Introduction
Facts
Decision
Comment
The basic premise of a valid arbitration clause is that parties waive their right to court access, which is provided for by law and safeguarded by article 17 of the Dutch Constitution and article 6 of the European Convention of Human Rights (ECHR). In doing so, parties deliberately agree to both the advantages and the disadvantages of arbitration, the latter often including higher costs.
However, an arbitration clause may not be invoked when applying it would lead to a breach of article 6 of the ECHR and imposing it would lead to a party not having effective access to justice. An example of a breach of article 6 of the ECHR recently occurred before a Dutch court.(1)
The case concerned a couple who had concluded a cohabitation agreement, in which arbitration before the Netherlands Arbitration Institute (NAI) had been agreed. When the couple separated, a dispute arose from the cohabitation contract. It is worth mentioning that it is not uncommon for a cohabitation contract to contain an arbitration clause.
The claimant initiated proceedings before the civil court and claimed that the defendant should cooperate with the sale of their house, which was worth over €500,000. The defendant, however, invoked the court's lack of jurisdiction based on the arbitration clause.
According to the claimant, the application of the arbitration clause was contrary to the Dutch doctrine of reasonableness and fairness,(2) in view of the claimant's limited financial resources. At the time, the administration costs for the NAI were €2,449, the amount that should be deposited was €20,000 and the advance payment of the hourly rate for an arbitrator and secretary combined was €450. The claimant's annual income was €20,543, which meant the claimant was also eligible for legal aid. As a result, the claimant only had to pay €306 in court proceedings.
The court tested the claimant's interest against article 6 of the ECHR and considered that "fair trial" also includes a right of access to a court. According to established case law, the exercise of this right can be hindered if the court fees (among other things) constitute a significant obstacle for a party to pursue their civil claim. The court found that, in this case, arbitration proceedings would simply not be affordable for the claimant, and, as a result, the arbitration clause was held to be inapplicable.
Noteworthy about this judgment is that, although the amount in controversy was relatively high (more than €500,000, to which the claimant was partly entitled), the arbitration clause was not enforced. It seems that the fact that the claimant had a relatively low income led to this outcome, combined with other factors, including the nature of the dispute (relating to domestic relations) and the nature of the parties (ie, private parties). An additional factor was that, due to the amount in controversy, the arbitration costs were relatively high, which further burdened the claimant's finances.
Evidently, costs are a topic for the parties to consider when agreeing to arbitration. However, in this situation, there was a high probability that the claimant was unaware of the implications of arbitration or even knew of the existence of the arbitration clause. In general, financial incapacity is not a reason for a court to decide not to enforce an arbitration clause.
For further information on this topic please contact Jeroen van Hezewijk or Basya Klinger at Freshfields Bruckhaus Deringer LLP by telephone (+31 20 485 7000) or email ([email protected] or [email protected]). The Freshfields Bruckhaus Deringer LLP website can be accessed at www.freshfields.com.
Endnotes
(1) District Court of North-Netherlands, 23 March 2022, ECLI:NL:RBNHO:2022:2452.