The Bottom Line
- Enforcement Risk: A Dutch court has questioned the common practice of using a notarial deed from an M&A transaction to immediately seize a seller’s assets for an alleged warranty breach.
- Certainty is Key: Citing a new Supreme Court precedent, the court stated that an enforceable title requires the debt to be defined with ‘sufficient certainty.’ A penalty that depends on a future, unproven breach may not meet this high standard.
- Strategic Impact: Buyers may no longer be able to rely on the deed alone for swift enforcement. They might first need a separate court ruling to prove the breach, adding time, cost, and complexity to recovering damages.
The Details
This preliminary ruling from the Rotterdam District Court puts a critical M&A enforcement tool under the microscope. The case involves a standard share purchase agreement where the sellers provided warranties regarding the company’s financial health, formalized in a notarial deed. The agreement included a penalty clause of over €58,000, payable by the sellers if any warranties proved to be inaccurate. When the buyer believed such a breach had occurred, they took a common yet aggressive step: using the notarial deed as a directly enforceable title to seize the personal home and bank accounts of one of the sellers to secure their claim.
The core of the dispute is whether a notarial deed provides the same immediate enforcement power as a court judgment for this type of claim. The sellers initiated summary proceedings to halt the enforcement, arguing it was unlawful. The court, in an unexpected move, pointed to a very recent (November 2023) Dutch Supreme Court decision. The highest court ruled that the far-reaching power of direct enforcement is only justified if the obligation to pay is described with ‘sufficient certainty’ in the deed itself. An obligation that is conditional on a future event—such as a subsequent discovery of a warranty breach—does not meet this threshold.
This reasoning fundamentally changes the game for M&A practitioners and executives. The Rotterdam court suggests that because the seller’s obligation to pay the penalty only arises after a breach has been established, the deed itself is not an automatic green light to enforce. The buyer must first prove the breach occurred. While this is an interlocutory judgment—the court has reopened the case to allow parties to argue this specific point—its direction is a clear warning. Businesses can no longer assume that penalty clauses for warranty breaches in a notarial deed offer a shortcut to asset seizure. The path to recovery may now require a formal court procedure first, significantly altering the risk and leverage dynamics in post-closing disputes.
Source
Source: Rechtbank Rotterdam
