Dutch court declared itself incompetent because of a valid arbitration clause

Parties increasingly agree that they will settle any disputes that may arise between them by means of arbitration. The advantages of arbitration include the speed and flexibility of the proceedings, confidentiality, and expertise. In international relations, this is complemented by simplified enforcement and the choice of a neutral forum. The consequence of an arbitration agreement is that the regular court does not have competence as became clear in a case that was brought before the Court of Amsterdam. Dutch litigation lawyer Onno Hennis discusses the case in more detail.

Employment contract in the Netherlands under U.S. law

The reason for the case was an employment contract between a Dutchman and a U.S. trading house. The man had been a director of the Dutch subsidiary since 2006 and had entered into an employment contract to this effect. The employment contract included an arbitration clause Provision in which parties agree to settle any future disputes by arbitration
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arbitration clause
which read as follows: “Any dispute arising under or relating to this Agreement shall be submitted to binding arbitration in the City of Chicago, Illinois, under the then prevailing arbitration rules of the NASD.” The parties had also declared the law of the State of Illinois as the applicable law in the employment contract.

Dismissal statutory director in the Netherlands

In 2012, the Dutchman was dismissed as a statutory director. The man then started proceedings before the Court of Amsterdam in connection with the dismissal. He claimed payment of the commissions due to him on the basis of the employment contract. He also requested the Court to order his employer to allow inspection of the company accounts to be able to calculate the amount of the commissions due to him.

Invocation of arbitration clause; does Dutch court have competence?

However, the employer invoked the arbitration clause by means of a motion contesting jurisdiction. The employer argued that the Court of Amsterdam should declare itself incompetent since the parties to the employment contract had agreed on arbitration. This argument is in principle correct because if and insofar as there is a legally agreed arbitration clause, the arbitrators will have exclusive competence and the Dutchman cannot institute proceedings before the Court of Amsterdam.

Jurisdiction based on Brussels I Regulation

However, the man took the position – in vain – that the Dutch court (also) had competence because the Brussels I Regulation (now: Brussels I bis Regulation) provides that “an employer may be sued in the courts of the Member State in which he [the employer] is domiciled”. The employer objected that although the Court of Amsterdam had jurisdiction under the Brussels I Regulation, it still did not have competence to hear the dispute. After all, the parties had agreed in the arbitration clause to exclude the competence of the regular court. The Court concurred with the employer’s argument.

Valid arbitration clause?

The Court then examined whether the arbitration agreement was legally valid. After all, if and to the extent that there was no valid arbitration agreement or the dispute did not fall within the scope of the arbitration clause, the Court would still have competence. To be able to assess the legal validity of the arbitration clause, the Court first had to examine which law applied to the arbitration clause.

Applicable law Dutch law?

The Dutchman argued that the arbitration clause was not governed by the law of the State of Illinois, but by Dutch law. For that purpose, the man invoked the Treaty of Rome (now: Rome II Regulation). He argued that the choice of law did not apply because the work had been performed from the Netherlands. The Court did not agree with this argument. The Court ruled that the work had been performed from the United States, or at least that the employment contract was more closely connected to the United States.

Validity of the arbitration clause

The Court ruled, among other things, on the basis of a legal opinion A written document in which a lawyers gives his legal point of view regarding a certain issue.
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of a U.S. emeritus professor, which the employer had brought into the discussion, that the agreed arbitration clause was valid under the laws of the State of Illinois. After all, the clause referred to “any dispute arising under or relating to” the employment contract. The Court considered that this included the Dutchman’s claims (payment of the commissions and inspection of the company accounts). The Court also noted that even if Dutch law had been applicable, the arbitration clause would still be valid.

Reasonableness and fairness unacceptable?

Finally, the Dutchman argued that invoking the arbitration clause would be unacceptable according to standards of reasonableness and fairness. He argued that the employer had meanwhile been dissolved and a liquidator had been appointed. The man feared that if the Court were to declare itself incompetent and the employer’s existence would soon come to an end, the question would then arise whether arbitration would still be possible and if there would be means of redress. The Court did not concur with the man’s defence. The Court considered that the Dutchman (or his lawyer) had chosen to bring the dispute before the court (instead of the arbitrators chosen by the parties) in spite of the arbitration clause. In principle, the adverse consequences of such a choice will be for the man’s own account.

Dutch law firm for pending arbitration proceedings

This case shows that it is essential to make the right choice when initiating proceedings. In principle, you will be bound by an arbitration clause that is contained in a contract. As a rule, the regular court will declare that it has no competence.