Updating your contracts and general terms and conditions
Due to COVID-19, businesses, as well as individuals, have been confronted with an unusual situation these last few months that has influenced commercial transactions and trade relationships in a special and unprecedented way.
One of the most frequent questions that has come up, concerns the possibilities within the framework of a contract or general terms and conditions – or, in case of lack thereof, the law – to resolve or prevent issues for businesses in (temporary) difficulties.
What about your contracts?
An agreement is binding between parties ("pacta sunt servanda"). But what are the possibilities in case one of the parties ends up in a situation in which the fulfilment of one or more contractual obligations is (temporarily) not possible (anymore)?
A first possibility can be found in the legal principle of force majeure which is characterized by a heavy burden of proof.
A less known alternative is the so called “hardship theory”, already familiar in international commercial practices but which is now provided for in article 5.77 of the draft bill of 16 July 2019 to insert book 5 "Obligations" of the new Belgian Civil Code.
Suppose that your business negotiated a price for the delivery of certain products or materials. Then, due to unforeseeable external circumstances, the price of raw materials increased substantially after the conclusion of the contract and no price adjustment clause was stipulated. What can you do?
In the event that the fulfilment of the obligations for one of the contracting parties is:
- seriously hindered or aggravated by unforeseeable circumstances (and thus were unforeseeable at the time of the conclusion of the contract);
- unattributable to the fault of one of the parties; and
- seriously upsets the contractual balance,
renegotiation of the contractual conditions between the parties could be imposed based on the hardship theory. The imminent amendment of the law also provides for judicial supervision on the renegotiating of the contract in case the parties fail to reach an amicable agreement. This way an unwilling party can still be compelled to actively participate in the renegotiations.
Furthermore, it is important to note that the envisaged article 5.77 of the Belgian Civil Code will be of supplementary nature, meaning that the parties will have the legal freedom to explicitly rule out its application on their legal relationship. However – on the contrary – in the event the parties do not make any explicit arrangements in this regard, a court may nonetheless declare the legal hardship clause applicable if the conditions are met.
Finally, the coalition agreement of 30 September 2020 of the Belgian Government indicates that "for a number of other matters (e.g. contract law), there are already texts [ready to be] discussed immediately by the government". This draft bill thus remains subject to voting and approval by the Parliament.
One can therefore agree on the importance of maintaining business continuity and good commercial relationships, especially during these trying times.
Are your general terms and conditions still up-to-date?
Consideration must also be given to your general terms and conditions as this can significantly impact your position in case of unforeseeable circumstances.
In order for your general terms and conditions to be applicable, and also taking into account the prevailing legal practices, it is important to ensure that your contracting party has read (or at least has been given the opportunity to read) them and, moreover, that they have accepted them. In the event of a judicial procedure, the judge will make a factual assessment to verify whether these conditions are met.
The legislator has also taken this into account in article 5.27,§1 of the draft bill to insert Book 5 "Obligations" into the new Belgian Civil Code.
This also means that, in case of conflicting general terms and conditions of two or more parties (a so called “battle of the forms”) and according to article 5.27, §3 of the draft bill, the “knock-out”-rule will be explicitly applicable. This rule implies that the specific terms and conditions that are in conflict will be considered as null. To fill this void, the general applicable legal provisions will apply.
Furthermore, a provision in the general terms and conditions stipulating that the general terms and conditions of the other party are not applicable as such, will no longer be sufficient. One must explicitly, and in advance, waive (in writing) the application of the general terms and conditions of the other party for these general terms and conditions to be considered as non-applicable (article 5.27, last paragraph of the proposed bill).
Since the reform of the Belgian business law legislation, and as set out in 1348bis paragraph 4 of the Belgian Civil Code, the acceptance of an invoice (and the applicable general terms and conditions) can also act as proof of the existence of all types of business contracts (and not only of sales contracts, as was the case before the reform).
Consequently, correct and updated general terms and conditions are of increasing importance. A timely and thorough review of your general terms and conditions is therefore critical.
KPMG Law can assist you with the drafting and review of your general terms and conditions and can assist you in any upcoming or existing disputes regarding your commercial transactions or business relations.