Voidability means that a contract is valid until an interested party invokes voidability on the grounds of a defect of will or conflict with mandatory law. Unlike nullity, voidability requires action. In our practice, we see Dutch entrepreneurs missing deadlines for invocation. Speed is essential — limitation periods for actions for voidability are short and strict.
What is the legal problem?
Voidability offers remedies for fraud, error, coercion, or abuse. Requirements and time limits differ per legal system. Action taken too late means loss of rights. Clumsy voidability without grounds leads to counterclaims for unlawful termination. Internationally, the same facts can lead to divergent outcomes.
What does the law say?
Under Dutch law, Article 3:44 of the Civil Code regulates coercion, fraud, and abuse of circumstances; Article 6:228 of the Dutch Civil Code concerns error. Annulment follows through an extrajudicial declaration (Article 3:49 of the Dutch Civil Code) or a claim. The limitation period is three years from the date of discovery under Article 3:52 of the Dutch Civil Code. Under German law, Sections 119-124 of the German Civil Code (BGB) regulate contestation with short time limits. Under French law, Article 1130 et seq. of the Code Civil regulates this.
An extended time limit applies to intent or abuse. The Vienna Sales Convention does not explicitly regulate voidability (Article 4, paragraph a, CISG); national law provides additional information.
What risks do companies face?
Unexpected annulment renders major transactions undone. International parties use annulment as a means of pressure. Proving a defect of will is difficult; thresholds differ internationally. Time limits are short. Clumsy annulment without grounds leads to damage claims for wrongful termination under Section 6:162 of the Dutch Civil Code.
Practical example from our practice
We represented a Dutch company that purchased shares from a German seller. After closing, it turned out that the seller had withheld essential financial information. Our client invoked error under Dutch law. However, the German court applied German law and demanded a shorter Anfechtungsfrist under Section 121 BGB (one year). Upon renegotiation, we opted for Dutch law and expressly extended survival for R&W. Subsequent transactions are better protected.
What can you do?
Document negotiations and information. Incorporate representations and warranties to formalize factual statements. Conduct due diligence before signing. Respond quickly to indications of malice; Respect short annulment periods under Article 3:52 of the Dutch Civil Code. Align your choice of law with the most favorable system. See also our article on Error in international contracts.