an important role in Dutch law. They may have a supplementary as well as a restrictive effect. Here are some examples:

• A rule binding upon the parties as a result of the contract does not apply to the extent that, in the given circumstances, this would be unacceptable according to standards of reasonableness and     fairness (Section 6:248 DCC).
• A stipulation in general terms and conditions may be nullified if it is unreasonably onerous (Section 6:233 subsection a DCC) and provided that both parties are resident in the Netherlands (Section 6:247 DCC).
• A contractual penalty may be reduced if this is obliviously required by standards of reasonableness and fairness (Section 6:94 DCC).

There is plenty of case law in which reasonableness and fairness are applied. E.g. in 2017 the Court of Appeal of The Hague[6] reduced a contractual penalty significantly on this base. The court mitigated a contractual penalty owed by a real estate developer because he had not remedied a defect in time (decontaminated the garden of an apartment complex) from 30 million Euro to 75,000 Euro; a mitigation of no less than 99.75%!

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Want to learn more about construction contracts under Dutch law? Please feel free to contact Jan Hein Meerburg.

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[1] Supreme Court, 13 March 1981, NJ 1981/635 with note Brunner (Ermes c.s./Haviltex).

[2] Supreme Court, 5 April 2013, ECLI:NL:HR:2013:BY8101 (Lundiform/Mexx)

[3] Supreme Court, 5 April 2013, ECLI:NL:HR:2013:BY8101 (Lundiform/Mexx)

[4] Supreme Court, 17 December 1976, NJ 19977/241 (Bunde/Erckens)

[5] Supreme Court, 12 October 2012, NJ 2012/589

[6] Court of Appeal of The Hague, 21 November 2017, ECLI:NL: GHDHA: 2017: 3299