The long-awaited Book 5 of the new Civil Code took effect on January 1, 2023: Impact on Your Terms and Conditions and Contracts

The time has finally come: On January 1, 2023, Book 1 (“General Provisions”) and Book 5 (“Obligations”) of the new Civil Code took effect. The new rules apply to all contracts entered into on or after that date. With this legislative amendment, the legislature seeks to strike a new balance between the parties’ freedom of contract and the role of the court as protector of the interests of the weaker contracting party and of the public interest. Although the legislative amendment largely consists of a codification of established case law, a number of significant reforms are also being implemented. It is therefore of great importance to consider the impact of this legislative amendment on your general terms and conditions and contracts. We have summarized the most important new provisions and codifications for you below.

Negotiations are not always entirely non-binding. Under certain circumstances, breaking off negotiations may be deemed wrongful and result in pre-contractual liability. The new law of obligations provides a legal basis for the precontractual liability of the contracting parties, and also establishes legal sanctions. When negotiations are improperly terminated, liability entails restoring the aggrieved party to the situation in which they would have been had the negotiations not taken place. If a legitimate expectation has been created that the contract would undoubtedly have been concluded and this does not occur, this may mean that the party must compensate both the costs incurred and the loss of the expected benefits from the contract that would have been concluded. In the event of a breach of the duty to disclose information, not only does pre-contractual liability come into play, but in cases of fraud, mistake, duress, or abuse of circumstances, this may also result in the contract being void.

Most companies rely on general terms and conditions in their business relationships. These are standard rules drawn up in advance by one of the parties for general and repeated use. Consequently, these provisions are normally not (or only to a limited extent) negotiated with the other contracting party. In many cases, however, both parties use general terms and conditions and attempt to impose them on each other. When the content of these provisions is consistent, no problems arise. However, when there are conflicting provisions, the question arises as to which general terms and conditions take precedence. The New Civil Code stipulates that, in the event of conflicts, the so-called “knock-out” rule applies: both sets of general terms and conditions are applicable, with the exception of the incompatible and conflicting clauses, which are then rendered void. Consequently, common law will apply to the conflicting provisions. If one of the parties has expressly stated in advance that it does not wish to be bound by an agreement if some of its general terms and conditions are not applicable, the “knock-out” theory does not apply. It is important to emphasize that such a declaration must be made explicitly and prior to the conclusion of the contract. A declaration to that effect included in the general terms and conditions themselves is not sufficient.

In general, the principle of “pacta sunt servanda” applies in Belgian contract law: the parties must comply with their agreement. If a contracting party fails to fulfill its contractual obligations, it is in breach of contract and is contractually liable. In principle, a debtor can only avoid contractual liability if they can demonstrate that their failure to perform is due to a cause beyond their control for which they cannot be held responsible. A situation of force majeure places the debtor in a position of non-attributable impossibility to fulfill its obligations. Whereas force majeure presupposes that performance of the contract has become absolutely impossible, imprevisibility implies that performance of the contract is merely unduly burdened. The doctrine of unforeseeable circumstances permits a revision of the contract when, after the contract is concluded, new circumstances arise that are not attributable to the party invoking them, and when these circumstances have disrupted the contractual balance. In the past, the doctrine of unforeseeability was consistently rejected by the Court of Cassation, which meant that parties had to include unforeseeability clauses in their contracts. The new law of obligations now enshrines the doctrine of unforeseeability in Belgian law. After recognizing the principle of the binding force of the contract in paragraph 1, paragraph 2 of Article 5.74 of the (New) Civil Code lists the five conditions for its application: (i) the changed circumstances must be unforeseeable (ii) and not attributable to the debtor (iii); the debtor must not have assumed the risk (iv); and the possibility of renegotiation must not be excluded by law or by the contract itself (v). If all conditions for application are met, the debtor may ask the creditor to renegotiate the contract with a view to amending or terminating it. In the absence of an agreement between the parties within a reasonable period, the court may, at the request of the party with the strongest case, amend the contract or terminate it in whole or in part. Article 5.74 (New) of the Civil Code is supplementary law, which means that the parties may contractually exclude or modify the possibility of renegotiation.

The new contract law has significantly expanded the parties’ freedom of contract with regard to the application of remedies. For example, it provides for a general option—provided certain conditions are met—to apply various remedies in the event of a breach of contract without the intervention of a court. For example, the creditor may independently decide to reduce the price, replace the debtor with a third party, or terminate the contract. Extrajudicial termination now has a legal basis upon written, reasoned notice. The application of these remedies therefore no longer requires prior judicial intervention. The parties may, however, contractually exclude or modify this option. However, the application of these sanctions is at the creditor’s own risk. After all, the court may always be called upon subsequently to assess the legality and validity of the sanction. The parties’ ability to stipulate, on a lump-sum basis, compensation that the debtor owes to the creditor in the event of an attributable breach of an obligation—the so-called liquidated damages clause—remains in effect. Under the old law, a liquidated damages clause could be moderated by the court if the amount of the stipulated damages manifestly exceeded the “potentially foreseeable damage.” In practice, however, this proved to be a highly complex and difficult-to-apply standard. Under the new law, this standard has been refined by granting the court the authority to moderate the amount in cases of “manifest unreasonableness.” Henceforth, the court will have to take into account both the actual and potential damages, as well as all other circumstances, in particular the legitimate interests of the creditor. Actual damages are therefore no longer the lower limit for mitigation. Exculpatory clauses, by which a debtor wholly or partially excludes his or her own liability and/or the liability of his or her agents, remain valid in principle. However, a new approach is being taken in part with regard to limitations on validity. For example, exemptions not only for one’s own intentional fault but also for the intentional fault of a person for whom one is responsible are henceforth deemed invalid. In contrast to the B2B Act of April 4, 2019, the exemption clause is valid in cases of gross negligence. However, the total or partial exclusion of liability for oneself or one’s agents resulting from willful misconduct, a fault that endangers life or physical integrity, or that renders the contract void, is invalid.

Book 5 of the (New) Civil Code also introduces a significant change regarding the rules on nullity. In addition to judicial and consensual nullity, it now also establishes nullity by notice. Traditionally, a contracting party wishing to invoke a ground for nullity must go to court to be released from the contract. Under Article 5.59(3), a contracting party may now declare the agreement void by means of a unilateral written notice to the other party, thereby avoiding the time-consuming process of litigation. Here, too, the declaration of nullity is made at the risk of the party issuing it, in the sense that the other party may challenge both the existence of a ground for nullity and the consequences of the declaration. A judge who determines that the contract was declared void without valid grounds may rule that the notice is ineffective and that, as a result, the contract never actually terminated. In that case, the suspension of the contract’s performance may constitute a breach of contract and may even justify the termination of the contract to the party’s detriment.