In two separate cases, two first instance district courts put aside arbitration agreements for reasons of reasonableness and fairness.(1) Dutch courts generally observe arbitration agreements and typically find that when parties have entered into an arbitration agreement, they have no jurisdiction. Instead, courts will refer the parties to the agreed arbitration proceedings. However, it is possible in rare instances for a Dutch court to rule that it has jurisdiction in a matter in which it is not disputed that an arbitration agreement applies.
Both cases concerned third-party or impleading proceedings. There is a difference between:
- third-party proceedings initiated as part of a pending arbitration procedure; and
- third-party proceedings initiated in the context of a procedure that is pending before a regular court.
If an arbitral tribunal allows a party in an arbitration to implead a third party, that third party becomes a party to the arbitration proceedings. On the contrary, third-party proceedings that are initiated in the context of main proceedings pending before a regular court will be treated as distinct (albeit related) cases.
In the third-party proceedings at hand, the respective claimants (Hak and Company X) had summoned their respective contractual counterparties to indemnify them in case they were ordered to pay monetary damages in separate but related main proceedings in which they were summoned as defendants. The main proceedings were pending before the competent district courts; no arbitration agreement was applicable between the respective claimants and defendants in these proceedings. In both third-party proceedings the impleaded parties raised a procedural issue claiming that the district courts did not have jurisdiction to hear the cases because the parties had agreed to submit disputes arising from their contractual relationship to arbitration.
Dutch law contains a provision stating that a contractual obligation that is binding on the parties does not apply to the extent that this would be unacceptable according to standards of reasonableness and fairness (Article 6:248(2) of the Civil Code). This test is not easily met and courts must be cautious when applying it. On the basis of this provision, the two district courts ruled that the arbitration agreements should be disregarded because the third-party proceedings were so closely linked to the pending main proceedings that application of the arbitration clause would lead to unacceptable consequences. Application of the arbitration clause would mean that an arbitral tribunal would deal with the question of whether the impleaded parties in the third-party proceedings would have to indemnify Hak and Company X if they were to be ordered in the main proceedings to pay damages, while these latter proceedings were already pending before a regular court.
In both cases the courts considered that judicial efficiency dictated that the arbitration clause should be overruled, to avoid having not only different judges, but also entirely different institutions dealing with closely linked questions. In 2007 the Amsterdam District Court rendered a similar judgment from which it appears that these considerations of judicial efficiency may be particularly compelling in cases that involve consumers.(2)
Putting aside arbitration agreements on the basis of the principles of reasonableness and fairness not only occurs in relation to third-party proceedings. For example, the Rotterdam District Court disregarded an arbitration agreement applicable to a counterclaim filed in proceedings that were pending before the court. The defendant filed a counterclaim with the Rotterdam District Court, despite the fact that an arbitration agreement applied to that particular claim and the counterclaim should thus have been brought in arbitration proceedings. The claimant objected and argued that the court was not competent to hear the counterclaim. Notwithstanding the arbitration agreement, the court considered that it had jurisdiction to hear the counterclaim, as the counterclaim was closely related to the claim in the court proceedings, and application of the arbitration agreement would lead to an exceedingly inefficient procedure which, according to the court, would serve no reasonable interest.(3)
These judgments may serve as a reminder that even though the Netherlands has in place sophisticated arbitration legislation and Dutch courts generally observe and respect valid arbitration agreements that are in force between parties, courts may find that there are compelling reasons to disregard a contractual arbitration agreement. As for recourse claims against third parties subject to arbitration agreements, there is no obligation to bring a third-party procedure in the context of main proceedings that are pending before a regular court. If a party wishes to implead a third party that is subject to an arbitration agreement, such party can choose to bring the claim for recourse in arbitration under the agreed arbitration agreement.
For further information on this topic please contact Juliette Luycks or Ruud Niesink at Clifford Chance LLP by telephone (+31 20 711 9000), fax (+31 20 711 9024) or e-mail ([email protected] or [email protected]).
(1) Utrecht District Court, May 25 2011 (LJN: BQ7177); Middelburg District Court, February 9 2011 (LJN: BR4744).
(2) Amsterdam District Court, February 7 2007 (LJN: AZ9931).
(3) Rotterdam District Court, September 22 2010 (LJN: BO11691).