Reviewing a limitation-of-liability clause from a Dutch commercial contract
Let’s take a close look at another problematic clause from a Dutch contract drafted in English. Here is a typical limitation-of-liability clause (exoneratieclausule), taken at random from a Dutch judgment:
Except in the case of gross negligence or wilful misconduct from X, the liability of X in respect of loss or damage to Y products shall be limited (…) to Euro 12.00 per gross kilogram weight of lost product up to a maximum of 115 000 € per annum and subject to a threshold of 0,6% of inventory variance below which X shall pay no indemnity.”
As you can see, the clause has a number of issues relating to clarity, terminology, syntax, structure, verb tense, references and punctuation.
Two makeover options
If we leave most of the wording and the structure the same, but deal with many of the more obvious issues, this is how the clause could have been written more clearly:
Except in the case of X’s gross negligence (grove schuld) or wilful misconduct (opzet), X’s liability for loss or damage to Y products is limited to…a maximum of €12 for each gross kilogram lost or damaged and to a maximum of €115,000 a year, but loss or damage of up to 0.6% of the Y products is to be considered ordinary inventory variance, for which X is not required to pay an indemnity.
However, for those willing to accept a rewrite of the original clause, I’d like to suggest this as a better version:
X must compensate Y for loss or damage occurring to Y products, except as follows.
X’s obligation to compensate Y for such loss or damage is limited to:
a. no more than €12 for each kilogram (packaging included) lost or damaged; and
b. no more than €115,000 a year in total;
unless the loss or damage is caused intentionally by X (opzet) or as a result of X’s deliberate recklessness (bewuste roekeloosheid).
Loss or damage occurring to the Y products amounting to 0.6% or less in value in a year is deemed ordinary inventory variance. In this event, Y is not entitled to compensation.
Let’s look in more detail at some of the problems with the original clause.
State the obligations, entitlements, conditions and exceptions clearly
The way to approach a complicated clause like this is to sort out exactly what needs to be said, focusing in particular on the obligations, entitlements and conditions.
In the original clause, there was no statement that “X is liable” or “X must pay”. There was no clear liability or obligation statement. Liability was merely implied by the wording “the liability of X”. I understand that the failure to include an express obligation or liability statement may have been done on purpose to protect X’s interests. However, from a drafting perspective, it doesn’t really make sense to me to have an express limitation-of-liability clause unless you also have an express liability clause.
In stating obligations, entitlements and conditions, it is a good practice to use basic and clear wording that expresses exactly what you mean. If possible, avoid more complicated constructions like “shall”, “except in the case of” and “subject to”. Try to frame these statements using simpler wording like “must”, “if”, “unless”, “but” and so on.
Carefully consider the obligations and entitlements involved. Sometimes the obligation of one party is actually the entitlement of the other, and vice versa. How are the complementary obligations and entitlements best expressed?
In this clause, what did the “except” clause at the start apply to exactly? It’s clear that the “except” clause was meant to the two limitation clauses. Liability is not limited if the liability is caused intentionally by X or as a result of X’s gross negligence. However, was the “except” clause also apply to the “subject to” clause? In other words: If an inventory variance of 0.6% is attributable to X’s gross negligence, is X still exempted from having to compensate? This is not so clear in the original wording. Consider carefully how the various clauses relate to each other, and whether these relationships are clear from the wording. (I’ve assumed in my suggestions above that the “except” clause was not intended to apply to the “subject to” clause, but I don’t know from the wording itself whether that was actually the intention of the drafter.)
Moreover, the wording in the “subject to” exception was not clear. In the Dutch court case that I drew this clause from, one of the issues that arose was the meaning of this exception: “subject to a threshold of 0,6% of inventory variance”. In the court judgment the phrase required elucidation and judicial attention. One wonders if the users of the Dutch contract truly understood it. This exception should have been explained more fully.
Use parallelism to make the text easier to read
Whenever you have a sequence or list of similar phrases, consider arranging them as text bites with parallel wording and structure. In this clause, there were two limitations that could have been arranged in a parallel way. In structuring the two monetary limitations, look first at the verb. If the two phrases are both adverbial (i.e. modifying the verb) and independent of each other, consider structuring them as two parallel phrases, not as one modifying the other. So not “limited to A, up to a maximum of B” but “limited to no more than A and no more than B” or “limited to a maximum of A and to a maximum of B”.
