Choice of law is the explicit contractual designation of the national legal system governing the contract. In international negotiations, you are often faced with the choice between English law and Dutch law. In our practice, we see that many Dutch entrepreneurs instinctively agree to English law. Sometimes that is wise, often not. The right choice depends on your negotiating position, the type of contract, and your willingness to adhere strictly to the textual interpretation.
What is the legal problem?
English law belongs to the common law tradition; Dutch law to civil law. This difference determines how contracts are interpreted, the role that reasonableness and fairness play, and how damages are calculated. English law strictly follows the text (the so-called four corners of the contract). In addition to the text, Dutch law also weighs the parties' intent via the Haviltex criterion. An unintended choice of law can render a commercially evident result legally impossible.
What does the law say?
Within the EU, Article 3 of Rome I (Regulation 593/2008) leaves parties free in their choice of law. Since Brexit, the UK falls outside Brussels I-bis, but Rome I remained applicable as retained law. Under Dutch law, Article 6:248 of the Civil Code stipulates that reasonableness and fairness supplement the contract. In the Haviltex judgment (HR 13 March 1981, NJ 1981/635), the Supreme Court developed the standard for contractual interpretation.
English law has followed an increasingly textual interpretation since Investors Compensation Scheme v West Bromwich (1998) and Arnold v Britton (2015). The application of implied terms is limited (Marks & Spencer v BNP Paribas, 2015).
What risks do companies face?
Under English law, litigation is expensive: on average 300,000 to 1.5 million pounds for commercial cases. Punitive damages do not exist, but disclosure proceedings significantly increase costs. Under Dutch law, there is less protection against unexpected textual interpretations — Haviltex allows room for equitable correction. Those seeking certainty regarding the text of their contract choose English law; those wanting room for reasonableness in unforeseen situations choose Dutch law.
Practical example from our practice
We advised a Dutch family business on negotiations regarding a sale to a British private equity fund. The fund demanded English law and the English High Court. We pointed out the risks: stricter interpretation of warranties, higher litigation costs, and limited possibilities for equitable correction. The result of the negotiation: Dutch law for the SPA, with arbitration under the NAI in The Hague. In a subsequent dispute regarding earn-out, our client was able to invoke Article 6:248 paragraph 2 of the Dutch Civil Code and saved an estimated 2.8 million euros.
What can you do?
Never make the choice of law lightly. Assess whether you benefit from a strict textual interpretation or from room for equity. Take litigation costs into account (on average 3 to 5 times higher in the UK), language, and culture. Always combine with an appropriate choice of forum or arbitration (NAI in the Netherlands, LCIA or ICC in London). For M&A: weigh the impact on warranty interpretation. Have the final choice reviewed by an international commercial law attorney. See also our article on Brexit and contracts with British companies.