Category Archives: Contract Law

Proprietary effect of Dutch non-transferability clauses no longer default

The Supreme Court of the Netherlands has in its recent ruling of 21 March in Coface/Intergamma, shed a new(-ish) light on non-transferability clauses in contracts. It uses the layer of ‘interpretation’ to make a change in the way in which we’ve seen the non-transferability clauses. The practical effects however will be minimal.
 
The Law
 
 Unlike the law in neighbouring countries, Dutch law allows for the possibility of making claims (as objects of property rights) non-transferrable. I have discussed the lack of acceptance of non-transferability of objects here before, and the arguments hold true in this case as well. Wide-spread acceptance of non-transferability of objects would bring a halt to trade. The lack of acceptance of these clauses is therefore widespread. Dutch law however allows for a non-transferability clause, but restricts its effect to only claims.
 
Article 3:83(2) BW (Dutch Civil Code):
 ‘The transferability of a debt-claim may be excluded by an agreement between creditor and debtor’.
The inclusion of such a clause with proprietary effect would not only mean that the claims would no longer be allowed to be transferred, but could not be transferred. This has significant ramifications for third parties. The object itself would be rendered non-transferable, rather than the person entitled to the claim lacking the power to dispose over the claim. A lack of the power to dispose may be remedied by third party protection rules, however, these are not applicable to the situation in which the object itself was not transferable. A non-transferability clause therefore, really means, non-transferable. Not even a good faith acquirer for value can do anything about it. The validity of the proprietary effect of these types of clauses was the subject of the case.
 
The Supreme Court decision: They are valid, but not the default.
 
The Supreme Court first states that its decision of 2003 in Oryx in which it accepted the proprietary effect of a non-transferability clause, will hold, even though the decision has been heavily criticised in the literature given the limping effect on trade. Opting for one of the alternatives which are available in legal systems around the Netherlands, would not be possible according to the Supreme Court as this would “go beyond the lawmaking function of the Supreme Court.” Furthermore, the Supreme Court stated that practice has come to accept, or at least, take the 2003 ruling and its consequences into account in their daily dealings.
Secondly, the Supreme Court adds a layer of interpretation of these types of clauses to the mix. It states:
“A clause as in casu (a non-transferability clause) which, by its nature, is intended to influence the legal position of third parties that do not know the intention of the contracting parties, and with the legal aims to regulate their status in a uniform way, has to be explained by objective criteria, taking into account the Haviltex-criterion. The starting point of the interpretation of clauses that exclude transferability is that they only have a contractual effect, unless the wording of the clause – to be interpreted using objective criteria – appears to aim for the proprietary effect in art. 3:83 (2) BW.
Thus, the clauses are valid, but the default is that they are considered to only have contractual effects, and if breached they lead to a breach of contract. The claims subjected to the clause however, are still transferred. Should the proprietary effect, ie. actual non-transferability, be preferred, one will have to clearly express this intended effect. This changes the view held since 2003, that any mentioning of a non-transferability clause will automatically carry the proprietary effects. The default has been changed. A non-transferability clause is contractual, unless specifically stated that it is a proprietary non-transferability.
 
The practical effect 
 
For practice, the judgement is just a lot of extra work. Current contracts will be modified from ‘these claims are non-transferable’ to ‘these claims are non-transferable, with not merely a contractual effect but also a proprietary one’, and standard models for contracts will be adapted accordingly.
Is it a change at all? Yes. Is it a big change? No, not really.  A phrasing that used to be interpreted in a singular way (non-transferability, is non-transferability) now has two ways in which it may be interpreted, contractually or proprietary. Practice will most likely adapt accordingly, and simply be more explicit in the future.

 

Hunting for millions: Game show contestant presses button too quickly and ‘loses’ EUR 4.875.000

On 21 November, I wrote this blog for MEPLI.eu

The Game

On 3 November 2013 a television game show contestant named Arrold van den Hurk, was the one chosen to play the game ‘Miljoenenjacht’. In this game he could potentially win EUR 5.000.000,-. However, Arrold pushed a red button to quickly and won only EUR 125.000. He now claims he lost EUR 4.875.000. Has he? It all depends on contract law.

In short the game works as follows: there are 26 people in the audience that all have numbered suitcase. In the suitcases there is a piece of paper with an amount of money on it. Potentially this is the amount of money you can win, if you sit out the entire game. The amounts vary from EUR 0.01 to EUR 5 Million. From the people with a suitcase, one of them is chosen at the beginning of the game to come forward to the game show host, Linda de Mol, and play the finale. That night it was Arrold. He brought his own suitcase down and started the game.

There is an extra player, the bank. The bank will have to give the amount of money in the suitcase to the player if the player never accepts the settlement offer. Which could possibly be EUR 5 million. Therefore, the bank will every now and then entice the player to accept a settlement. The settlement offer is based on the chance that the player has a high amount in the suitcase. At the start therefore, there is a 1/26 chance that the player has EUR 5 million in his suitcase, which he can take home. However as the game continues the player has the opportunity to open up certain suitcases and therefore play away those amounts. This means the chance that there is a large amount of money in his own suitcase fluctuates. The bank will calculate that risk and periodically will offer a sum of money for the contestant to walk away from the game.  This offer can be accepted by the contestant and then he gets the amount offered, not the amount in his suitcase. This means the contestant can walk away with thousands of Euro’s where he would, had he stuck with his own suitcase, only gotten 1 Cent. Because, neither the bank, nor the contestant knows how much is in the suitcase the contestant has.

