Why words matter
Doing business internationally often means contracting in English. Logical, because English is now the working language in many commercial relationships. But beware: words in an English contract sometimes look like Dutch terms, but mean something completely different. And that can have major consequences.
At Marxman Lawyers, we regularly see confusion over English legal terms such as termination, warranty or indemnity. They sound familiar, but carry risks if you interpret them as you are used to from Dutch law.
What does 'termination' actually mean?
One of the most discussed pitfalls is the word 'termination'. In English, this is used as a general term for 'termination'. But in Dutch law, we distinguish between dissolution (in the event of a default) and termination (without anything having to go wrong).
In a ruling by the Amsterdam Court of Appeal(ECLI:NL:GHAMS:2023:2715), exactly this was in play: had the parties meant by termination that the contract could be dissolved or terminated? The court ruled that the provision had to be seen as termination, partly on the basis of the rest of the contract.
In short: one English word, two possible outcomes in Dutch law. And that difference determines whether you can just get rid of a contract, or not.
Other English terms that are often misinterpreted
Not only termination is confusing. Other English terms also have different connotations than you might think. These are the main pitfalls for those contracting under Dutch law:
In English, consideration is a requirement for a valid contract: both parties must contribute something of value (e.g. money, goods or a service). Without consideration, there is no contract.
In Dutch law, this is different. An agreement can also be valid without consideration. Think of a gift or unilateral promise. If you do not know this difference, you may mistakenly think that a contract is invalid or enforceable when it is not.
A warranty in English is often a limited guarantee or commitment about a factual situation, such as: "The goods are free from defects". In Dutch law, on the contrary, 'warranty' is often linked to broader liability.
The risk: if you think a warranty covers your full liability, you could be deceived. Or unknowingly promise too much.
Indemnity means indemnification for damages, often separate from or in addition to contractual liability. So you can assume liability for things you would not normally have to bear under Dutch law.
For example: if you give an indemnity for a third-party claim, you may have to pay even if the damage was not your fault. That goes beyond what Dutch liability law often prescribes.
A material breach is a serious breach of contract. But what is 'serious' is not unambiguously defined in English. In the Netherlands, we work with the concept of culpable breach, and the consequences depend on the specific contract and the damage.
This vagueness can lead to discussions about whether dissolution (or termination) is possible or not.
These are pre-agreed amounts to be paid if a party fails to fulfil its obligations. They resemble the Dutch penalty clause, but the test is different.
In the Netherlands, a judge may moderate a fine if it is excessive. In Anglo-American law, it is more difficult to deviate from these amounts, if properly formulated.
What can you do to avoid mistakes?
Misinterpreting English terms can cost your company a lot of money. And above all: a lot of discussion. Our advice:
Marxman's view: language is only one side of the contract
At Marxman, we believe that a contract should not be a paper tiger. You conclude it to support cooperation, not to create conflicts. That's why we look wider than just the legal text. How does it work in practice? What are the consequences of an incorrectly interpreted provision for your company?
A legal issue is never isolated. Certainly not in international cooperation. Let language not be an obstacle, but a means of creating clarity and trust.
Want to know more? View the judgment on rechtspraak.nl.
Do you regularly contract in English? Don't be fooled by familiar words. Small language differences can have major legal consequences. We like to think along with you. Feel free to contact our Commercial Contracts team.