New rules on unfair terms in B2B agreements
The Law of 4 April 2019 introduced new mandatory rules that intend to procure that the key terms of contracts between undertakings are fair and not abusive (the “B2B Fair Contract Rules”). Under the rules, unfair terms will be deemed to be null and void and thus unenforceable.
As explained in our previous newsflash, the B2B Fair Contract Rules (art. VI.91/2 – et seq. of the Code of Economic Law) have a great impact on this type of business agreements.
The ratio legis for the new rules was to improve the bargaining power of small companies against large companies in vertical relations. After various amendments, the ratio legis was never implemented in the actual text of legislative provisions, and the scope of protection of these rules was ultimately not limited in this sense. The new rules apply to all undertakings, regardless of their nature or size.
These new rules apply to agreements (including terms and conditions) entered into, renewed or adapted after 1 December 2020. They do not apply to existing agreements (to the extent that they are not renewed or modified after 1 December 2020).
As there is currently little to no case law on the interpretation of these new rules, there is legal uncertainty about their impact on business agreements and general terms and conditions. This newsflash includes a set of guidelines for drafting and/or reviewing your general terms and conditions.
Impact of the new rules on terms and conditions
The B2B Fair Contract Rules also apply to general terms and conditions exchanged between undertakings. In most of the cases, the general terms and conditions are not negotiated between parties and are drafted to the advantage of the undertaking that drew up the general terms and conditions. Therefore, the general terms and conditions are often imbalanced and have a higher risk of breaching the new rules on unfair terms in B2B agreements.
1. Transparency rule
All contractual terms of an agreement and general terms and conditions should be drafted in a clear and understandable manner.
The parliamentary works specify that the transparency rule is also linked to the manner in which the contract terms were communicated or made available to the contracting party. The contract party must have had the opportunity to review all the terms of the contract before entering into the agreement. In other words, this implies that general terms and conditions only form part of a contract if (i) there was a reasonable opportunity to review these terms and conditions and (ii) they were agreed to.
For example, the mere existence of the general terms and conditions on the website of the company will in most cases not be sufficient for the other party to become aware of them. The terms and conditions must be communicated prior to the conclusion of the contract (e.g. on the order form).
2. General rule: significant imbalance between rights and obligations of contracting parties
The general rule states that each contractual term, individually or together with other terms, that creates a significant imbalance between the rights and obligations of the contracting parties, is prohibited.
This requires an assessment of the legal (im)balance of the contractual conditions and not of the economic balance. In other words, what parties agree on and at what price is a matter of the autonomous will of the parties. The so-called ‘core clauses’ (such as price and object of the agreement) are thus exempted from this assessment provided that these clauses are drafted in a clear and understandable manner.
Unlike the black and grey lists that are only applicable to specific clauses, this general rule is a catch-all clause that applies to all provisions of the contract or general terms and conditions (except for the core clauses).
A typical example of a clause that could be caught by the general rule is a clause that includes a very long payment period. From our experience, we sometimes see companies impose payment periods of 120 days and more on their suppliers. Such a clause may be considered as creating a significant imbalance in the rights of one of the parties to the contract. Furthermore, a clause that transfers the legal risk from one party to another could also be considered as breaching the catch-all clause.
When assessing the imbalance of the rights and obligations of contracting parties, the following criteria, among others, are to be taken into account:
(i) the circumstances relating to the conclusion of the agreement (e.g. lack of negotiation of the general terms and conditions);
(ii) the general economy of the contract (e.g. lack of reciprocity of important provisions);
(iii) current business practices;
(iv) all other terms in the contract or of another contract on which it depends (e.g. cumulation of other disadvantageous provisions); and
(v) the nature of the products covered by the contract.
This assessment will be done at the time when the contract is concluded or the general terms and conditions are agreed to.
The long(er) payment period in the example above may be inherent to the sector. For example, a long payment term in the construction sector will in some cases not be considered unbalanced whereas it would be in another sector. Explicitly referring to the sector you are working in can be relevant for the assessment of the clauses under the general rule.
3. Black list and grey list
The B2B Fair Contract Rules provide a black list of clauses that are in any case unlawful and therefore strictly forbidden:
(i) clauses that foresee an irrevocable obligation for one party whereas the performance of the other party is subject to conditions the realisation of which is exclusively dependent on the latter’s will (see example in paragraph below);
(ii) clauses containing a unilateral interpretation right;
(iii) clauses containing a waiver of any recourse in the case of a dispute; and
(iv) irrefutable knowledge or acceptance clauses.
A clause that is often found in general terms and conditions is the clause stating that orders made via the company representatives shall not be considered binding unless accepted and confirmed by the company. This clause is considered to be a potestative clause and is blacklisted as the acceptance of the order is exclusively dependent on the latter’s will, whereas the other contracting party is already bound. A mere offer to enter into an agreement made by one party to another party is, however, not prohibited.
Also clauses excluding any means to bring a contractual issue to court will be regarded unlawful. Be aware that a clause is only unlawful if it excludes any means of redress. Although the parliamentary works state that an arbitration clause should be considered a black clause, legal scholars generally agree that an arbitration procedure provides sufficient guarantees that the right to a fair trial continues to be secured.
Given the severe consequences (null and void), special attention needs to be paid to these blacklisted clauses when drafting or reviewing general terms and conditions.
The grey list contains clauses that are presumed to be unlawful unless the contrary is proven:
(i) clauses containing a unilateral modification right;
(ii) clauses containing a tacit renewal without reasonable notice period;
(iii) clauses reversing the economic risk;
(iv) clauses that inappropriately limit the rights in the case of a breach of contract;
(v) clauses containing an unreasonable notice period;
(vi) clauses containing a waiver of liability for gross negligence, willful misconduct or non-performance of essential obligations that are the subject matter of the contract;
(vii) clauses limiting the means of evidence; and
(viii) excessive penalty clauses.
A typical example of a greylisted clause that is often included in general terms and conditions is a clause allowing a unilateral change in delivery conditions, amounts, etc. Such clauses are not presumed to be unlawful provided that the change is based on a valid reason. A purely arbitrary or discretionary unilateral amendment is therefore not allowed. There must be some objective justification for the unilateral change. We recommend explicitly mentioning in the general terms and conditions the objective reasons that the parties in any case consider a valid reason for a unilateral change.
Another clause that is often used is the provision stating that late delivery of products never gives the other contract party the right to terminate the contract or to claim damages. Based on the B2B Fair Contract Rules, this provision may be considered a clause that inappropriately limits the rights in the case of non-performance or defective performance by the other party of any of its contractual obligations.
Unlawful terms are prohibited and considered null and void (article VI.91/6 of the Code of Economic Law). The agreement itself will remain binding for the contracting parties, provided that it can continue to exist without the unfair clause.
Initiating cease-and-desist proceedings or damage claims is also possible.
- Review your B2B terms and conditions based on these new rules to avoid clauses being challenged and declared null and void in court.
- Include new standard sections/boilerplate clauses in your general terms and conditions and agreements to translate the new requirements of the B2B law.
- Be attentive when entering into new agreements or when renewing/amending existing agreements.
- As always, be as clear and precise as possible when drafting agreements.
If you want to know more about the new B2B Fair Contract Rules, you can read our previous post on this topic or contact us.