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Good Governance: Reasonableness and Fairness of Directors and Supervisors

By: Thomas Schutte, Esq.
Russell Advocaten B.V.
Amsterdam, Netherlands

Reasonableness and fairness play a crucial and special role in Dutch law. What function has this standard, for instance, for directors and supervisors?

Reasonableness and fairness

Pursuant to Book 2, Section 8, subsection 1 of the Dutch Civil Code, a legal person (BV, NV, association, foundation, religious denomination) and those involved in any of these organisations must act according to the principles of reasonableness and fairness.

Reasonableness and fairness is not a concrete standard but will be filled in depending on the circumstances. These factors then play a role:

  • the (social) position of the person(s) concerned within the legal person
  • the sector in which the activities take place
  • the nature of the interests involved in the case
  • previous behaviour shown in similar situations by the legal person
  • the seriousness of the disadvantage suffered by one or more persons concerned

Parties involved in legal persons

Reasonableness and fairness must be taken in into account by the legal person but also by those involved in the legal person, such as directors, shareholders, board of directors, members and works council (by virtue of law) and the supervisory board, depositary receipt holders and appointment committee (according to the Articles).

Limiting effect of the standard

An important application of the standard is set out in Book 2, Article 8, subsection 2 of the Dutch Civil Code, according to which among the parties involved in legal persons by virtue of law, habit, Articles, regulations or decision the rule is not applicable, as far as this would be unacceptable with regard to the principles of reasonableness and fairness. This rather strong remedy – which is also known as limiting (or ‘derogatory’) effect of reasonableness and fairness – can, a.o., be invoked if it turns out that the Articles have a highly unreasonable effect on a party involved. Both the legal person and the parties involved can invoke the limiting effect.

Examples from case law

Case law shows that reasonableness and fairness will be applied differently by the courts:

(i) Required cooperation in shareholders’ agreement

A minority shareholder refuses to cooperate in changing a shareholders’ agreement with regard to financial restructuring. The desired funding will not take place so that the company is likely to go bankrupt. The court decides that the minority shareholder acts in breach with reasonableness and fairness, as the continuation of the business is in danger. In addition, by refusing to do so, the minority shareholder will succeed in obtaining a better position than the other shareholders. The minority shareholder is forced by the court to act in conformity with the modification in the shareholders agreement which he had refused.

(ii) Abrupt termination of membership

A furniture store is a member of an association. This association represents the interests of its members by acting as a joint purchasing group. The membership is terminated with immediate effect for a number of reasons. The court decides that the termination of the membership will have major consequences for the furniture store and was performed on improper grounds. Thus, the termination is in breach with reasonableness and fairness and therefore unlawful. The association has to pay the damage the furniture store has suffered as a consequence of the unlawful termination.

(iii) Annulment of a decision

Also, a decision can be annulled upon request of the legal person, an interested party or by the court if it is in breach of reasonableness and fairness (Book 2, Article 15 of the Dutch Civil Code). In such a case the court will have to assess if the body was able to come to the decision in reasonableness and fairness when assessing all interests involved in the decision. The Utrecht court decided in 2009 in interlocutory proceedings, for instance, that the directors of the foundation Karate-Do Bond Nederland could not have been able to decide in reasonableness and fairness on the delegation to the European Championships of one of their selection members, because another selection member had scored more points.

Action

  • When taking decisions, keep in mind the unreasonable/unfair consequences they might have.
  • Get legal advice in a timely manner, if in doubt whether a decision meets the requirements of reasonableness and fairness.

For more information about Russell Advocaten B.V., please visit the International Society of Primerus Law Firms.


The general information contained herein is intended for informational purposes only. It is not intended to be, and should not be construed as, legal advice or legal opinion on any specific facts or circumstances.

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