Trend in Dutch ESG Litigation: liability based on an implied term pursuant to company’s own CSR policy

A recently published case of the Court of Amsterdam reveals that the court found the fashion brand G-Star liable for damages suffered by its supplier as a result of not placing regular orders under the Supply Agreement. 

Case and ruling

The court recognised that G-Star did not have an obligation to place orders since the Supply Agreement explicitly stated that such an obligation did not exist. The court, however, held that G-Star had an obligation to place sufficient and regular orders under the Supply Agreement even if the agreement stipulated that such an obligation did not exist.

The court came to this ruling by stating that the parties’ rights and obligations towards each other are not only determined by what they have expressly agreed, but also by the principles of reasonableness and fairness, which is a mandatory principle under Dutch law. The Court considered inter alia that the following circumstances "imply" this term:

• By filling the supplier’s production capacity for years, G-Star decision's not to order more products came as an unusually hard surprise. In making this decision, G-Start did not take its Supplier’s interests into account;
   
• From the perspective of G-Star's own CSR policy, G-Star had an obligation to prevent sudden layoffs at its supplier's factory as a result of the legal relationship between G-Star and its supplier.

Against this background, the court ruled that G-Star had committed a breach of contract by not giving an order to its supplier. G-Star faces a "million EURO claim".

Comment

This case shows that ESG and CSR are becoming an important element in contractual relationships and litigation. There is certainly a trend of parties invoking inter alia the other party’s CSR policy and potential obligations in light of ESG.

As illustrated, the result may be that a court recognises an unwritten obligation of a party to perform or refrain from performing certain actions. On a more general note, it is also important to consider that Dutch law differs from Common law with regard to ‘Entire Agreement’ and ‘No Oral Modification’ clauses. 

Such clauses do not necessarily mean that other terms and representations cannot be implied in light of the specific circumstances of the case. Moreover, reasonableness and fairness as a principle can lead to specific (ESG) obligations, even if not expressly agreed.

Clearly, CSR and ESG policies and claims are no longer empty promises. Therefore, it is crucial to carefully consider CSR Policies, Governance and (contractual) representations with respect to ESG as they may become part of litigation.