Dutch case law is full of cases in which the interpretation of agreements and general terms and conditions is central. In the Haviltex judgment, the Supreme Court ruled that, in addition to the textual interpretation, the expectations that the parties may have of each other must also be taken into account when interpreting agreements. This is called the subjective explanation. The legal rule for the interpretation of general terms and conditions differs from the Haviltex judgment. As a rule, general terms and conditions are not negotiated. For this reason, general terms and conditions are often interpreted entirely grammatically. Also called the objective explanation.

Recently, the Supreme Court ruled on the interpretation of Rabobank’s banking conditions. Those banking conditions stated that a borrower waived ‘subrogation’ vis-à-vis Rabobank.

Subrogation can lead to disadvantageous situations for financing banks in the case of group financing. Subrogation means that if a party pays the debt of another party, that party becomes the creditor of said other party. For example: company A and company B form a group. Company B incurs a bank debt for which Company B issues a pledge to the bank. Company A is the guarantor for the bank debt of Company B. If Company B does not repay the bank debt and Company A pays part of the debt to the bank as guarantor, Company A takes over the claim it has paid against Company B from the bank, including the right of pledge (this transfer is subrogation). If the bank then executes the pledge, it must share the proceeds with Company A.

Back to the case before the Supreme Court; linguistically, Rabobank’s banking conditions were not clear. To waive a right is to reject an existing right. Rabobank meant by the banking conditions that the borrower could not exercise a right to (future) subrogation, Rabobank wanted to exclude the right to subrogation instead of waiving/rejecting it. In Rabobank’s case, the borrower had been declared bankrupt after the situation of subrogation and therefore lacked the power to waive subrogation.

In this case, the Supreme Court ruled that when interpreting general terms and conditions, all circumstances must be weighed in the light of reasonableness and fairness. The plausibility of certain legal consequences plays a role in the interpretation. Rabobank successfully argued in this case that it intended the banking conditions to exclude the right to subrogation. According to Rabobank, a different interpretation would lead to very different legal consequences in and outside bankruptcy (after bankruptcy, the effect of the article would cease to apply). This is not the intention. The Supreme Court follows this argument and interprets the banking conditions as intended by Rabobank.

The moral of this case is that when interpreting general terms and conditions, the court does not only look at the linguistic interpretation, but also at the plausibility of the legal consequences of different interpretations. This can provide an extra argument for users in the discussion about the interpretation of general terms and conditions.

Finally, it is emphasized that this article relates to the interpretation of general terms and conditions in business contracts (B2B). Different rules can apply to the interpretation of general terms and conditions in consumer contracts.

For questions or advice on this subject, please contact Sander Pieroelie (+31-6-222 878 65) or Sabine Chan (+31-6-578 911 13).

This article was published in the Newsletter Vestius of February 2024