Blog words matter

In a series of short blogs, I would like to explain why lawyers are so keen on seemingly small adjustments to agreements. Why can we argue so much about additions that often seem small? Entrepreneurs often find this downright irritating because lawyers do not seem to be able to distinguish between main and side issues. That can certainly be an issue, but not always. Properly negotiating contract terms can simply save a lot of money.

€5.99 million for example. In a recent case, adding ‘for whatever reason’ made the difference between whether or not a payment of €5.99 million was due.

Adding ‘for whatever reason’ makes all the difference!

In the case where this € 5,990,000 comes from was about the following. For many years, the chic Dutch bank Staalbankiers was the house bank of Dutch listed company Bever Holding N.V., which invests in real estate. The company has occasionally been in the news over time because they let their properties in the Netherlands go derelict so that municipalities eventually want to or have to buy them up for a lot of money. The Dutch municipalities involved naturally have a lot of difficulty with this.

Staalbankiers vs Bever Holding

The court case that led to the ruling of 27 October  2020 turns out to be wonderful (lawyers) reading material. It concerns a substantial real estate transaction in Holland in which a rental guarantee has been given to the buyer of an office building. A rental guarantee means that a seller will continue to pay the rent to the buyer of the property for a certain period if the tenant no longer pays the rent. This increases the value for the buyer. It is then also easier for them to obtain acquisition financing from the bank. In this case the Dutch bank Staalbankiers.

However, a rental guarantee is worth little if the seller is asset poor, for example if it is a special purpose company for one investment property that is to be sold. In this case, the seller was a group company (i.e. a Dutch BV) of Bever Holding. That problem was solved here by a bank guarantee from Staalbankiers: if the tenant does not pay the rent and the Bever-BV does not honor the rental guarantee, the buyer turns to the bank. And that is what happened here. So the Bever-BV (seller) has been called upon on its rental guarantee and Staalbankiers on the bank guarantee. The Bever-BV and Staalbankiers have long fought against the buyer of the real estate (or rather: its German mortgage banks) about this.

Bank garantuee en surety under Dutch law

A bank guarantee then works in such a way that the bank can turn to the person for whom the guarantee has (ultimately) been issued: in this case Bever. Bever Holding had provided a counter-guarantee to the Dutch bank: if Staalbankiers has to pay, Bever Holding will pay that same amount to the bank and then the circle is complete. Banks like to receive interest and commissions but they tend to detest risk.

To make it even more complex, the UBO’s behind Bever Holding had personally given surety to Staalbankiers. And I’ve said it before: bank and surety (a personal guarantee) is a tricky combination.

Settlement agreement and ‘for whatever reason’

Staalbankiers and Bever Holding had – apart from this bank guarantee – a broader dispute about several loans. All of this has resulted in a major lawsuit that has finally been settled through tough and high pressure negotiations between their attorneys. Pursuant to Dutch law the settlement agreement, Staalbankiers´claim was fully paid back and, thus, the bank waived all its claims and securities against Bever Holding. This result has been hard-fought by the lawyers. At the very last, Bever’s lawyer made the addition to the waiver to apply to all (future) claims and securities of the bank ‘for whatever reason’ such claims would arise. This addition was contested but this text did make it to the final version and the settlement agreement was immediately signed afterwards.

Claim under bank guarantee covered by ‘for whatever reason

Back to the bank guarantee: Staalbankiers loses the litigation brought on by the real estate buyer’s bank and it has to pay € 5.99 million. Staalbankiers then turns to Bever Holding and the personal guarantors for this amount, but this was after the waiver had already been agreed on as part of the settlement. You guessed it: new proceedings before the courts in the Netherlands.

The bank loses this procedure. The judge cites much of the negotiation between the Dutch lawyers. This provides insight into how and when the phrase ‘for whatever reason’ was introduced in the agreement by Bever. This phrase was removed twice by Staal’s attorney, but was eventually included in the final text of the waiver. The court rejects the bank’s assertion that the contested phrase ‘for whatever reason’ cannot refer to this bank guarantee. After all, the phrase has a very broad approach and the parties have deliberately included it.

So compliments to the former lawyer of Bever Holding (I don’t know who he is and it is clear from the judgment that he has passed away).

Words matter

So. Specific contract provisions are therefore important. Of course this goes for Dutch law agreements as for other jurisdictions. The precise wording is critical, sometimes also of the standard phrases in an agreement. So as a client of a lawyer, be sure to be critical on our work, but do let us argue every now and then. It can just save € 5.99 million.

For a sharp lawyer to draw up and negotiate Dutch agreements, you can contact Penrose in Amsterdam via info@penrose.law or +31 20 2400710. This blog was written by corporate law lawyer Hans Klaver, who can be reached via h.klaver@penrose.law or +31 6 22254589.

Law Firm Penrose, Amsterdam.