Case law the principle of good faith

A legal entity and all involved in its organization have a legal duty to behave towards each in accordance with the principles of reasonableness and fairness, i.e. (objective) good faith.

A provision or requirement contained in a legal entity’s articles of association or by-laws, may be set aside by the Courts if, in any given circumstances, it is in breach of the principles of reasonableness and fairness. Good faith may, in a certain cases, extinguish rules prevailing between the parties or exclude their application.

I will discuss two Dutch court cases below. It should be noted that article 2:8 Dutch Civil Code is the Dutch equivalent of article 2:7 Netherlands Antilles Civil Code. These cases are therefore also of relevance to the laws of the Netherlands Antilles.

The first case. Woongroep De Diamant is an association (‘vereniging’) offering housing to its members. A member of the association was disqualified as member by the general meeting of members and had to vacate her house. In legal proceedings, the association demanded, based on its bylaws, that the former member should pay a certain amount. According to the District Court of Amsterdam in a decision dated 17 January 2007 (LJN: BA5010; docket number 160054 / HA ZA 98-2890), given the circumstances (certain irregularities in the decision making process), and based on the principles of reasonableness and fairness as laid down in article 2:8 Dutch Civil Code, it would be unacceptable to uphold the bylaws against the former member. Therefore, the Court denied the Foundation’s claim. In other words: the rule, i.e. paying a certain amount, imposed on the former member by the by-laws, was not applicable in this case.

The second case. According to the articles of association of the Stichting Prioriteitsaandelen De Vries Robbé Group (a foundation that holds the priority shares in De Vries Robbé Group N.V.) the board members of this Foundation are assigned into categories type A, B or C. Valid decisions can only be taken when at least one board member of each category is present (article 7 par. 3 articles of association). Therefore, at least one board member of category A, one board member of B and one board member of C must be present in any meeting where decisions are to be taken. The only board member of category C (a certain Mr. L.G.M. van Mook) persistently refused to attend any and all board meetings.

In a meeting in which Mr. Van Mook was not present, the board decided to initiate legal proceedings against Mr. Van Mook. As a first line of defense, Mr. Van Mook took the position that the decision of the board was taken in violation with the articles of association and therefore null and void. In his opinion, the case should be dismissed. According to the President of the District Court of Dordrecht in a decision dated 23 March 2000 (LJN: AA5251; docket number 32274 KG 00-82), Mr. Van Mook’s position would result in the Foundation never being able to initiate legal proceedings at all under these circumstances. The President of the District Court ruled that, given these circumstances, article 7 paragraph 3 of the articles of association did not apply, because based on the principles of reasonableness and fairness this would be unacceptable. In other words: the Court deemed the board decision to initiate legal proceedings against Mr. Van Mook a valid decision despite article 7 paragraph 3 of the articles of association.

Karel Frielink
Attorney (Lawyer) / Partner

16 November 2009

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