Interpreting articles of association of a joint venture company: objectively or subjectively?

The articles of association of a company form the basic rules of the company. In many cases, the relevant statutory provisions are followed when drawing up the articles of association, but in other cases the statutory provisions are deviated from. The meaning to be assigned to a provision in articles of association depends on how the provision is to be interpreted.

With regard to the interpretation of written agreements, a spectrum has developed in case law. At one end of this spectrum is the objective interpretation whereby the wording used is of decisive importance. The subjective interpretation is at the other end of the spectrum. In this context, the meaning that the parties may reasonably attribute to each other's statements and conduct, and what they may reasonably expect from each other, is taken into account. There is no hard line or contradiction between the objective and subjective interpretations, but rather a smooth transition.  

In general, the articles of association are interpreted according to objective standards. After all, the purpose of the articles of association is to bind not only the founders of the company but also others (who were not involved in drawing up the articles of association) in a uniform manner. A subjective interpretation (by considering the underlying intentions of the founders) would therefore not be appropriate. Since third parties may derive rights from the articles when contracting with the company, legal certainty would be at stake if the provisions of the articles were to be interpreted subjectively.

On the other hand, the relationship between the shareholders is governed by the principles of reasonableness and fairness, which could justify a more subjective interpretation of the articles.

In a dispute between two shareholders of a joint venture company that was finally settled by the Supreme Court (HR) on 1 November 2019, the interpretation of the articles of association of the joint venture company was important. Although the HR settled the case on technical grounds without further substantiation or explanation, the opinion of the Procurator General (P-G) is interesting. The P-G believes there is room for a more subjective interpretation as a supplement to the objective interpretation that is the standard for the interpretation of the articles of association.

In his opinion, the P-G states that although in principle the articles of association must be interpreted objectively, this does not mean that only the grammatical interpretation of the provisions in the articles of association is relevant. The interpretation must take into account the entire set of provisions of the articles of association, as well as the plausibility of the legal consequences which different, grammatically possible interpretations of the text would lead to. Furthermore, what is objectively known is important in the interpretation, and generally accepted insights and generally known interests of certain categories of participants of economic transactions may also be taken into account.

In practice, articles of association are often further elaborated in a contractual arrangement, such as a shareholders’ agreement. When interpreting a shareholders' agreement, the subjective explanation is used, as only the shareholders are bound by it. In his opinion, the P-G discusses the question whether an objective standard should still be used in the interpretation of the articles in the event that the shareholders' agreement and the articles of association as a whole are considered. In this respect, to a certain extent there could be a shift to the other side of the spectrum in the direction of a more subjective interpretation. However, the P-G does see drawbacks in this: after all, a more subjective interpretation implies the possibility that a provision in the articles of association may be interpreted differently between the parties than in relation to third parties, or, over time, differently than before. Finally, the P-G argues that the principles of reasonableness and fairness can play a complementary role in the coordination between what objectively follows from the articles of association and what the founders/shareholders could reasonably expect from each other.