Reasonableness and fairness together in a joint venture

Under Dutch Corporate Law it is stipulated that a minority shareholder is protected by the principle of reasonableness and fairness in a joint venture situation. The Dutch Supreme Court has recently ruled that not just only a minority shareholder but also an equal joint partner in a joint venture company may appeal to this protection.

In this particular case, the joint venture started with two shareholders (A and B) each holding 50% of the share capital. Later in time, a third party (C) joined the company and was given 7% of the issued share capital, reducing A and B pro rata and therefore maintaining their equality of power. After a while the business relation between A and B got worse and worse as a result of which A decided to buy the 7% shares of C and therefore obtaining control without informing B as an equal joint partner. In spite of the fact that the shareholders agreement stated that a transfer between shareholders was free of any obligation towards the other shareholder (B), the Supreme Court disapproved the passive role of the Board of the Company in the specific matter. According to the Supreme Court the Board should have informed the equal joint partner B, especially due to the fact that B has now become a minority shareholder as a result of the transfer of shares between A and C.

The principle of reasonableness and fairness is incorporated in Section 2:8 of the Dutch Civil Code and oblige all parties involved to act towards each other in accordance with reasonableness and fairness.

In the course of doing business in The Netherlands (commercial) transactions are governed by contract. Although contracting parties are free to agree to the terms they wish, there are specific restrictions to such as reasonableness and fairness and for example good faith which are commonly unknown outside The Netherlands. Parties interested in doing business in The Netherlands should be aware of these restrictions.

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