New unlawful contract terms in B2B contracts as from the 1st of December 2020
As from the first of December 2020, new rules regarding unlawful clauses will enter into force for contracts concluded, renewed and/or modified after this date in a business to business (B2B) context. These were introduced by the Law of 4 April 2019 which modified Book VI of the Belgian Code of Economic Law.
As the new law will have a major impact on commercial contracts, businesses will have to review such contracts in depth.
In anticipation of the upcoming changes, EY Law intends to provide businesses with a short overview of the affected contractual clauses. Our experienced EY Law professionals are available to assist businesses with comprehensive reviews on this matter.
The following shall apply exclusively to contracts between “undertakings”, which is every legal entity or natural person who continuously pursues an economic goal, including their associations.
Non-profit organizations (VZW/ASBL) are included in the definition insofar as they engage in the continuous delivery of an economic activity on the market. The relevant articles of the law do not apply to financial services, nor to public procurement and the agreements arising out of public procurement.
Undertakings that meet the definition above, will need to check all contracts that will be concluded, renewed or modified after the 1st of December 2020 on the existence of:
- unclear or incomprehensible clauses (the transparency rule);
- (presumed) unlawful clauses (the grey and black list); and
- a clear imbalance of the rights and obligations of the parties arising out of one or more contractual clauses or the contract as a whole (the general rule).
In short, it is recommended for such undertakings to take into account the following principles when concluding, amending or renewing contracts.
All contractual terms must be drafted in a clear and comprehensible manner. Moreover, the recipient must have been given the opportunity upfront to take note of the contractual terms.
Consequently, in case of doubt, the contract shall be interpreted in favour of the undertaking who is bound by the obligation. For example, if a contract term relating to damages is drafted in an unclear or incomprehensible manner, it will be interpreted in favour of the undertaking who in the event of damages has to pay the renumeration.
2.The black list
The following contractual clauses are “blacklisted”, meaning they are unlawful in any case irrespective of the specific circumstances:
- an irrevocable obligation depending solely on the will of one party;
- clauses giving a party the right to unilaterally interpret a clause of the contract;
- in the event of a dispute, clauses requiring one party to waive any remedy against the other party;
- clauses establishing the other party’s knowledge or acceptance in a irrefutable way of terms that it could not take note of, prior to the conclusion of the contract.
3.The grey list
The grey list covers contractual clauses that are presumed to be unlawful, unless proven otherwise. Such proof can, for example, be found in standard practice in a specific sector, the specific nature of the sector or product, the clause’s contribution to the balance of the contract or other accompanying circumstances.
The following clauses are presumed to be unlawful:
- clauses giving a party the unilateral right to modify the price, the characteristics or terms of the contract without a valid reason;
- clauses permitting the extension or renewal of a fixed term contract without a reasonable notice period;
- clauses binding the Parties without a reasonable notice period;
- clauses shifting the economic risks to the other party without anything in return;
- clauses inappropriately excluding or limiting the legal rights of a party in the event of a contractual breach by the other party;
- clauses excluding or limiting liability in the event of fraud, gross negligence or the non-performance of essential obligations that are the subject of the contract;
- clauses limiting the means of evidence that a party is allowed to use;
- clauses providing for excessive damages in the event of non-performance or delay in the performance.
4.A last check: the general rule
Lastly, a clause is unlawful if a clear imbalance between the rights and obligations of the parties arises out of this clause, on its own or in conjunction with one or more other clauses. Such imbalance can, however, not exist in the unfairness of the object of the contractor its price. It must concern a legal imbalance, for example an exaggerated shift in how much risk one of the parties has to bear compared to the other(s).
Multiple criteria have to be taken into account when assessing the (im)balance of the clauses:all circumstances surrounding the conclusion of the contract, the nature of the products, commercial practices, the general economy of the contract, the clear and comprehensible meaning of a clause and the cohesion of the contract.
Unlawful contract terms can be declared null and void by the court, irrespective of the ground (black list, grey list or general rule) and can give rise to an injunction order (‘stakingsvordering’).
If the contract can survive without the unlawful contract term, the contract remains binding between the undertakings. Only when the contract cannot exist without the unlawful contract term, the entire contract can be declared null and void by the court.
However, breaches of the transparency rule can only give rise to interpretation in favour of the undertaking who is bound by the obligation.
To preserve the certainty about the content of newly concluded, renewed and amended contracts, businesses are compelled to pay attention to these upcoming changes. Not only will they have to update their standard contract terms, they will need to watch out for the unlawfulness of specific clauses or the contract as a whole during negotiations.
EY Law can provide support with questions or uncertainties. EY Law consists of specialized contract lawyers who can assist your business to perform the above checks. Feel free to contact us as we can help you in becoming compliant to the new legislation.
Furthermore, EY Law can assist its clients in speeding up the review of a huge volume of contracts with respect to specific clauses through the use of Artificial Intelligence. For more information about this subject, please read: COVID-19 – EY Law uses Artificial Intelligence to speed up urgent contract reviews, https://www.eylaw.be/2020/03/18/covid-19-ey-law-uses-artificial-intelligence-to-speed-up-urgent-contract-reviews/.