Every commercial transaction revolves around information. Whether you are taking over a company, buying property, acquiring shares or entering into a long-term supply contract: the price you pay is determined by what you know at the time. But what if your counterparty withheld crucial facts and you paid too much as a result? And what if the risk you were kept in the dark about later does not materialise at all? Does your right to compensation then also lapse?
That question is more relevant to many companies than it may seem at first glance. In a recent judgment, the Supreme Court gives an unambiguous answer: no. Anyone who overpaid because the other party concealed essential information retains the right to recover that disadvantage. It does not matter that the feared scenario never occurred. This judgment has direct consequences for the way parties in contract law deal with information obligations, duress disputes and liability.
The facts: a house, a concealed permit and a mega-stable that never came about
The case under consideration by the Supreme Court revolved around the purchase of a home in 2016 for €675,000. Opposite the property was an agricultural business that had obtained irrevocable permits in 2010, 2012 and 2013 to expand with a large pigsty for 19,000 animals. The sellers knew about those permits. They had even objected to them several times in the period 2011 to 2013. Yet they told the buyers nothing about them.
The buyers found out about the permits shortly after the property was delivered. A new valuation, this time taking into account the licensed mega-stable, showed that the property had been worth only €485,000 at the time of purchase. The difference with the purchase price paid was €190,000.
The buyers initiated proceedings. They invoked error and did not claim annulment of the purchase agreement, but asked the court to amend the consequences of the agreement so that their financial disadvantage was removed. That possibility is provided by Article 6:230(2) of the Civil Code (BW). Under that provision, instead of setting aside a contract, the court can amend the financial terms to remove the errant party's disadvantage. In the alternative, the buyers claimed damages in tort (Section 6:162 of the Civil Code) because the sellers had breached their duty of disclosure.
During the proceedings, an unexpected turn of events occurred. The owner of the livestock farm sold his plot to a development company. That purchase agreement stipulated that the on-site business would be terminated and all permits would be revoked. Thus, the mega-stall would definitely not happen.
Ruling
Both the East Brabant district court and the 's-Hertogenbosch court of appeal rejected the buyers' claims. The court recognised that the sellers had breached their duty of disclosure and that the buyers had erred. The court also noted that the buyers would have bought the property at a lower price if they had made a correct representation. So far, the case seemed clear.
But then the court made a striking turn. It considered that subsequent developments had to be taken into consideration. Now that the mega-stall was definitely off the table and the value of the house had increased in the meantime, the buyers were no longer at a disadvantage, according to the court. Section 6:230 of the Civil Code would not deal with situations where there was no disadvantage, so the court rejected the claim. On the same grounds, the court also assessed the damage on the grounds of tort to nil, considering that the buyers had paid at the time for what they now owned.
The Supreme Court held that the court thereby made a fallacy. That fallacy lay in the inner contradiction of the reasoning. The court had itself assumed that, had the buyers been correctly informed, they would have bought the property for a lower price. In that hypothetical situation without a mistake, the buyers would then have also benefited from the increase in value that occurred after the threat of the mega-stable disappeared. They would then have paid less and still enjoyed the same increase in value. That combined benefit was taken away from them because they overpaid as a result of the error. From this, the Supreme Court said, it cannot follow otherwise than that there was indeed disadvantage within the meaning of Section 6:230(2) of the Civil Code.
The same reasoning applies to damages in tort. The Supreme Court ruled that the starting point in estimating damages is that the injured party must, as much as possible, be put in the situation in which she would have been had the damaging event not occurred. Again, the court ignored its own premise that in the hypothetical situation, the buyers would have bought the property for a lower price, after which the subsequent increase in value would have accrued to them. The Supreme Court set aside the court's judgment and referred the case to the Arnhem-Leeuwarden Court of Appeal for further consideration.
Why this judgment matters for your business
This judgment touches on a core issue in contract law that extends far beyond the housing market. The central lesson is that the moment of contract conclusion determines whether detriment exists. If you overpaid at that time because your counterparty withheld relevant facts, the disadvantage is a fact. Subsequent favourable developments do not erase that disadvantage. In fact, those developments benefit you just as much in the hypothetical situation without a mistake.
In day-to-day business, information asymmetry plays a role in almost every transaction. In a business acquisition, the seller usually has more information about the financial position, ongoing disputes, environmental risks or personnel issues than the buyer. When buying commercial property, the seller may know about licensing issues, soil contamination or zoning changes that affect the value. When buying shares, withheld information about claims or warranties can substantially distort the price.
