Competence of the Dutch Court vis-à-vis Arbitration Tribunal now clarified

Under Netherlands law, parties have the freedom to choose their own way of dispute resolution, for example by including an arbitration clause in their contract. However, in the Netherlands it is possible that, regardless of a choice for arbitration, the civil court remains to have jurisdiction when a party asks for protective measures or preliminary injunctions. A protective measure may be the seizure of an asset or funds. A preliminary injunction may be, for example, to stop construction activities as otherwise irreparable damages may result. 

With its new law, that entered into force on January 1, 2015, the Dutch legislator clarified under which circumstances the civil court is competent regardless of a choice for arbitration. As from January 1, 2015 the civil court is competent only if a party asks for a protective measure or preliminary injunction in case these remedies could not or not readily be obtained in arbitration.

This is a relevant change for parties to (international) contracts that contain arbitration-clauses and of which one party is residing in The Netherlands. These parties should realise that the Dutch court could have jurisdiction, even if the parties opted for dispute resolution by a Dutch or foreign tribunal in their contract.

Should you have any questions or need advice or a second opinion on your international contracts containing arbitration-clauses, please contact us at +31 (0)20 310 9980 or at info@meritattorneys.com.

 

Background

Arbitration clauses are often used by professional contracting parties in international business contracts. An example of an arbitration clause reads as follows:

All claims and disputes arising under or relating to this Agreement are to be settled by binding arbitration in the state of [insert state in which parties agree to arbitrate] or another location mutually agreeable to the parties. An award of arbitration may be confirmed in a court of competent jurisdiction." 

One of the advantages of choosing arbitration over a court procedure is considered to be its confidentiality. Dispute resolution through civil courts is not confidential, causing the parties to disclose the full details of their disputes in public. This could damage the reputation of the companies involved. From a marketing and sales perspective, arbitration could be a valuable tool to protect the reputation of a company.

Furthermore, in arbitration, contracting parties have more influence on the proceedings. Parties can choose expert arbitrators and determine, preferably at the time when the contract is entered into, the rules of the arbitration. This way, they can influence the duration of the proceedings and more accurately predict and control the costs of the proceedings. This is important from a financial and operational standpoint.

If parties to a contract agreed to arbitration, in general, only the chosen tribunal is competent to resolve disputes relating to that contract. Nevertheless, in the Netherlands it is possible for a party to ask the civil court for a preliminary injunction or protective measure, regardless of the choice for arbitration. In other words, the arbitration-clause does not affect the competence of the civil court in these matters.

The new law clarifies under which circumstances the Dutch civil court can be competent regardless of arbitration clauses. It states that protective measures or preliminary injunctions can be asked of the civil court, but only when they could not or not readily be obtained in arbitration. The focus in this newsletter will be on these exceptions.

First, the exceptions will be discussed. After that, we will go into the applicability of the exceptions.

 

Exception for Preliminary Injunctions

In general, parties in the Netherlands can ask the court to grant preliminary injunctions (voorlopige voorziening) in case they have an urgent interest. This means that the party needs a fast decision and cannot wait for a normal (lengthy) procedure with the civil court. Preliminary injunctions can be achieved through interlocutory or summary proceedings (kort geding). These usually take much less time then normal civil proceedings. 

For example: when a competitor infringes a party’s intellectual property rights, such party has an urgent interest in preventing the other to continue this infringement. In this case it would not be reasonable to commence a normal civil procedure, which could take months. That is why, in these cases, parties can ask for the requested remedies in interlocutory proceedings, which usually take much less time, i.e. one to four weeks.

Because arbitration, like normal civil court proceedings, can take months or even years, the Dutch legislator created the option for wronged contractual parties to obtain a preliminary injunction with the court when they have a so-called “urgent interest” (spoedeisend belang), regardless of a choice for arbitration.

 

Exception for Protective Measures

If a contractual party foresees that - in the future - the other party to the contract will have insufficient funds or assets to honour the contractual agreement or will not be able to pay damages, that party can request the court to seize these funds or assets of the other party prior to starting a legal procedure on the merits of the case. This protective measure provides the party an option to secure its right to performance under the contract or damages through the civil court in an early stage, regardless of the choice for arbitration.

If the court agrees to the seizure, the requesting party has to start legal proceedings on the merits of the case within fourteen days. In general this has to be done with the civil court, but in case the parties made a choice for arbitration, they have to start proceedings with the chosen tribunal. If parties chose arbitration with a foreign tribunal, the court can extend the period within which the proceedings must be started.

In short, although parties included an arbitration-clause in their contract, in the Netherlands the civil court is still competent to decide on the request to seize funds or assets of a contractual party in case of a breach of contract or tort. This is not surprising, because seizure of funds or assets cannot be accomplished via arbitration.

  

Only Injunctions and Measures that cannot readily be obtained in Arbitration 

The option to ask the civil court for protective measures or preliminary injunctions regardless of arbitration clauses in contracts already existed. The new law clarifies these exceptions by stating that as from 1 January 2015 protective measures or preliminary injunctions could only be requested for with the civil court in case these measures or injunctions could not or not readily be obtained in arbitration.

This means that if a party asks the civil court for a preliminary injunction or a protective measure, the court must always consider if the requested injunction or protective measure could be achieved via arbitration and if it could be “readily” achieved through arbitration. 

With a request to seize certain funds or assets it is clear that the civil court is competent, because this protective measure can only be obtained via the court and not through arbitration. With requests for preliminary injunctions it is not usually this clear. The legislator has left it to the courts to decide if preliminary injunctions could (readily) be obtained in arbitration. The substance of the arbitration agreement and whether or not arbitrators have already been appointed could be relevant factors in answering this question. In unclear cases the court must take into account all the relevant circumstances in its assessment of its competence.

In general, if no arbitrators have been appointed yet, the rules of the arbitration have not been set and the party requesting the preliminary injunction has an urgent interest, such party should have the option to start interlocutory proceedings rather than have to wait for the arbitration panel. 

 

No Stand-Alone Ground for Jurisdiction

The exceptions are no stand-alone ground for jurisdiction of Dutch courts. In other words, they do not change the fact that, when it regards international contractual relations, the competence of the court still depends on the rules of international private law.

 

Mandatory Law 

The exceptions are mandatory law. This means that contractual parties cannot include a clause in their contract that states that the court has no jurisdiction, even if it regards a request for protective measures or preliminary injunctions that could not, or not readily be obtained with arbitration.

 

In conclusion, parties to contracts that contain an arbitration-clause should be aware that when they do business in the Netherlands or do business with parties from the Netherlands, it is possible that the civil court in the Netherlands has jurisdiction in case a protective measure or preliminary injunction is requested.

 

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