Whose general terms and conditions prevail? Introduction of the knock-out rule in Belgium

Commercial contracts are more than often governed by general terms and conditions of one or more of the contracting parties. A problem arises when two parties make reference to their own standard general terms and conditions. As these often contain conflicting provisions, the question arises whose general terms and conditions shall apply.

This problem is often referred to as the battle of forms. Belgian case law has long been divided on how to approach such situations. With the current reform of the Belgian law of obligations, lawmakers have chosen to implement the knock-out rule to solve the uncertainty.

The battle of forms

A party’s general terms and conditions apply when the other party has effectively taken note of them or has at least had the opportunity to take note of them. Additionally, that party must have accepted the terms and conditions either explicitly or implicitly. Not protesting against general terms and conditions upon their receival can be considered as an implicit acceptance if, in light of the circumstances, the lack of protest cannot be interpreted differently than as an acceptance of the general terms and conditions.

In many commercial relationships, the terms and conditions of two or more contracting parties apply. If these contain conflicting provisions, parties find themselves in a battle of forms. Each party generally wants their own terms and conditions to apply. When all goes south, whose terms and conditions will prevail?

The new civil code will include the general principles that need to be applied in case of a battle of forms. This makes it easier for parties to anticipate what will happen if they were to find themselves in such a situation and, more importantly, to prevent it from happening.

1) Negotiated provisions prevail

In the event of a battle of forms, the first question parties should ask themselves is whether any of the applicable provisions is the result of negotiations. Negotiated provisions prevail over standard terms and conditions, as they are a representation of the parties’ choices.

This principle originates from the prevailing case law of the Court of Cassation and has now been included in article 5.23 of the new civil code. This encourages parties to enter into negotiations, rather than to apply (often unilateral) standardized terms and conditions.

2) The knock-out rule

Only if the abovementioned does not solve the conflict (e.g. all the parties’ standard general terms and conditions apply), the knock-out rule determines which provisions will be part of the contractual relationship between the parties.

The agreement is concluded between the parties, even if they have referred to different general terms and conditions. Their contractual relationship is governed by all applicable general terms and conditions of the parties, with the exception of the conflicting provisions.

Conflicting provisions are provisions of a party’s general terms and conditions that are incompatible with another party’s general terms and conditions. All conflicting provisions are knocked out, which means that they are automatically rejected and do not apply to that contractual relationship. The provisions that are knocked out are automatically replaced with supplementary law.

This means that an agreement can be concluded without consensus of the parties on some or all of the general terms and conditions, because they are regarded as being ancillary to the rest of the agreement. Only the provisions of the parties’ general terms and conditions that do not conflict with one another are part of their agreement.

Parties wishing to exclude the knock-out rule or the ancillary nature of the general terms and conditions can issue an express statement that no agreement is concluded in case of incompatible general terms and conditions. Such statement cannot be made in the general terms and conditions. It needs to be an explicit statement, either before conclusion of the agreement or without undue delay after receiving the acceptance of the offer. If such a statement has been made, the parties will not have concluded a contract if their general terms and conditions are not compatible with one another.

Entry into force

These rules will apply when the law containing a new book V “Obligations” enters into force, which is on the first day of the sixth month after its publication. As the new law is expected to be published any time from now, we are closely monitoring the situation.