Unjustified suspension of payment of shares. What are the consequences?
A debtor whose claim has become due and payable to his creditor is authorised to suspend compliance with his commitment – e.g. payment – until the creditor fulfils his claim (art. 6:52 of the Dutch Civil Code). The Supreme Court recently felled the decision in a case about this concerning the sale of shares in a company with the ownership of the building on the Keizersgracht in Amsterdam. Contracts and corporate law attorney Lennard Noordzij delved into this case.
Penalty for buyer who suspends partial payment of a block of shares?
The buyer of the block of shares suspends partial payments in connection with a levy by the tax service related to transfer tax on the Keizersgracht building (previously the public library, now Hotel Andaz) in Amsterdam (hereafter: the Building). This tax service levy later turns out to be baseless. The question is: what should the consequences be if the claim for suspension later turns out to be unjustified? Should the party making the suspension pay a contractual penalty? And is the buyer entitled to trade interest?
First instalment of the purchase price of the shares is paid
At the end of 2007, the buyer purchases shares from the seller for a purchase price of €22.5 million. At the start of 2008, the seller delivers the shares and the buyer pays the first instalment of the purchase price (€20.5 million). Two payments – one of €1.5 million and one of €500,000 – still remained. Parties presumed that, with respect to the purchase of the Building, no transfer tax would be owed. This was on the basis of the so-called “ruling” from the tax service.
The buyer notifies the seller of an additional tax assessment
The tax service reverses the “ruling” and, in the fall of 2008, reports that it intends to levy an additional tax assessment of €2.7 million on the buyer. At the end of 2008, the buyer notifies the seller of the intended assessment and announces that it will proceed to suspend payment of the remaining purchase price (€2 million). Ultimately, in 2012, and based on other judicial proceedings, it becomes clear that the tax service cannot levy an additional assessment for transfer tax with respect to the Building.
Claim: buyer must pay the remaining purchase price, a contractual penalty and trade interest
In these proceedings, the seller claims payment by the buyer of the remaining purchase price (€2 million) and a contractual penalty (€500,000), plus the legal trade interest on both of these amounts. To substantiate its claim concerning the penalty, the seller purported that there was a shortcoming on the part of the buyer: after all, the buyer suspended its payment unjustifiably from 2008 – 2012, such that the buyer incurred a contractual penalty of €500,000. Starting from the end of 2008, the buyer suspended the remaining purchase price of the payment it owed (€2 million) unjustifiably.
Seller: buyer’s claim of suspension is “at own risk”
Seller adopts the standpoint that the buyer’s claim of suspension takes place “at his own risk”. If it later turns out that the debtor had no counter-claim (or a more limited counter-claim), then – in retrospect – suspension was unjustified and the debtor has defaulted without notice.
Supreme Court agrees with buyer
In this case, the Supreme Court concurs with the buyer. The fact that, in retrospect, the additional assessment turns out never to have existed does not automatically mean that the buyer’s suspension was unjustified. The Supreme Court in this case qualifies a previous decision (Ammerlaan/Enthoven), in which it found that a claim to a suspensive right that later turns out to be either entirely or partially unfounded means that the party making this claim thereby immediately adopted the capacity of debtor without notification of breach.
Buyer’s penalty not incurred, no trade interest owed
The result is that the buyer did not unjustifiably suspend its obligation of payment during the period from 2008 – 2012, so consequently the buyer was not in default. This means that the buyer – in the absence of a shortcoming – has incurred no contractual penalty and also owes no statutory trade interest over the suspended remainder of the purchase price of €2 million.