The original clause was roughly structured in this convoluted and unclear way:
Except if C, X’s limitation is A up to B and subject to D, no €.
A structure based on logical sequence, parallelism and text bites seems much better:
X must pay € to Y.
This € is limited to A and to B unless C.
If D, no €.
In suggesting this structure, I’m not saying this is the only option. Remember to state key obligations expressly, preferably at the start of the clause or sentence. This clause had two limitations and one exception. The structure should reflect this. Avoid long sentences in which it is not clear what the relationships between the various clauses are. Avoid the trap of always trying to draft every clause as a single sentence. It is acceptable to construct a clause with multiple sentences, especially if the alternative is unclear. Use spare language, but repetition and explanation are acceptable (and often necessary) to achieve clarity.
Avoid the overuse and misuse of prepositions
Use the possessive (bezittelijk) more. The unnecessary use of the preposition “of” by Dutch lawyers can be traced to first-language interference. Instead, use the possessive or another suitable alternative construction. In a nutshell, not “the liability of X”, but “X’s liability”.
Use the right preposition (voorzetsel). Not “gross negligence from X”, but “gross negligence of X”, or even better: “X’s gross negligence”. The same applies to “wilful misconduct from X”. Nor is it possible to write “loss to Y products” Perhaps what would work better here is a phrase that modifies both “loss and damage”, e.g. “loss and damage occurring to Y products”.
Speaking of prepositions, consider using “for” instead of the longer and more legalistic “in respect of”. Prefer the plainer option.
Pay extra attention to expressing Dutch legal concepts clearly in English
Fortunately, Dutch lawyers already usually avoid most of the unnecessarily legalistic verbiage that characterises the legal writing of many English-speaking lawyers. As a general guideline, if you have a choice between a plain English word and a more legal-sounding alternative, prefer the plain English word — unless there is a reason not to. If you mean “must pay” or “must compensate”, say so. You may find that a more legal-sounding way of expressing this diverts the reader from clearly understanding the text, especially if the reader is not an English speaker or a lawyer.
What was meant in this Dutch contract by the English phrases “gross negligence”, “wilful misconduct”, “loss or damage” and “indemnity”? These phrases are indeed used in some situations by common-law lawyers, but what were the underlying Dutch civil-law equivalents in this context? The idea is not just to use English wording, but to use wording that indicates clearly its Dutch legal concept. If common-law words and phrases are used, perhaps it is best to add the equivalent Dutch civil-law term. For example, not everyone would have been able to ascertain that “gross negligence” was actually a reference to the Dutch civil-law concept of grove schuld. Likewise for “wilful misconduct” and opzet. Do not be too quick to adopt common-law terms for civil-law concepts.
Should the common-law term “negligence” be used at all in a Dutch contract? I know it is commonly used (especially for schuld and nalatigheid), but I’m wondering whether it’s good practice. In the past, Dutch courts have been asked to determine what the English word means in a Dutch legal context. Is schuld really the same as “negligence”? Or is nalatigheid for that matter?
It seems that in Dutch law there may not be much difference between grove schuld and bewuste roekeloosheid. If that is the case, would it not have been simpler to use the English equivalent of the latter term, e.g. “deliberate recklessness”? I am not aware of how grove schuld and bewuste roekeloosheid differ exactly in Dutch law (and I’m not suggesting that one is better than the other from a legal perspective), but if the difference is negligible, and you are in the position of choosing either concept in English, perhaps “deliberate recklessness” is better than “gross negligence”. By using the former phrase, you’d not be tempting the reader into thinking that the common-law concept of negligence is involved.
Is “wilful misconduct” an adequate translation of opzet? Translation being as difficult as it is, there is no easy answer to this.
- First, there is no official translation or word list to go by.
- Second, in the two respective languages, “wilful misconduct” and opzet have accrued specific usages and legal definitions that go beyond the mere words. A common-law term can safely be used as the translation for a civil-law term only if one is certain that the legal concepts are equivalent, and that is not really the case here.
