Many agreements impose a termination indemnity when the customer withdraws from the agreement (for convenience) (“beding voor opzegvergoeding” – “clause d’indemnité de résiliation”). Equally often, these termination indemnities are contested by customers when they ‘allegedly’ become due.
Same was true in a case that was recently decided by a Belgian Court of First Instance (Rb. Oost-Vlaanderen (afd. Dendermonde) 5 may 2023, RW 2023, 156).
In the case at hand, an agreement was concluded between a professional and a consumer. A quote was prepared and accepted and the general terms and conditions contained the following clause:
“Termination of the agreement [for convenience] will give rise to a lump sum indemnity equal to 30% of the total fees.”
Since the general terms and conditions had been accepted by the customer, the lump sum indemnity would in principle become due. However, the court rightfully asserted that the ‘unfair contractual terms’ act for consumer contracts should be examined.
Several specific blacklist prohibitions in consumer contracts for unfair indemnities are available, e.g. a provision is unfair when (artt. VI.83,17° and 24° of the Code of Economic Law):
“it imposes a lump sum indemnity on a consumer who fails to fulfil its obligation, without providing for the consumer to receive an equal indemnity where the company fails to fulfill its obligations”
“Indemnities are imposed in the event of non-performance or delay in the performance of the consumer’s obligations that are clearly disproportionate to the prejudice that may be suffered by the company”
However, these blacklisted prohibitions can only be applied in case of non-performance or delay in performance by the customer, not the termination for convenience. In light hereof, the court refers to the general prohibition for unfair clauses, to be applied when no blacklist prohibition is applicable, i.e. an unfair provision is (art. I.8,22° of the Code of Economic Law):
“any provision or any condition in a contract between a business and a consumer which, by itself or in combination with one or more other clauses or conditions, creates a manifest imbalance between the rights and obligations of the parties to the detriment of the consumer”
Subsequently, the court decided that there was a manifest imbalance between the rights and obligations of the parties (and the unfair clause was null and void), since the termination indemnity was:
- not reciprocal – which based on the available information does not seem to be supported by the actual clause that does not mention which party withdraws from the contract; and
- manifestly excessive in the present case since the services had not started yet and no materials were ordered.
In subsidiary order, the company claimed compensation under general contract law stating that a customer can unilaterally terminate the agreement with a fixed term/object insofar as the provider is compensated for costs, labour and potential gains (art. 1794 Civil Code). Notwithstanding – and in line with established case law of the ECJ – the court decided that in order to guarantee the deterrent effect of the Directive on unfair terms in consumer contracts (art. 6 of Directive 93/13/EEC), the court cannot mitigate the unfair term or substitute it for a general contract law provision.
Takeaway 1: A company cannot claim a termination indemnity (termination for convenience) from a consumer when this indemnity is not reciprocal and/or excessive. Neither can the company claim compensation based on general contract law in light of the deterrent effect of the Directive on unfair terms.
Takeaway 2: Insofar as the court (intentionally) based the unfair character of the non-reciprocal/excessive indemnity on the general prohibition of unfair clauses in consumer contracts (when no blacklist prohibition would apply), the question could be raised to what extent this decision could have an impact in a B2B context, where a similar general prohibition on unfair contractual terms exists between companies.
Takeaway 3: In order to avoid unfair terms in B2C or B2B contracts, which will be considered null and void, companies are encouraged to examine the contractual terms and general terms and conditions carefully.
Please do not hesitate to contact EY Law if you would have any questions on the validity of your commercial agreement/general terms and conditions and would like to evaluate the terms from a risk management perspective.