Recently, the Dutch Supreme Court ruled on whether a Court of Appeal ruling should be classified as an ‘impermissible surprise decision’ (ECLI:NL:HR:2022:1432). The Court of Appeal had applied a rule of law that neither party had brought up during the proceedings. As a result, this judgment provides a good occasion to consider the permissible or impermissible surprise decision in more detail.
The case
This case involved a sum of over 3.3 million Dutch guilders (converted to euros: more than EUR 1.5 million) paid in 1998. The parties involved in the transfer had then signed a loan agreement for this purpose in 2001. Repayment of the total amount was sought in the proceedings. The parties had different opinions on the significance that should be attached to the signed loan agreement and the tax opinions issued at the time. The claimant argued that – as the name of the agreement suggested – a loan had been provided. The defendant argued that the amount had been gifted because the purpose of the signed loan agreement was to reduce or avoid gift tax.
The District Court ruled against the claimant at first instance, finding that it had not been sufficiently asserted that the parties’ intention at the time in 1998 was to conclude a loan agreement.[1] The Court of Appeal did allow the claimant’s claim for repayment of the amount, but not because it held that a loan agreement had been concluded. The Court of Appeal ruled ex officio that the purport of the signed loan agreement was contrary to good morals and public policy and was therefore void under Article 3:40(1) of the Dutch Civil Code, as the signed loan agreement had been aimed at misleading the tax authorities. Therefore, the defendant had to repay the amount, but on account of an undue payment under Article 6:203 of the Dutch Civil Code instead.[2]
Dutch Supreme Court decision
The defendant disagreed with the Court of Appeal’s decision and brought an appeal in cassation to the Dutch Supreme Court, complaining that the Court of Appeal’s ruling constituted an impermissible surprise decision. Throughout the proceedings before the District Court and the Court of Appeal, the parties had debated whether the defendant had paid the amount under a loan agreement or whether it was a gift or whether the amount was intended to satisfy a natural obligation. The parties had discussed how the loan agreement should be interpreted, partly in light of the tax opinions issued at the time. As a result, the central issue was, in any event, the substance and classification of the signed loan agreement rather than whether this structure was prohibited and/or contrary to public policy or good morals.[3]
The record of the hearing does not show that the Court of Appeal suggested that the parties could apply Article 3:40(1) of the Dutch Civil Code. The Court of Appeal did not give the parties the opportunity to comment on whether the signed loan agreement and the resulting asset transfer were contrary to public policy or good morals, nor did the Court of Appeal give the parties the opportunity to adjust their assertions accordingly. As a result, because the parties were not heard on this essential component underlying the Court of Appeal’s decision, they should not have had to expect the ex officio application of Article 3:40(1) of the Dutch Civil Code or the claimant’s claim being allowed based on undue payment, either.[4]
The permissible or impermissible surprise decision
Not every decision by a court that is surprising to the parties is impermissible – i.e., contrary to due process – as Article 25 of the Dutch Code of Civil Procedure gives courts the freedom to supplement the legal grounds put forward by the parties. And, under Article 24 of the Dutch Code of Civil Procedure, it is ultimately up to the court to infer the precise extent of the legal dispute from both parties’ positions. The court is just not permitted to issue a ruling that a party did not have to be prepared for, like the court’s ruling in this case.
It follows from established Dutch Supreme Court case law that, in principle, the court may not apply a different criterion for assessing the claims without the parties having been able to comment on this criterion and the possible consequences of its application. If the court wants to apply a different criterion, it has to give the parties the opportunity to comment on it or to adjust their assertions. This follows, in particular, from the fundamental principle of procedural law that the parties must have been adequately heard on the essential components underlying the court decision and may not be surprised by a court decision they did not have to expect.[5] The Supreme Court adhered to this line of reasoning in this case, too.
Conclusion
A court may not issue a decision that the parties should not have expected and that the parties were not or were insufficiently able to comment on. If the judgment of a District Court or Court of Appeal contains a surprise decision, it may be set aside. The parties will then need to be given another opportunity to comment on the supplemented legal basis and, if necessary, to adjust their assertions accordingly. That is why the Dutch Supreme Court referred the case back to the Amsterdam Court of Appeal. Both the claimant and the defendant will be allowed to comment on whether the transfer of over EUR 1.5 million in assets is contrary to Article 3:40(1) of the Dutch Civil Code.[6] Although it seems very likely that this question will be answered in the affirmative, we will have to wait and see how the Amsterdam Court of Appeal rules on this based on the parties’ assertions.
[1] District Court of The Hague, 9 January 2019, ECLI:NL:RBDHA:2019:370.
[2] Court of Appeal of The Hague, 20 April 2021, ECLI:NL:GHDHA:2021:2878.
[3] Opinion of Advocate General Lindenbergh to Dutch Supreme Court, 14 October 2022, ECLI:NL:HR:2022:1432, para. 4.16.
[4] Dutch Supreme Court, 14 October 2022, ECLI:NL:HR:2022:1432, para. 3.1.2.
[5] Dutch Supreme Court, 21 December 2001, ECLI:NL:HR:2001:AD3997, para. 3.4.
[6] Dutch Supreme Court, 14 October 2022, ECLI:NL:HR:2022:1432, para. 3.3.