How to amend a settlement agreement in case of error?

How to amend a settlement agreement in case of error?

settlement agreement ends or prevents a legal dispute. But what if one of the parties who agrees to settle, is under influence of error? The Dutch Supreme Court recently ruled that you could successfully invoke error even if the incorrect information has not been directly communicated to the invoking party or if the incorrect information was not specifically provided in connection with the agreement that was allegedly concluded under influence of error. Dutch contract lawyer Hidde Reitsma explains.

 

Other party intentionally misinformed accountant

In this case two parties are in conflict about the termination of their business relationship. They agree that one party (the defendant in this case) buys out the other party (the claimant). In connection with the buy out of shares, parties instruct an accountant to value the price of the shares of the company. For the purpose of this valuation the defendant intentionally -and without knowledge of the claimant- provides incorrect data regarding the value of certain property. Next the accountant draws up a draft valuation, which, however, is not finally approved by parties (due to other reasons).

Ending a dispute by settlement agreement

Upon after parties decide to enter into a settlement agreement to end their differences and legal disputes once and for all. They agree inter alia that the defendant buys the shares of claimant for an amount of € 1.500.000,- (taken into consideration various settled items). Furthermore parties agree that they will waive any rights or claims under previous agreements, among which the agreement that the price of the shares will be determined by an independent accountant.

Amending the contract due to error

In proceedings on the merit the lawyer of the claimant has requested that the settlement agreement be amended as such that the defendant will be obliged to pay an additional amount for the buy-out. The claimant invokes error: when he entered into the agreement he was under influence of the information of the accountant that now proved to be based on incorrect data given by the defendant.

Influence under error: misrepresentation

As discussed in one of our previous blogs, judges should adopt a reticent attitude when overruling settlement agreements. The question of law in this case is whether or not the fact that the defendant has misinformed the accountant matters for the alleged error in respect to the settlement agreement. The Dutch Court of Appeal ruled that it does not matter as the accountant had no interference in the settlement agreement nor was the agreement based on his valuation. The Court therefore rejects the claim on error.

Settlement agreement declared invalid due to error

The Supreme Court overrules this decision. The fact that the misinformation has not been given directly to the claimant does not affect the fact that he can well have taken this incorrect information in consideration when drawing up the settlement agreement. This is even more so now that defendant has intentionally misinformed the accountant for his own benefit, knowingly that this incorrect information would ultimately come to knowledge of the claimant via the accountants (draft) report. The Supreme Court awards the claim on error.

Dutch law firm in settlement agreements

Law firm AMS is based in Amsterdam, the Netherlands. Various matters can be laid down in settlement agreements. It is necessary though that parties intend to end a dispute with the agreement. Our lawyers have great experience in drawing up and negotiating settlement agreements. Should you have any question with respect to settlement agreements in The Netherlands, please feel free to contact a our law firm.

Hidde Reitsma - Advocatenkantoor AMS Advocaten
Hidde Reitsma Hidde has a varied consultancy and litigation practice, focusing on corporate law and insolvency law. He frequently acts in proceedings before the Enterprise Chamber of the Court of Appeal in Amsterdam and in cases on directors’ liability. Hidde also advises on drawing up and negotiating contracts, mergers and acquisitions and joint ventures. Follow Hidde also on Google or LinkedIn. Hidde is available via e-mail and +31 (0)20-3080315.
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