- Third, a translation is only successful if the words have fixed meanings. The meanings of these terms in actual practice depend somewhat (and perhaps almost completely) on the specific context. In the English-speaking world, what “wilful misconduct” means in a specific situation can vary from jurisdiction to jurisdiction, and from situation to situation.
- Fouth, looking just at the wording itself, “wilful misconduct” seems to imply something more than just opzet. If a more direct equivalent like “intention” is available, why choose more complicated wording like “wilful misconduct”?
My point is not that “wilful misconduct” was necessarily an incorrect translation, but that a simpler option was available (i.e. the adverb “intentionally”).
While we’re looking at this wording, from a legal perspective how helpful is it to rely on such vague concepts in the first place? Yes, they are traditionally used, but are they helpful to those using the contract and to the courts interpreting them? As pointed out by Peter Cassidy and Joseph Otoo in this post, a better approach may be “fully to articulate in the contract the type of conduct which the parties intend will prevent reliance upon the limitation or exclusion”. However, comments like this go beyond the ambit of this discussion of the wording.
Once you decide to use a good translation, remember to stick with it. In the clause, there is a reference to “loss or damage” and then later “products lost”. One suspects that this also applied to “products damaged”. I agree with the use of the phrase “loss or damage” for schade, but consistency is important.
There were two monetary limitation phrases in the original clause: (1) no more than €12 a kilogram and (2) no more than €115,000 a year. Both of these are conceptually maximums, but the word “maximum” was inconsistently used with only one of them. By the way, why not use the plainer phrase “no more than X” rather than the Latinate phrase “a maximum of X”?
Avoid using “shall” incorrectly
In this clause, the first use of “shall” was in a statement of application or policy. The present tense is best in these kinds of statements. So it should not have been “shall be limited”, but “is limited”. The second use of “shall” was in a statement of obligation, but it was a statement expressing lack of requirement. So it should not have been “”shall pay no”, but “is not required to pay”, “need not pay” or something similar.
Get the references and conventions right
A reference to a time element seems to be missing from the final “subject to” phrase. I think the drafter must have meant “0.6% per year”. This wasn’t clear. Also, was this a reference to 0.6% in weight? Or perhaps monetary value? This is unclear. Did “per annum” refer to a calendar year? Or any given period of 365 days? Not clear! When drafting in English, use correct and consistent English numerical and monetary references.
In this clause, the notation should have been like this: €12, €115,000 and 0.6%.
Is it clear what “per gross kilogram weight” means? Presumably, “gross” refers to the weight with the standard packaging. Not everyone knows that, so perhaps further explanation would have been a good idea. Which is clearer: “per gross kilogram” or “for each kilogram, packaging included”? The word “weight” seems superfluous because “kilogram” is sufficient to make that clear. A punctuation point: round brackets are not standard punctuation in an ellipsis. So use this: …. , not this: (…).
Prefer plain English wording
Latin and Latinate expressions are occasionally useful; however, if you have a choice between a plain English phrase and a Latin or Latinate phrase, choose the plain English one. For example, “per annum” is considered a correct English phrase, but “per year” is used more. The phrases “a year” and “each year” are even better.
However, this guideline is not as clear-cut as it seems. As indicated by Google Ngrams, many English speakers would prefer “semi-annually” over “half yearly”, for example.
To sum up, here are ten English drafting tips gleaned from our look at this clause:
- In conditions, obligations and entitlements, say exactly what you mean expressly and without using overly complicated constructions.
- Draft in the present tense without using “shall”.
- Format lists in text bites set out in a parallel structure.
- Use the possessive more.
- Use the right preposition. Use a simpler preposition, if possible.
- Avoid using common-law terms that are not clearly linked to the underlying Dutch concept. If you do, add the Dutch terms in brackets.
- Do not use a legal word or phrase unless it’s necessary to do so.
- Be consistent.
- Use correct and clear temporal, numerical and monetary references.
- Use correct English punctuation.
Greg Korbee (Originally published in February 2014. Republished in February 2019.)
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