At the time when Arrold made his decision there were 15 suitcases left (including his own). The amounts not yet revealed were: EUR 0,01; 0,50; 5; 10; 20; 50; 100; 2.500; 5.000; 100.000; 250.000; 500.000; 1.000.000; 2.000.000 and 5.000.000. The bank then made its calculation and offered Arrold EUR 125.000 on the spot. In front of Arrold, there was a huge red button. When pressed, the button symbolizes the acceptance of the offer of the bank (or does it?). After moments of contemplation, discussion with the host and his wife he made a decision. He then pressed the button.

Arrold pressed the button.. to his own and the Game Show Host's surprise
Arrold pressed the button.. to his own and the Game Show Host’s surprise

After pressing the button he looks bewildered at the confetti falling down from above him, wondering what is going on and the following conversation ensues:

Arrold: “The moment I press it, I regretted it.”

Game Show Host : “Well, then we’ll just pretend you didn’t do that.”

Arrold: ”Is that possible?” (…) “It’s the nerves.”

Game Show Host: “I don’t know, (…) Let’s ask the notary”

Note, at this point, no-one (except the notary who fills the suitcases) knows that there is actually EUR 5 million in Arrold’s suitcase. However, the notary is independent and should have no interest in whether the contestant wins EUR 0,01 or EUR 5 Million.  The notary is strict and says:

’rules are rules, pressed is pressed’.

Arrold therefore won EUR 125.000. Nevertheless, they continue playing the game. It turns out there is EUR 5 million in his suitcase, the one his son told him would win him exactly that amount…

The Claim

Arrold, via his laywer, now claims the remaining EUR 4.875.000,-.
I have some issues with this claim. Indeed, his suitcase had the EUR 5 million, but that was only potentially his reward. Who is to say that had he continued to play away more suitcases he would not have accepted a later offer by the bank? Had he played away all the high amounts, the offer of the bank could potentially be lower than the EUR 125.000. True, it could also have been EUR 2.500.000 but who is to say that he would not have accepted another offer? Therefore, what is the basis for the claim of the ‘remaining’ EUR 4.875.000?

The Problem

The case turns on whether Arrold actually accepted the offer or not. When he saw the EUR 125.000 offered by the bank, he pressed the red button.

No-one is disputing that there was in fact an offer, however, the acceptance is hotly debated. Did Arrold accept the offer when he pressed the red-button which he immediately regretted and voicing this regret out loud?

The Rules

The rules of the game can be found online and are also given to the contestants on paper prior to starting the game. The rules online at the time of the taping of the show did not mention anything about the red button. However, the lawyer of Arrold found out, by making clever use of the Internet Archive, which periodically stores all that is on any website on the Internet, that the following sentence was added to the online version of the rules of the game a mere two days after the taping of this particular episode:

“Should the finalist want to accept the offer then he should press the ‘red button’ by which the game will end.”

The paper version of the rules of the game, which had to be signed by all contestants, also did not have this particular sentence in it.

The representatives of the show stated that this sentence was only a clarification of the rules, whereas the lawyer of Arrold states that this changes the rules of the game.

The Law

A contract in the Netherlands is formed through an offer and the acceptance thereof (Art. 6:217 Dutch Civil Code (DCC)). Acceptance of an offer in Dutch law can be done by in any form (Art. 3:37 DCC), which includes pressing a button. Now, Arrold could try to invoke mistake. A contract which has been concluded under the influence of mistake and would not have been concluded under a correct impression of the situation, is voidable in certain situations listed in Article 6:228 DCC. However, here it is difficult to assert that Arrold was mistaken. Rather, I suspect, his lawyer would state that the legal act of acceptance, was never given. Article 3:33 DCC states that

‘A legal act requires a will which is directed towards a legal consequence and which has been manifested by a declaration’.

As he immediately stated he did not want to accept, but rather he meant to close the transparent box over the red button, we could assume that his will was not directed towards this legal consequence. He conferred with his wife and decided to continue to play, but for some odd reason, as he stated because of the nerves, pressed the button instead. He never meant to end the game then and there. Hence, his will was not directed towards the legal consequence of accepting the offer which was manifested by pressing the button

However, of course, there is also the article that protects the other party, Article 3:35 DCC, which states:

“Against him who has interpreted another’s declaration or behaviour, in accordance with the sense that he could reasonably have attributed to it under the given circumstances, as a declaration of a particular scope directed towards him by that other, one cannot invoke the lack of a will which corresponds to his declaration.”

And here it depends on interpretation. Could the ‘bank’ have reasonably considered to be an acceptance? Or had, perhaps, Arrold (timely) revoked his acceptance? Arrold’s lawyer intends to bring the case to courts, so we will see.

 The Laywer

What is also a little bit odd about this case, at least for me, is the very proactive way in which the lawyer was acting. It was the lawyer who phoned Arrold, and told him that he might have a case and he should get a lawyer. Then when Arrold took him on as his lawyer the latter went on national television to explain the case for his client, and moreover, set up a website https://www.rechtopmiljoenen.nl to set out the case again. Have you ever seen a lawyer set up a website for his client, detailing the case?

To watch the whole thing: Watch this YouTube video