THE BOTTOM LINE
- Forum selection clauses are powerful: A clause in a personal guarantee designating a specific court will likely be upheld, even if a related primary loan agreement points to a different country’s courts.
- Directors are not ‘consumers’: When a director or shareholder signs a personal guarantee to secure a loan for their company, they will struggle to claim EU consumer protection status to be sued in their home country.
- Commercial purpose is key: Courts will scrutinize the underlying purpose of the guarantee. If it’s to facilitate a business transaction, it will be treated as a commercial agreement, not a consumer contract.
THE DETAILS
A recent ruling from the Rotterdam District Court provides a critical reminder for executives about the personal risks and obligations they undertake for their companies. The case involved a German-based director who had provided a personal guarantee for a loan his company received from a Dutch lender. The guarantee agreement included a forum selection clause, explicitly granting jurisdiction to the courts in Rotterdam. When the company defaulted, the lender sued the director personally in Rotterdam, as per the agreement. The director challenged the Dutch court’s jurisdiction, seeking to have the case moved to his home court in Germany.
The director’s primary defense was that he signed the guarantee as a private individual and should therefore be classified as a ‘consumer’ under the EU’s Brussels I-bis Regulation. This regulation generally requires that consumers can only be sued in the courts of their home country. However, the court firmly rejected this argument. It reasoned that the concept of a ‘consumer’ is reserved for contracts made outside of one’s trade or profession, for purely private needs. This guarantee, the court found, was inextricably linked to the director’s professional activities. It was signed not for personal consumption, but to enable his company to secure a loan for a commercial real estate development. The business purpose of the transaction was decisive, stripping him of any potential consumer protection.
The director also argued that since the main loan agreement between the lender and his company designated German courts as competent, his personal guarantee case should follow suit due to its close connection. The court dismissed this line of reasoning as well. It highlighted that the personal guarantee is a separate and distinct legal agreement. The clear and unambiguous forum selection clause within that specific guarantee takes precedence. The court will enforce the terms agreed to by the parties in that contract, reaffirming the principle that each agreement stands on its own contractual footing. The director must now face the claim in the Netherlands.
SOURCE
Source: Rechtbank Rotterdam
