Scaleup Vlaanderen
The new Law of Obligations: what (start-up) companies need to know after the recent contract law reform
Parliament approved the new Law of Obligations (included in Book 5 "Obligations" of the new Civil Code) on April 21, 2022 . Not only are some novelties introduced, but certain principles as applied in current case law are also codified with the objective of creating a new balance between the parties' autonomy of will and the role of the courts as the protectors of the public interest and the interests of weaker parties in contractual relations.
The new contract law will apply to contracts concluded after Jan. 1, 2023. Contracts concluded before that date will continue to be governed by the old contract law, as will legal acts performed after January 1, 2023 but relating to contracts concluded before that date, unless the parties contractually stipulate otherwise.
We briefly review below the major innovations and codifications introduced by the new law of obligations ("Book 5"):
It may occur in practice that general terms and conditions of different parties govern a contractual relationship, resulting in the logical question of which terms and conditions take precedence in such a case. In case law we often find here an application of the so-called "knock-out rule" and this principle is now codified: both sets of general terms and conditions are simultaneously applicable except for the clauses that are incompatible with each other and therefore lapse. The contract subjects regulated by the expired clauses are governed by Belgian common law.
Abuse of circumstances is introduced into Belgian law as a new defect of will based on which a contract may be declared void or certain obligations may be modified if, at the time of the conclusion of the contract, there is a manifest imbalance between the performances of the parties to the contract as a result of an abuse of circumstances by one party related to the weakness of the other party.
Under the new contract law, a clause taking into account the circumstances at the time of contract conclusion that creates a manifest imbalance between the rights and obligations of the parties will be considered unlawful and considered unwritten. However, this principle only applies to clauses that could not be negotiated and to which the B2B Act of April 4, 2019 and the Economic Law Code ("ELC") regarding unlawful clauses in a B2C context do not apply.
The new contract law introduces the possibility of declaring a contract partially void at one's own risk by a reasoned written notice to the other contracting party. In this way, (lengthy) court proceedings to get rid of contractual obligations can be avoided. An important prerequisite, however, is that the annulment should always be limited to obligations or clauses that can be viewed separately from the rest of the contract. Also, annulment by notice is expressly excluded for contractual obligations established by authentic instrument such as a notarial deed (purchase of real estate, establishment of mortgage, etc.).
From now on, the damage clause may also relate to the performance of services, and the criterion for marginal judicial review will be the "manifestly unreasonable nature" instead of the previously applicable "foreseeable potential damage. Upon judicial review of the clause, a manifestly unreasonable clause will be able to be mitigated to a reasonable amount or performance.
The codification of the case law on indemnity clauses (total or partial exclusion of one's own liability or the liability of appointees) is a major step, and the principle validity of indemnity clauses is explicitly established, even in cases of serious fault. However, it is not possible, and therefore invalid, to exclude one's own liability or that of appointees in the case of intentional misconduct, in the case of misconduct affecting life or physical integrity, or which completely erodes the contract.
If it is clear that the debtor will not fulfil his obligation in due time and the consequences are sufficiently serious for the creditor, the creditor may, upon written notice, suspend the performance of his own obligation, and this until such time as the debtor provides sufficient guarantees for the performance of his obligation. Specifically, this means that the creditor may suspend the performance of his own obligation even though the debtor's performance is not yet due. Moreover, upon written notice, the creditor may rescind the contract in exceptional circumstances, in particular if it is clear that the debtor will not perform its obligation in a timely manner despite a reminder to provide adequate assurances for the proper performance of its obligation within a reasonable time and the consequences are sufficiently serious for the creditor.
The new contract law introduces the possibility to partially annul a contract at one's own risk by a reasoned written notice to the other contracting party. In this way, (lengthy) court proceedings to get rid of contractual obligations can be avoided. An important prerequisite, however, is that the annulment should always be limited to obligations or clauses that can be viewed separately from the rest of the contract. Also, annulment by notice is expressly excluded for contractual obligations established by authentic deeds such as a notarial deed (purchase of real estate, establishment of mortgage, etc.).
The new contract law also introduces a new sanction: the creditor can request a proportional price reduction in order to restore the balance between the mutual obligations. By means of a reasoned written notification, the reduction can be applied unilaterally or must be claimed in court.
Post-contractual obligations and contract cancellation clauses are recognized and this principle is enshrined in the new contract law. The dissolution of a contract normally has retroactive effect but, depending on the will of the parties, certain clauses such as non-compete or choice of law clauses may also be intended to survive dissolution.
The new contract law deserves the attention of all (start-up) entrepreneurs because it has a very wide, cross-sector application and applies to all types of contracts. Moreover, it is possible to explicitly exclude or adapt many provisions according to specific needs.
It is important to check the precise impact of recent innovations on your current and future contracts and general terms and conditions. In short, a thorough 'health check' is absolutely recommended.
Would you like to know more? Contact Willem Henckens and Philippe Brabanders.
