Linguistic explanation versus context
The explanation of a contract therefore involves more than just looking at the text of the agreement (linguistic explanation). Words on their own are not always clear and are often open to multiple interpretations. When interpreting the wording of a contract, a judge must therefore take into account all the circumstances of the case (the context). This means that first of all the common (subjective) intention of the parties to the contract is taken into account. This can be deduced from circumstances such as the genesis of the contract and the attitude of the parties when entering into, performing or even after the end of the contract.
If the court cannot determine the will and the justified expectations on the basis of this subjective interpretation, an objective interpretation will be applied. He will then ask himself how, in the given circumstances, the parties should reasonably understand the agreed terms. In answering this question, all the circumstances of the case may be relevant. These include, for example, the structure of the contract, the wording of the relevant clause, any explanations of the contract in public documents and the traffic perceptions prevailing in the parties' circles. Moreover, in the case of detailed commercial contracts concluded between professional parties, a judge, assisted by lawyers, is more likely to apply an objective interpretation.
Preliminary phase of the conclusion of the contract of interest
The context (the relevant circumstances of the case) is largely formed in the preliminary phase of the conclusion of the agreement (e.g. when drawing up, assessing or negotiating a contract). It is therefore at this stage that the risks in terms of interpretation and the way in which they are covered need to be carefully considered.
A few suggestions
Hereafter I give you some practical suggestions:
- Use clear and precise wording, which is not open to multiple interpretations;
- Make the intentions of the parties clear, for example by including good considerations or by sketching examples for less clear clauses;
- Ensure a good structure of the agreement;
- Also record explanations, intentions and expectations in additional correspondence and/or minutes of meetings and archive them carefully;
- Always negotiate the most important terms of a contract and/or include an explanation. If a certain condition has been imposed by one party on the other party, often no special weight is attached to the relevant text of the agreement, especially if one party has not had the assistance of experts;
- If you are the one who wishes to impose certain conditions on the other party, it may be useful to include a provision that the other party is aware of the legal consequences of the provisions in question;
- Pay attention to the use of open standards. These are sometimes necessary or even desirable because, for example, the information or time is lacking to clearly lay down the obligations of the parties or because the parties do not impose too many restrictions on themselves in advance, but a court will often implement this standard by testing it against the (other) circumstances of the case;
- Take into account the traffic perceptions that apply in the circles and market in which your companies are or will be active by entering into the agreement;
- Bear in mind that you may be subject to an investigation obligation. A party is obliged to investigate the meaning of the provisions in an agreement (especially if it is onerous for it and if assistance is provided by an expert). If this obligation to investigate has not been met, there is a chance that, in the event of a dispute, the condition in question will be interpreted to the disadvantage of this party;
- Include implicit divisions of the burden of proof. Think, for example, of a provision in which the other party is forced to start proceedings in the event of a difference of opinion about the interpretation of a condition;
- When entering into the agreement, think carefully about the way in which you wish to perform the agreement; and
- Execute the agreement from the outset in accordance with your company's intentions and expectations at the time it was entered into.
In conclusion
In the Netherlands, therefore, when interpreting a contract, the intention of the parties is the starting point for the agreement. If the wording of the agreement does not correspond with the intention of the parties, the intention in principle takes precedence over the text of the agreement.
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