Be aware! As of 1 December 2020 new rules on unfair contract terms in B2B relationships
The prohibition of unfair terms has been in place for a long time with regards to contracts concluded between professionals and consumers (B2C). For many years, the European and national legislators have made it a point of honor to protect the consumer in its relations with businesses, considering him to be the weaker party to the contract.
Such an imbalance may also exist in business-to-business (B2B) relations, in particular when, because of an unequal balance of power, an SME has clauses imposed on it by a large company, which it would not have accepted if it had been able to negotiate freely. In order to counter these potential imbalances, it appeared necessary to provide for the same type of prohibition in economic relations between professionals.
By the Act of 4 April 2019, i.e. more than twenty-five years after the adoption of Directive 93/13/EC prohibiting unfair terms in consumer contracts, the Belgian legislator has decided to extend this prohibition to relations between businesses. These provisions have been incorporated into the Belgian Code of Economic Law (CEL) and entered into force on 1 December 2020. This will undoubtedly have a considerable impact on the negotiation of future commercial contracts, but also in view of the extension or renewal of existing contracts.
The adoption of these provisions will allow for greater fairness and balance in relations between businesses. In this article, we will give an overview of what an unfair term is and inform you about ways to handle these changes.
Which terms are considered “unfair” ?
- Manifest imbalance
The CEL defines unfair terms as any term that creates a manifest imbalance between the rights and obligations of the parties, whether or not it is combined with one or more other terms.
These provisions apply irrespective of the size of the companies involved.
The use of the term "manifest" implies that the control carried out by the judge is only marginal; it being understood that, for a term to be considered unfair, the imbalance it causes must appear clearly and without the need for extended discussion.
The assessment of the unfairness of a term is always a question of fact and should be carried out by taking into account the nature of the products which are the object of the contract and by referring, at the time of conclusion of the contract, to all the circumstances surrounding its conclusion, to the general scheme of the contract, to the commercial usages and to the quality of the drafting of the contract, which must be clear and comprehensible.
We also point out that, in assessing the unfairness of a term, all other terms of the contract or of any contract deriving from it shall be taken into account, which is of significant importance.
The law lists four terms which are in any event considered unfair (black list) and eight terms which are presumed to be unfair until proven otherwise (grey list).
- A black list
Article VI 91/4 of the CEL lists the provisions that will always be considered unfair and will therefore always be prohibited. These are the provisions which have the following as their object :
- create an irrevocable obligation for the other party while the performance of the company’s obligations is subject to a condition depending for its realization solely on its will ;
- give the company the unilateral right to interpret any term in the contract;
- in the event of a dispute, oblige the other party to waive any remedy against the company;
- irrefutably establish the other party's knowledge or acceptance of terms that party had not been able to become acquainted with prior to the formation of the contract.
- A grey list
Article VI 94/5 of the CEL lists the terms presumed unfair until proven otherwise, and provided that the term has not been negotiated by the parties and incorporated into the contract in full knowledge. These are terms which have as purpose to :
- give the company the right to unilaterally modify, without a valid reason, the price, characteristics or terms of the contract;
- tacitly extend or renew a fixed-term contract, without providing a reasonable notice period;
- place, without counter-performance, the economic risk on a party if that risk would normally be supported by the other company or by another party to the contract;
- inappropriately exclude or limit the legal rights of one party in the event of total or shared non-performance or defective performance by the other company of any of its contractual obligations;
- without prejudice to article 1184 of the Civil Code, bind the parties without providing a reasonable notice period;
- discharge the company from its liability for its willful misconduct, its gross negligence or that of its employees or, except in cases of force majeure, for the non-performance of essential obligations that are the subject matter of the contract;
- limit the means of evidence that the other party may rely on; or
- in the event of non-performance or delay in the performance of the other party's obligations, fix damages amounts that are manifestly disproportionate to the harm that may be suffered by the business.
In this case, the unfairness of the provision must be assessed by taking into account the concrete and particular circumstances of the contract.
Of course, depending on the circumstances, other terms may also be considered unfair terms, provided that they create a manifest imbalance between the rights and obligations of the parties.
All unfair terms are prohibited and therefore null and void. If a judge finds that there is a term in a contract that he considers to be unfair, that term will be annulled. However, the contract remains valid and binding on all parties if it can subsist without this provision.
It should be noted that the nullity is relative; i.e. that the injured party may waive its right to rely on it once the dispute has arisen.
Finally, we point out that the prohibition of unfair terms does not apply to financial services or public procurement contracts.
- How to deal with these new rules?
The prohibition of unfair terms in B2B relations came into force on 1 December 2020. These provisions do not apply to current contracts, but only to contracts concluded, renewed or modified as from that date.
It is therefore of paramount importance for each company to take these rules into account in the context of any commercial relationship it intends to enter into from that date and to adapt its negotiation process accordingly. Each company should also review its current contracts and general terms and conditions which it intends to amend or renew.
As the fairness of a term is assessed by taking into account all the circumstances surrounding the conclusion of the contract, we stress the fact that a term might be considered fair in one contract, while the exact same term might be considered unfair in another contract. It is therefore of significant importance to carry out such an assessment for every contract to be entered into in order to avoid that some terms that were important for you could be declared null and void.
Our team of commercial law specialists is at your disposal to advise and assist you in the negotiation, drafting or revision of your contracts and other commercial terms.
Do not hesitate to contact us.