Reinier advises national and international companies
reinier.russell@russell.nl +31 20 301 55 55Reasonableness and fairness play a crucial and special role in Dutch law. What function has this standard, for instance, for directors and supervisors?
Pursuant to Book 2, Section 8, subsection 1 of the Dutch Civil Code, a legal person (BV, NV, association, foundation, religious denomination) and those involved in any of these organisations must act according to the principles of reasonableness and fairness.
Reasonableness and fairness is not a concrete standard but will be filled in depending on the circumstances. These factors then play a role:
Reasonableness and fairness must be taken in into account by the legal person but also by those involved in the legal person, such as directors, shareholders, board of directors, members and works council (by virtue of law) and the supervisory board, depositary receipt holders and appointment committee (according to the Articles).
An important application of the standard is set out in Book 2, Article 8, subsection 2 of the Dutch Civil Code, according to which among the parties involved in legal persons by virtue of law, habit, Articles, regulations or decision the rule is not applicable, as far as this would be unacceptable with regard to the principles of reasonableness and fairness. This rather strong remedy – which is also known as limiting (or ‘derogatory’) effect of reasonableness and fairness – can, a.o., be invoked if it turns out that the Articles have a highly unreasonable effect on a party involved. Both the legal person and the parties involved can invoke the limiting effect.
Case law shows that reasonableness and fairness will be applied differently by the courts:
A minority shareholder refuses to cooperate in changing a shareholders’ agreement with regard to financial restructuring. The desired funding will not take place so that the company is likely to go bankrupt. The court decides that the minority shareholder acts in breach with reasonableness and fairness, as the continuation of the business is in danger. In addition, by refusing to do so, the minority shareholder will succeed in obtaining a better position than the other shareholders. The minority shareholder is forced by the court to act in conformity with the modification in the shareholders agreement which he had refused.
A furniture store is a member of an association. This association represents the interests of its members by acting as a joint purchasing group. The membership is terminated with immediate effect for a number of reasons. The court decides that the termination of the membership will have major consequences for the furniture store and was performed on improper grounds. Thus, the termination is in breach with reasonableness and fairness and therefore unlawful. The association has to pay the damage the furniture store has suffered as a consequence of the unlawful termination.
Also, a decision can be annulled upon request of the legal person, an interested party or by the court if it is in breach of reasonableness and fairness (Book 2, Article 15 of the Dutch Civil Code). In such a case the court will have to assess if the body was able to come to the decision in reasonableness and fairness when assessing all interests involved in the decision. The Utrecht court decided in 2009 in interlocutory proceedings, for instance, that the directors of the foundation Karate-Do Bond Nederland could not have been able to decide in reasonableness and fairness on the delegation to the European Championships of one of their selection members, because another selection member had scored more points.
Do you have any questions about the application of reasonableness and fairness in view of the unreasonable and/or unfair circumstances of your situation? Please contact:
The holiday season is approaching, a time of joy and days off for many. However, not everyone finds these holidays equally meaningful.
Before the Enterprise Chamber can grant a request for an inquiry, there must be well-founded reasons to doubt the correct policy or course of events within a company. When is this the case?
In an article in the April 2024 issue of Lady Justice, the magazine of the Women Lawyers Section of Primerus, Lisanne Meijerhof shares her passion and expertise in charity law. Why has she chosen to focus on the law of foundations and other philanthropic organizations? What legal issues should charities be aware of?
When tensions run high within a company, potentially putting the company at risk, this may be a reason to go to the Enterprise Chamber to start inquiry proceedings. Who can exercise the right to file an inquiry request?
On the departure of a statutory director/shareholder, any participation in the company must also be settled. Then a discussion may arise about the value of this participation, depending on whether the director counts as a good leaver or bad leaver. What should companies and directors pay attention to when interpreting a leaver arrangement?
Within a company, disputes regularly arise between shareholders and/or directors. This can create situations that endanger the company. To resolve such problems, inquiry proceedings were created in the Netherlands. What do these proceedings entail?
