In four decisions (all involving Cancun Holding II) the Supreme Court has stated what the principles of reasonableness and fairness (Article 2:8 of the Dutch Civil Code) require of the board and shareholders involved in a joint venture company in which the partners have aimed to maintain equality.
Board
Where the board is concerned, the nature and substance of the partnership in a joint venture company in which the shareholders have an equal share can mean that the company interest (too) is served by maintaining a balanced control structure between the shareholders. This can mean that the shareholding structure may not be altered beyond what is required in the light of the circumstances. The principles of reasonableness and fairness dictate that when performing their duties, directors must also observe due care with respect to the interests of all the parties involved in the company and its business. This duty of due care can entail that when serving the company interest, the directors must ensure that the interests of all parties involved in the company or its business are not unnecessarily or disproportionately harmed as a result. In a joint venture company in which the shareholders have an equal share, this requirement can imply a special duty of care in relation to the position of a shareholder whose interest is diluted or in danger of becoming (further) diluted, entailing that the board must inform a joint venture partner about a prospective share transfer between the other partners and attempt to restore the original 50/50 relationship (or cause this to be restored).
Shareholders
The fact that the shareholders are free to structure their joint venture as they see fit does not relieve them of the obligations that arise for each of them from Article 2:8 of the Dutch Civil Code. On grounds of this provision, shareholders must act according to the principles of reasonableness and fairness in their dealings with each other and with the company. Article 2:8 of the Dutch Civil Code is mandatory law and even applies if a shareholder could and was permitted to transfer its shares on grounds of the law, the Articles of Association and the shareholder agreement, without first offering these shares to a fellow shareholder or informing this shareholder.
The Supreme Court ruled that by effecting a share transfer from one to the other, two shareholders covertly damaged the shareholder equality originally envisioned by the two partners and, partly in view of the other circumstances of the case, violated the principles of reasonableness and fairness which, as shareholders, they were required to observe in their dealings with the third shareholder in the company. The other circumstances of the case are that when the third shareholder was admitted to the joint venture, the equality of the original two joint venture partners had been maintained (in terms of the number of shares and control), that specific controlling rights were attached to the shares to be transferred, and that there was a conflict between the original joint venture partners.
Own observations
These decisions from the Supreme Court make it clear that directors and shareholders must thoroughly take account of what can be expected of them on grounds of the principles of reasonableness and fairness in the cooperation between the parties within the context of a joint venture company. The standards of due care arising from that can be decisive – in deviation from or in supplement to a (shareholder) agreement concluded between the shareholders – for the question of how a shareholder must act with respect to its fellow shareholders. This not only applies with respect to a minority shareholder, but – on the basis of these decisions – also with respect to an equal partner in the joint venture. This applies in any event in the event of changes or impending changes in the control structure.
For directors, the standard arising from the principles of reasonableness and fairness, which dictates that they must observe due care for the interests of all parties involved in the company and its business, can mean that they must play an active role in ensuring that such interests are not unnecessarily or disproportionately damaged, by informing parties or by intervening.
The aforementioned standards of due care will have to be taken into account when advising parties on structuring or making changes to their partnerships. Especially if there are indications that the parties (continue to) aim for equality.