In all these situations, the same principle applies. The party with relevant information has a duty of disclosure. That duty involves sharing facts that are material to the other party in deciding to enter into the agreement. The Supreme Court confirmed in this judgment that the duty to disclose outweighs the buyer's duty to investigate, especially when the withheld information was not easily known and the seller knew that this information would be relevant to the buyer.
Anyone who breaches that duty runs the risk that the other party will successfully invoke error or tort liability years later. The defence that the risk that was disclosed did not eventually materialise no longer offers protection after this judgment.
For companies on the buying side, the judgment actually provides guidance. A reliance on error can be successful, even if the circumstance about which you erred turned out to be favourable in retrospect. The key question the court asks is not whether you are currently in a bad position, but whether you paid too much at the time as a result of a misrepresentation that the other party could and should have avoided.
What makes the difference between disadvantage and damage
The judgment also makes it clear that the doctrine of error and that of tort lead to similar outcomes in cases like this. Pursuant to Section 6:230(2) of the Civil Code, the consequences of the agreement are modified to remove the disadvantage. Under Article 6:162 of the Civil Code in conjunction with Articles 6:97 and 6:98 of the Civil Code, the damage is compensated on the basis of a comparison between the actual state and the hypothetical state without the wrongful act. In both cases, it comes down to the same exercise: what would you have paid if you had been correctly informed, and how much did you actually pay?
In her opinion, Advocate General De Bock paid attention to the question of when the disadvantage should be assessed. She argued, following the prevailing view in the literature, that in principle, the time when the contract was concluded should be taken as the starting point. The Supreme Court did not explicitly comment on the correct yardstick, but did reject the cassation complaints that argued that only facts prior to or at the time of the conclusion of the contract may play a role in Section 6:230(2) of the DCC. Thus, the court retains some leeway to weigh up all the circumstances of the case, but that leeway should not result in an established disadvantage at the time of contract conclusion being erased retrospectively by subsequent positive twists.
What steps can your company take?
If you suspect that your company was not fully or correctly informed by the other party when concluding a contract, it is important to take targeted action.
The first and most important step is to seek timely legal advice. Mistake has a limitation period. The sooner you take action after discovering the misrepresentation, the stronger your position.
Next, it is essential to thoroughly establish the facts. What information did your counterparty have at the time of entering into the contract? Should she have shared that information with you? What would you have done or paid if you did have that information? The difference between the actual price and the hypothetical price without a mistake forms the basis of your claim. This requires a solid factual and legal foundation, often supported by an independent valuation or appraisal.
In addition, choosing the right legal basis is very important. Article 6:230(2) of the Civil Code offers the possibility to keep the agreement intact and only adjust the financial terms. This can be attractive if the agreement has already been largely executed or if both parties have an interest in continuing the relationship. In addition, a claim in tort may be promising, especially if the other party deliberately withheld information. Both bases can be used simultaneously, as the buyers in this case did.
Finally, it is wise to explore whether an out-of-court solution is feasible. In many cases, a well-supported notice to the other party or a targeted mediation process can lead to a solution without the expense and uncertainty of full proceedings.
Conclusion
With this judgment, the Supreme Court leaves no room for misunderstanding. Anyone who has paid too much when concluding a contract due to concealed information is entitled to compensation for that disadvantage. The fact that the feared risk did not materialise later does not alter this. In the hypothetical world without a mistake, the injured party would have paid less and benefited equally from the later favourable development. Exactly that difference constitutes the disadvantage the law seeks to remedy.
For any business entering into contracts, the message is clear. Make sure you are keen on the information position of both parties in every transaction. And do you find out that your counterparty has withheld essential facts? Then get timely and expert advice on your options for recovering your disadvantage.
How does TK ensure that you can move forward?
TK guides your company through all phases of a contractual dispute. From the initial assessment of the facts and legal bases to the conduct of negotiations and, where necessary, the initiation and conduct of court proceedings. Our team has extensive experience in complex disputes at the intersection of contract law, liability and dispute resolution, both in the Netherlands and in an international context.
More information or advice?
Is your company facing a dispute over a contract in which information has been withheld, or would you like to know more about your legal position in the event of mistake and liability? [TK's Corporate & Commercial Litigation]](/expertises/corporate-commercial-litigation) team will be happy to think along with you and help you determine the right strategy. Feel free to contact Michiel or one of the other professionals from team.
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