|What if an agreement between parties is in violation of a statutory provision, but the parties do not raise this point in proceedings? Should the court ascertain this violation ex officio and determine whether the contract is void or valid nonetheless (which may be the case under Dutch contract law)? This question was recently submitted to the Dutch Supreme Court in a dispute about a redundancy payment scheme of a former manager at Rabobank. The manager had concluded the scheme with a local Rabobank office, before it merged with the national Rabobank. The national Rabobank did not agree to the scheme and suspended payment.
Statutory limit on redundancy payments for bank managers
In proceedings initiated by the former manager, Rabobank invoked a statutory provision under the Dutch Financial Supervision Act (Wet op het financieel toezicht) which limits redundancy payments of a bank manager to 100% of the beneficiary’s fixed yearly income. Rabobank argued the redundancy scheme was in violation of this provision and therefore void. However, this argument was only introduced during the oral pleadings before the Court of Appeal, which was too late under Dutch civil procedure. Therefore, the Court of Appeal did not take this argument into consideration and upheld the redundancy payment scheme.
Decision of the Supreme Court
Before the Dutch Supreme Court, Rabobank argued that the limiting provision in the Financial Supervision Act was by nature a “public order” provision (“van openbare orde“). Consequently, the Court of Appeal should have applied the limiting provision ex officio, whether or not it had been invoked (in time) by Rabobank. In its judgment dated 1 June 2018 (ECLI:NL:HR:2018:818), the Supreme Court held that the provision limiting redundancy fee schemes to 100% of the fixed yearly income is important. It was introduced by the legislator to help prevent a new financial crisis, given that excessive “bonuses” were supposed to have contributed to the 2008 financial crisis. Yet the Supreme Court did not agree that the limiting provision was so fundamental that courts have to apply the provision ex officio as a public order provision.
In addition, Rabobank argued that the Court of Appeal should have applied the limiting provision ex officio because, under the Financial Supervision Act, an agreement in violation of the limiting provision is void. The Supreme Court also rejected this argument. The mere sanction of nullity was not enough to establish an obligation for the court to apply a statutory provision ex officio, according to the Supreme Court.
In this case, the Supreme Court was reluctant to assume an obligation to apply statutory provisions ex officio in proceedings about agreements. In my view, this approach should be welcomed. If courts too readily assume an obligation to apply statutory provisions ex officio, this would cripple the principle of party-autonomy in civil procedure. In civil procedure, it is up to the parties to decide which arguments to submit to the court. Applying statutory provisions ex officio should remain the exception. For a further discussion of the decision of the Supreme Court, including its approach in determining whether a statutory provision is a public order-provision, I refer to my publication in the 2018 November issue of the Dutch civil law journal Maandblad voor Vermogensrecht.