6.4.2.3 Arbitration or binding advice clause

Shareholders may agree that their disputes will be resolved by means of arbitration (arbitrage) or a binding recommendation (bindend advies). Hereinafter, attention will be paid to arbitration especially.1 Similar issues as revealed below can be at stake with respect to the binding recommendation.2Art. 2:337 paragraph 2 DCC stipulates that the articles of association or an agreement can arrange that disputes as referred to in proceedings for the settlement of disputes will be submitted to arbitration. Although in principle the provision is superfluous, it elucidates the freedom of parties with respect to arbitration. As admitted in the legislative history by the Minister of Justice, even without this statutory provision it would be possible to include an arbitration clause in the articles of association or in an agreement.3 Art. 1020 paragraph 5 RV enables including an arbitration clause in the articles of association or any other rules that bind parties.

In this context, one must keep in mind Art. 17 of the Dutch Constitution (Grondwet). This provision demands that no one can be kept away from the competent court against his will. In principle, an arbitration clause keeps the shareholders away from the competent court. Therefore, there should always be agreement in place between the relevant shareholders for an arbitration clause to be applicable. An arbitration clause can be included in the articles of association at incorporation or by way of amendment of the articles of association. An amendment of the articles of association can be achieved by way of a resolution of an ordinary majority in the general meeting, unless a higher threshold is prescribed. Consequently, a minority shareholder can be confronted with an arbitration clause in the articles of association, to which he has not consented. According to the leading view in legal literature, shareholders who did not consent to an arbitration clause cannot be bound by that clause.4I agree with the leading view and stress that this view is in line with Art. 2:192 paragraph 1 and 3 DCC stipulating that contractual obligations, quality requirements, a regulation for the obligatory offer of shares or a valuation clause do not bind any shareholder without his consent. In my opinion, an arbitration clause can be regarded as a contractual obligation as referred to in Art. 2:192 paragraph 1 DCC.5

Nonetheless, the arbitration clause binds shareholders:

In my opinion, by becoming a shareholder of an already existing company, consent with respect to the consecutive text of the articles of association can be assumed. In this respect, such a shareholder is in a similar position as he would be in the event of incorporation of the company. This view seems für, as at that moment the person involved is free to choose to join the company or not. One may expect that the person joining a company examines its articles of association beforehand. Therefore, I concur with Rensen who disagrees with Meinema in this respect.6 Meinema holds that a shareholder joining the company should expressly consent to the arbitration clause.7

Moreover, the company itself is bound by the arbitration clause as well, even if its management board did not consent to the arbitration clause. It is not at the management board's discretion, but at the discretion of the general meeting to determine the company's articles of association. Consequently, the company is bound by the arbitration clause.

The roles on arbitration are found in Art. 1020 ff. RV. Art. 1020 paragraph 3 RV provides that an arbitration agreement cannot serve to determine legal consequences of which the parties cannot freely dispose. Examples of such legal consequences are the nullification of resolutions of the company or any of its entities and the determination that resolutions are null and void.

Contrary to resolutions, shareholders are, in principle, allowed to freely dispose of their shares, although it must be taken into consideration that transfer restriction clauses may apply. Moreover, shareholders are in principle free to decide at what price they will sell their shares. In my view, As Art. 2:337 paragraph 2 DCC enables parties to arrange for arbitration, it explicitly indicates that parties can freely dispose of the legai consequences with respect to their dispute as referred to in proceedings for the settlement of disputes.

Although it is possible in principle to opt for arbitration, arbitration applied in a dispute between shareholders or a dispute between shareholders and the company may encounter difficulties. As has been elaborated by Sanders, an arbitrator may often encounter transfer restriction clauses in the articles of association.9 If the transfer restriction clause represents a right of first refusal, the shares must first be offered to the other shareholders. If, subsequently, one of the reflecting shareholders is not party to the arbitration clause, the arbitrator cannot compel this reflecting shareholder to accept the price determined by the arbitrator.

Moreover, complications may also arise when a prior approval rule is contained in the articles of association. Shareholders that are not party to the arbitration clause may refuse to vote in favour of the resolution for approval of the transfer. As a result, the general meeting may adopt a resolution to disapprove of the transfer and another transferee may be designated. This other transferee is probably not bound by the price determined by the arbitrator.

Exit proceedings can also be started against the company itself.10 If the company is bound by the arbitration clause, it is pos sible that the arbitrator orders the company to accept the shares. This may be even more problematic than an order in arbitration against a person other than the company. Similar to other situations of transfer of shares, in the situation of transfer of the shares to the company often transfer restriction clauses apply, so this will cause similar problems to the ones described above.

In addition, Art. 2:207 DCC applies when own shares are acquired by the company. Further to Art. 2:207 paragraph 1 DCC, it is the management board's responsibility to decide whether the company acquires own shares, regardless of whether or not arbitration is applied. If the management board assesses that the tests prescribed by Art. 2:207 paragraph 1 DCC will not be met, it can appropriately refuse cooperation with a purchase order directed at the company.

However, even when the tests of Art. 2:207 DCC are met, one could doubt whether arbitration produces the desirable result. The arbitrator will only be able to order the company to purchase the shares. In my view, keeping in mind the restrictions with respect to arbitration as follows from the Groenselect judgment, the arbitrator cannot compel the management board to resolve for the acquisition of the shares. However, without this management board resolution the company cannot purchase its own shares.

Because of these difficulties, I agree with Sanders that it is questionable whether arbitration is always a more favourable and a more feasible option than using proceedings for the settlement of disputes.11 Nonetheless, I stress that parties may be able to prevent difficulties with respect to transfer restriction clauses, because the Dutch tules on transfer restriction clauses are currently less strict than at the time Sanders wrote his piece on this subject. Currently, transfer restriction clauses no longer have to comply with a strict statutory model. Art. 2:195 paragraph 4 DCC now creates an almost unlimited freedom to give shape to transfer restriction clauses. Consequently, if a transfer restriction clause is included in articles of association, in addition to an arbitration clause, parties may prevent the abovementioned difficulties by including the tule in the articles of association that the transfer restriction clause does not apply if an arbitrator has ordered that the shares have to be transferred. This ensures that most of the difficulties can be dealt with in advance.