As of December 1, 2020 there is a new list of prohibited clauses in B2B contracts. Are your contracts in order?
Since the 1930s, the consumer, as a legally weaker co-contractor, has benefited from more and more protection (See Consumer Law – Book VI of the Code of Economic Law (RCE)).
Compared to the protection that consumers have long enjoyed under economic law, Belgian law offered much less protection in a B2B context. Therefore, small entrepreneurs/enterprises were often in a weak position similar to that of their larger customers/suppliers as consumers.
In recent years, this concern has led to the idea that an extension of the protection of an economically weaker party, by analogy with consumer law, would also be desirable in a B2B context.
The law of April 4th 2019 and the prohibited clauses
An important step in this evolution was taken with the law of April 4th 2019 “amending the Code of Economic Law with regard to abuse of economic dependence, unfair terms and unfair commercial practices between companies”.
With this, the Belgian legislator has regulated certain practices in order to offer better protection to small businesses against economically more powerful players, in an attempt to balance the imbalance that can also exist in a B2B relationship.
Two parts of this law are already in force. For example, on September 1st 2019, a first part on “unfair business-to-business commercial practices” entered into force and on June 1, 2020 a second part on the prohibition of “abuse of the position of economic dependence”.
The third part, namely a regulation on “unlawful clauses” in a B2B context, i.e. a list of prohibited clauses in B2B contracts, being the last but perhaps the most extensive, has entered into effective on December 1st 2020.
We present below the main guidelines of this last part, thanks to which you can test whether your contracts and general conditions contain illegal clauses.
Where until now such provisions only applied to contracts concluded with consumers (B2C), with this new regulation, the Belgian legislator is hampering contractual freedom between companies. With this arrangement, the Belgian legislator wants to somewhat alleviate the sometimes manifest economic inequality between companies and create fairer conditions of competition.
Application fields of prohibited clauses in B2B contracts
These rules about prohibited clauses in B2B contracts will apply to all business-to-business (B2B) agreements, regardless of the size of the businesses involved. Agreements relating to financial services and public procurement are excluded from the scope of this law. Agreements with directors, company directors and other company representatives also fall outside the scope of the new law.
The rules will automatically apply to all agreements entered into, renewed or amended after 1 December 2020. Agreements that already existed before then cannot (as long as they have not been renewed or amended) be called into question by under the new rules of tort law stipulated.
As a touchstone to know whether or not a provision should be considered “illegal” or “prohibited”, the legislator has chosen (by analogy with consumer protection) to work with a blacklist, in addition to a gray list, as well as a general open standard list. While the blacklist in the B2C context contains no less than 33 prohibited clauses, in the B2B relationship a list with only 4 ‘prohibited clauses’ is included.
These include clauses having the effect of:
- provide for an irrevocable commitment by the other party while the performance of the company’s service is subject to a condition whose fulfillment depends on its sole will;
- give the company the unilateral right to interpret any term of the contract;
- in the event of a dispute, have the other party waive any recourse against the Company;
- or to establish in an irrefutable manner the knowledge or acceptance of the other party to clauses which it could not have actually become aware of before the conclusion of the contract.
In addition, the new law also introduces a so-called gray list in which are included 8 clauses presumed illegal, unless proven otherwise. This list contains the clauses to the effect:
- granting the company the right to unilaterally modify the price, the characteristics or the conditions of the contract without valid reason;
- grant the company the right to unilaterally modify the price, characteristics or conditions of the contract without valid reason;
- to tacitly extend or renew a fixed-term contract, without reasonable notice;
- to transfer, without consideration, the economic risk to one party if it normally falls to the other company or to another party to the contract;
- exclude or unduly limit the legal rights of a party in the event of the total or partial failure or failure of the other company to perform any of its contractual obligations;
- without prejudice to Article 1184 of the Civil Code, bind the parties without reasonable notice;
- release the company from its liability due to its intention, its gross negligence or that of its employees or, except in cases of force majeure, the non-performance of the essential obligations covered by the contract;
- limit the means of proof on which the other party can rely;
- or in the event of non-performance or delay in the performance of the obligations of the other party, set amounts of damages manifestly disproportionate to the damage that may be suffered by the company.
The company can reverse the presumption of illegality of the clauses of this gray list on the basis of the concrete circumstances and the characteristics of the contract. In other words, these clauses are not prohibited by a strict argument.
Would you like to include a gray clause? In this case, it is better to provide a justification in the agreement itself, in which it is specified why this clause is balanced in the whole of the mutual agreements between the parties and/or in the specific context.
Or they state in writing during the negotiations why a certain clause is desired and has been agreed in this way.
Finally, there is also a general open standard that any contract term that creates a “manifest imbalance” between the rights and obligations of the parties is unlawful.
The essential clauses, being clauses which determine the essence of the execution of an agreement and as such characterize this agreement, are excluded from the new regulations, so that contractual freedom can continue to play fully here. This concerns, for example, the articles of a purchase contract in which the goods sold and the price or compensation are determined.
Any illegal clause is prohibited and therefore null and void. In principle, this nullity is limited to the illegal clause itself and does not extend to the entire contract. Unless the agreement can survive without the tort clause, it therefore remains binding on the parties.
Attention: The provisions of the general conditions or the “fine print” which form part of an agreement within the framework of a B2B relationship can also be considered as “conditions” to which the new law applies.
Assessment and testing
The new legal provisions give companies an additional weapon to challenge unbalanced contractual clauses. The impact of these new regulations is still uncertain. Much will undoubtedly depend on how courts and tribunals interpret these legal provisions (restrictively or broadly) and apply them (reluctantly or with conviction).
Insofar as this has not yet happened, companies would do well to carefully check their terms and conditions and contract conditions and adapt them if necessary. It is best to remove clauses that fall under the blacklist. They will need to be able to justify terms that would fall under the gray list or general standard, so consideration will also need to be given to whether they want to keep them in their current form.
If your contracts or general conditions contain one or more of the following stipulations, it would be good to examine them carefully:
- a clause in which a large sum is provided as compensation for non-compliance with a customer obligation, such as, for example, a compensation clause in the event of late payment of an invoice;
- (penalty clause) a clause in your contracts stipulating that changes to the contract can only be proven by a document signed by you;
- (proof clause) a clause which provides for a very long tacit extension of the contract (for example 5 or 10 years) without giving your client the possibility of terminating before the end of this fixed term, will also become a dead letter;
- (tacit renewal clause) a stipulation in your general conditions that a quote signed by the customer is binding on the customer, but that a quote signed by the customer is only binding after your approval or after an order confirmation;
- (agreement clause) a clause stipulating that any dispute must be submitted to an arbitrator/arbitral tribunal, whereas this arbitration is extremely costly in relation to the limited effort and indirectly aims to discourage the client from initiating proceedings;
- (arbitration clause) a clause stipulating that the customer must submit disputes to the court of your place of residence/head office, whereas this is unreasonable given the nature of the dispute;
- (jurisdiction clause) a clause that allows you to terminate the contract in the event of certain, even minimal, non-performance by the customer, for example if the customer pays 1 or 2 days late;
- (express termination clause), a clause limiting your liability in the event of an error, for example to a certain amount or the amount of your insurance cover or excluding your liability for consequential damages;
- (Exemption Clause) a clause in a subcontract stipulating – without consideration – that the subcontractor will only be paid if and when the main contractor is paid and whereby the economic risk of non-payment of the ‘main contractor (and insolvency of the customer) is therefore transferred to the subcontractor has posed.