For over (a) decade(s), all over the various (para)legal practices voices were raised in favor of a modernization of Belgian contract law. 2022 marks a legislative milestone as the legislator introduced Book 1 (general provisions) and Book 5 (contractual obligations) of the Belgian Civil Code (BCC), which were recently approved on April 21, 2022.
Through this article we hope to shed some light and share with you several novelties that could be of interest when drafting, negotiating or modifying future agreements and/or general terms and conditions.
No more battle(s) of forms
The issue of the so-called ‘battle of forms’, i.e., the issue of trying to impose (conflicting) general terms and conditions, is now solved by the so-called ‘knock-out rule’. Based on this new rule, general terms and conditions of both parties will apply when concluding an agreement, in which all conflicting general terms and conditions will be eliminated. However, the contracting party that makes an explicit declaration prior to concluding the agreement, which states that it will not be bound by the agreement in case of conflicting general terms and conditions, will have the possibility to invoke the nullity of the entire agreement (article 5.23 BCC).
Another important novelty is the acceptance of hardship under Belgian contract law (article 5.74 BCC). Frow now on, parties can under certain conditions renegotiate the agreement in case of unforeseen changed circumstances. In case of rejection or failure of these renegotiations, the court may choose to modify the agreement in line with the changed circumstances or even terminate it in whole or in part at the request of one of the contracting parties. As Belgian contract law previously did not generally provide for hardship, contracting parties had to make sure they inserted hardship clauses into the agreement to deal with unforeseen changed circumstances. Since this rule is now supplementary provided for in Belgian contract law, the importance of hardship clauses could probably decrease, and parties will want to exclude or limit this new default rule on hardship by using e.g., so-called “hell or high water” clauses (i.e., clauses that state a party must deliver what has been contractually agreed upon no matter what the circumstances).
Today, dissolution of any agreement can only happen either in the event a conventional termination clause is embedded in the agreement or by means of a judicial intervention. The new Belgian contract law introduces the possibility for each creditor who has taken appropriate measures to determine the non-performance of its debtor (e.g., by a letter of default) to dissolve the agreement due to non-performance by means of a written notice mentioning the defects imputed to the debtor, and such regardless of any conventional termination clause or a priori judicial review (article 5.93 BCC).
Also, the number of remedies available to a creditor in the event of a contractual default has been amended, as a result of which the agreement will not always be dissolved or in some events only partially, for example:
- a creditor can request the reduction of the price when the non-performance is insufficient to justify the entire dissolution of the agreement (article 5.97 BCC). This remedy only existed in consumer sales, but now has been codified as a general remedy applicable to all types of agreements. The price reduction will result in the difference between the value of the performance received and the value of the performance agreed upon at the time of concluding the agreement.
- the non-performance or default performance which only affects part of the agreement, will only give rise to a partial dissolution of the agreement (article 5.96 BCC). Although this new provision brings about a certain flexibility, some caution is required when drafting new agreements. The creditor might want to avoid a situation where the agreement could continue to exist in part because the breach only affects a part of the agreement, whereas it would be desirable for the creditor to dissolve the entire agreement.
Another important difference to note is the one between the termination of an agreement of definite and indefinite term (article 5.76 BCC). When an agreement of definite term is terminated irregular (e.g., non-compliance of formal requirements) or unlawfully, the terminated contracting party can choose to either claim damages or request the court to reinforce the execution of the terminated agreement. However, this choice is not provided for agreements of indefinite term, as a result of which the terminated contracting party can still only claim damages and the agreement will remain terminated.
The new Belgian contract shall apply to all agreements concluded after its entry into force and thus requires future or existing contracting parties to cover certain new pitfalls. Depending on the date of publication in the Belgian Official Gazette, we expect the new Belgian contract law to enter into force somewhere between November 1st, 2022, or December 1st, 2022.
In any case, we are excited and looking forward to using this new toolbox to improve our service to our clients. At Cresco, we continuously strive to improve and update our extensive know-how on drafting (commercial) agreements. This approach combined with our substantial experience on the various matters relating to corporate law issues allows us to successfully assist our clients in all corporate and commercial matters.