On 1 July 2022, the laws of 28 April 2022 containing book 1 “General provisions” and book 5 “Obligations” of the (new) Civil Code were published in the Belgian Official Gazette. The provisions of the new Belgian law on obligations will enter into force on 1 January 2023.
1. Impact of the new contract law on public tenders
A public tender is a contract for pecuniary interest concluded between one or more economic operators and one or more (public) contracting authorities and has as its object the execution of works, the supply of products or the provision of services (Art. 2, 17° Public Procurement Act 2016).
Although a tender is largely governed by the special public procurement law, ordinary contract law (lex generalis) remains applicable insofar as it has not been derogated from by the special public procurement law (lex specialis).
In addition, common contract law remains relevant in the relations between the contractor and third parties. An example is the contractor of a public tender who has to order materials from a third party.
2. Main innovations
2.1. Introduction
In general, the “new” contract law is largely a (re)codification of the current (and soon “old”) law as interpreted by legal scholarship and case law. Therefore, the legislator’s main objective was not innovation but improvement of the accessibility of contract law.
The increased accessibility of Belgian contract law immediately leads to more legal certainty (old points of contention are settled), simplicity (educational structure and coherence) and modernisation (by innovating in some areas through comparative law).
This last point, modernisation through innovation, is what we wish to discuss briefly in this blog post. It is followed by a synthetic overview of some novelties that may be relevant for practice.
2.2. Pre-contractual negotiations and liability
Article 5.15 of the (new) Civil Code confirms that the parties are free to start, conduct and end pre-contractual negotiations.
In doing so, the parties must provide each other during pre-contractual negotiations with the information that the law, good faith and common practice, in light of the parties’ capacity, their reasonable expectations and the object of the contract, require them to provide (Article 5.16 Civil Code).
The parties may incur non-contractual liability towards each other during the pre-contractual negotiations (Article 5.17 Civil Code). Interesting and new in this respect are the sanctions that are now provided for by law:
⦁ In the event of the wrongful termination of negotiations, this liability entails that the injured person is put back in the situation in which he would have found himself if no negotiations had taken place.
⦁ Where a legitimate expectation has been aroused that the contract would be concluded without any doubt, this liability may include restoration of the loss of the expected net benefits from the non-negotiated contract.
⦁ The breach of a duty of information may lead not only to the pre-contractual liability but also to the nullity of the contract if there has been fraud, mistake, violence or abuse of circumstances
2.3. Abuse of circumstances
Under the current (old) law, the Court of Cassation accepted, although in principle simple disadvantage is no ground for nullity, that qualified disadvantage can be sanctioned when a contracting party abuses the inferiority of the other party in order to convince him to enter into a disadvantageous contract. However, the Belgian Court failed to determine which sanction is applicable in such a case.
Article 5.37 Civil Code now provides that there is an abuse of circumstances when, at the time of the conclusion of the contract, there is an apparent imbalance between the performances as a result of the abuse by one party of circumstances related to the weak position of the other party. In this case, the weaker party can claim (1) the adjustment of its obligations by the court and, (2) if the abuse is decisive, relative nullity (see more extensively: N. Van Damme, “Misbruik van omstandigheden” in Artikelsgewijze commentaar met overzicht van rechtspraak en rechtsleer. Verbintenissenrecht, Mechelen, Kluwer, to be published).
In this context, it is not inconceivable that, in a period of high inflation such as we are experiencing today, the economic dependence of a contractor or contracting party is abused in order to force him to conclude unbalanced contracts with suppliers. However, invoking the prohibition of abusing the economic dependency in which a company finds itself was already possible recently via new article IV.2/1 Econmic Law Code.
2.4. Change of circumstances (hardship)
The most important and very welcome innovation in contract law is undoubtedly the introduction of the imprevision (hardship) doctrine into Belgian law. Until now, the Court of Cassation had consistently refused to apply the imprevision doctrine, according to which contracts must be amended or renegotiated if new circumstances have arisen since the conclusion of the contract which would make the performance of the contract unreasonable. As is well known, Belgian public procurement law already explicitly provides for the application of the hardship doctrine: see articles 38/9 and 38/10 of the Royal Decree Execution 2013, which, under certain conditions, allow for a revision of the contract when the contractual balance of the contract is disrupted to the detriment (cf. article 38/9) or to the advantage (cf. article 38/10) of the contractor, for whatever reason beyond the control of the contracting authority.
Although disputed, we believe that the hardship doctrine could already be applied, at least in part, under the old Civil Code via the doctrine of the prohibition of abuse of rights and the commandment to perform contracts in good faith (N. Van Damme and N. Carette, “Actuele ontwikkelingen inzake woninghuur en handelshuur (2016-2020)” in Themis. Bijzondere overeenkomsten, Bruges, Die Keure, 2020, pp. 165-166, nos. 40-41).
In any case, article 5.74 Civil Code now explicitly provides for the possibility for the debtor to ask the creditor to renegotiate the contract in the event of a change of circumstances if the following conditions are met:
⦁ a change in circumstances makes the performance of the contract excessively onerous, to such an extent that its performance can no longer reasonably be required;
⦁ that change was unforeseeable at the time of conclusion of the contract
⦁ that change is unaccountable to the debtor within the meaning of Article 5.225 of the Civil Code;
⦁ the debtor has not assumed this risk;
⦁ neither the law nor the contract excluded this possibility.
The new law explicitly stipulates that, during the renegotiations, the parties continue to fulfil their obligations.
However, as is clear from the text of the new law, it is still possible contractually to exclude this renegotiation obligation. Therefore, one will have to make sure that such a clause is not present if one wants to make use of this renegotiation right afterwards.
If this possibility of renegotiation is not contractually excluded, but the renegotiations are rejected or fail within a reasonable period of time, the judge may, at the request of one of the parties, either amend the contract to bring it into line with what the parties would reasonably have agreed upon at the time of the conclusion of the contract if they had taken into account the change of circumstances, or terminate the contract wholly or partially on a date which may not precede the change of circumstances and in accordance with the detailed rules established by the judge.
2.5. Exoneration clauses
Since 1959, it has been assumed that liability-exempting clauses (so-called “exoneration clauses”) are valid even for gross negligence on the part of the debtor. A debtor can never be discharged for intentional negligence (fraud, cf. article 1.11 Civil Code). It was also assumed that the debtor could discharge himself from liability for gross and intentional negligence of his auxiliary persons (e.g. subcontractors).
In the B2C-context, however, the latter was no longer possible. Article VI.83,13° Economic Law Code prohibits a business from excluding its liability for its intentional or grossly negligent acts or omissions or those of its auxiliary persons (e.g. subcontractors). Recently, this prohibition was extended to B2B relations (Article VI.91/5 WER).
New article 5.89 Civil Code provides that exoneration is prohibited for intentionnal negligence of the debtor and his auxiliary persons. Exoneration for gross negligence of the debtor or his auxiliary persons remains possible, however, insofar as one is not in a B2C or B2B context.
In addition, Article 5.89 Civil Code provides that an exoneration clause is no longer valid if it releases the debtor from his own negligence or that of a person for whom he is responsible if that fault prejudices the life or physical integrity of a person.
2.6. Price reduction
Also new in the Civil Code is the right to a price reduction as a sanction for the debtor’s (partial) non-performance of an obligation (Article 5.97 Civil Code).
In the event of a non-performance that is insufficiently serious to justify dissolution, the creditor can claim a price reduction in court. The price reduction can also be implemented by a written notification from the creditor, stating the reason for the reduction. The price reduction is proportionate to the difference, at the time of the conclusion of the contract, between the value of the performance received and the value of the performance agreed upon. The creditor who obtains the price reduction may not claim compensation for the difference in value. He may, however, claim compensation for any other loss.
2.7. Extrajudicial dissolution
Relatively new is also the possibility of unilateral extrajudicial dissolution of the contract. The Court of Cassation acknowledged in a judgment of 23 May 2019 that a creditor can, under certain circumstances, dissolve a contract out of court. Ex post control by a court is, of course, always possible.
Article 5.90 of the Civil Code now provides that the reciprocal contract can be dissolved if the debtor’s non-performance is sufficiently serious or if the parties have agreed that it justifies the dissolution. In exceptional circumstances the contract can also be dissolved if it is clear that the debtor, after having been warned to provide sufficient guarantees for the proper performance of his obligations within a reasonable period of time, will not fulfil his obligations on time and that the consequences of this non-performance are sufficiently serious for the creditor.
2.8. Effectiveness test in case of nullity
Finally, the legislator clarifies in Section 5.57 Civil Code that voidable contracts (due to a disregard of a rule prescribed on penalty of nullity or a mandatory rule of law or a rule of public policy) nevertheless remain valid in the cases determined by law or if it appears from the circumstances that the nullity sanction would be manifestly inappropriate, considering the purpose of the violated rule.
In other words, when nullity is no longer suitable to achieve the ratio legis of the violated rule, nullity is inappropriate as a sanction. Another form of reparation will have to be sought.
A classic example is that of real estate built and sold without a permit. The sale is actually voidable because it is contrary to the mandatory rule that a valid permit must first be obtained. However, nullity is inappropriate in this case to achieve the purpose of the permit requirement. The building is there. The situation must be regularised. It is then the intention to apply for regularisation first, before claiming nullity (see B. Tilleman, S. De Rey, N. Debruyne, T. Gladinez, N. Van Damme et F. Van den Abeele, “Overzicht van rechtspraak : aanneming (2006-2021)”, T.P.R., 2022).
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Our firm continues to closely monitor new developments in contract law and other areas of civil and business law and is, of course, always available to answer any questions you may have.