How will the B2B law affect general terms and conditions?
29/10/2020

With the Law of 4 April 2019 concerning the abuse of economic dependence, unfair clauses and unfair market practices in B2B relations (the “B2B Law”), the Belgian legislator has introduced a prohibition on 'unfair clauses' in agreements between enterprises. In short, the B2B Law prohibits each clause which, individually or taken together with other clauses, creates a significant imbalance between parties’ rights and obligations. Only the 'core clauses' of an agreement escape the new rules, provided that they are intelligible and clear/transparent.

The B2B Law furthermore includes a ‘black list’ (4 clauses which are in all cases deemed to be unfair and therefore prohibited) and a ‘grey list’ (8 clauses which are presumed to be unfair but the presumption can be rebutted). We refer to the webpage New rules in B2B relationships for further general information on the B2B Law. 

The legal uncertainty created by this new B2B legislation can have an important impact on your commercial agreements. Below, we will discuss its impact on general terms and conditions.

General overview of the B2B Law's impact on general terms and conditions

Companies’ general terms and conditions will very likely be impacted by the B2B Law. The content of such terms and conditions is often not negotiated between the parties, and therefore by definition often one-sided and imbalanced.

According to the ‘general norm’ introduced by the B2B Law, each clause (except for ‘core clauses’ that include the object of the contract and pricing) that, individually or taken together with other clauses, creates a significant imbalance between the rights and obligations of the contracting parties, is prohibited. The criteria that are of particular importance to make this assessment are:

the circumstances relating to the conclusion of the agreement, e.g. the personal characteristics of the parties (expertise, negotiating power, etc.), the absence of negotiations, the importance of the agreement to the parties, etc.;
the ‘general economy’ of the agreement, e.g. an important reduction of principal obligations for one of the parties, lack of reciprocity of unilateral termination or damages clauses, etc.;
trade practices (however, the mere fact that a clause is common practice in a certain sector does not imply that such clause can never be abusive);
all other clauses in the agreement or other related agreements, e.g. a cumulation of penalty clauses, or, to the contrary, a potentially abusive clause in one agreement that is balanced by a clause in another agreement;
the nature of the products and services, e.g. a unilateral right for a party to change the price of certain goods will be more acceptable if such change depends on factors that he/she cannot control (such as weather circumstances for agricultural products), and a minimum purchase obligation will be more easily defendable if production requires specific investments; and
the (clear and comprehensible) wording of a clause, e.g. if clauses are formulated in a very broad way, this may result in obligations which were not foreseeable, which may be abusive.

Based on case law in other countries with similar B2B legislation, examples of clauses in general terms and conditions that may fall within scope of the ‘general norm’ are:

‘Favored nation clauses’, e.g. a clause that allows a booking platform to benefit from the most competitive rates on the market and to obtain significant discounts without taking any risk in return;
Clauses that transfer risks from one party to another party, e.g. a clause that makes a supplier liable for the risk of damage to the packaging of products by the customer (as this goes far beyond the supplier’s liability for hidden defects), or a clause pursuant to which the supplier of commodities, in the event of a decrease of prices, must provide a credit note to the customer corresponding to the difference between the old and the new price of the commodities that the customer has in stock;
Clauses regarding payment terms, e.g. a clause:

that includes a very short payment term for one party and a long payment term for the other party, without any justification for such different treatment; or
pursuant to which a manufacturer imposes significant price reductions on its suppliers by way of an early payment discount without any compensation for the latter (this is an excessive extra cost for suppliers compared to the cost of financing suppliers to compensate for their cash flow needs while waiting for their invoices to be paid);

Clauses that sanction a breach of contract, e.g. a clause:

that allows a purchaser to cancel and refuse an order without paying the price in the event of a small delay in delivery, and to request compensation for the loss suffered, while the penalty it incurs itself in the event of a delay due to its own fault is negligible; or
sanctioning insufficient service levels, formulated in a general and imprecise way;

Clauses that inverse the burden of proof, e.g. a presumption of conformity of delivered goods in favor of the supplier as soon as the customer has paid for the goods, while it is very difficult for the customer to verify the conformity of the goods;
Termination clauses, e.g. a clause:

providing a very short or very long termination period for one of the parties;
providing an unreasonably long tacit renewal or extension of an agreement of a definite term; or
which allows one of the parties to terminate the contract shortly after sending a registered letter, without having to prove the receipt of that letter by the other party and without the other party being able to remedy or refute the alleged breach; and

Price adjustment clauses, e.g. a clause which makes any tariff increase by the supplier subject to conditions depending on the will of the customer, while the latter may, when it observes a decrease in the price of raw materials, denounce the agreement for convenience and impose a renegotiation (or vice versa);

Some of these types of clauses are explicitly envisaged by the legislator in the ‘black list’ and ‘grey list’, which will be discussed below.

It must however be stressed that courts must act with caution when assessing the abusive character of contractual clauses and the parties’ contractual relationship. Only if a clause, or combination of clauses, creates a significant imbalance based on a case-by-case assessment, a court may find a clause to be abusive based on the ‘general norm’.

Common clauses in general terms and conditions envisaged by the"black list"

Clauses on the ‘black list’ are considered to be unfair in any event. They are therefore strictly forbidden.

1° Clauses that aim to create an irrevocable obligation for one party while the performance of the other party’s obligations is subject to a condition of which the achievement depends solely on the will of that party

General sales conditions often include clauses that stipulate that orders accepted by sales representatives are only binding after written confirmation by the company, while the customer is already irrevocably bound. A mere offer to conclude an agreement made by one party to another party is however not envisaged by this prohibition, which makes sense, as this would render the conclusion of agreements in general impossible.

2° Clauses that aim to confer on a party the right to unilaterally interpret a contractual provision

Only clauses conferring on a party the right to unilaterally interpret a contractual provision will be unlawful. Other clauses on interpretation (e.g. interpretation of a clause in favor of a certain party) remain valid. Nor does this prohibition render the determination of the subject-matter of the agreement by one party unlawful.

Nevertheless, the precise scope of this prohibition is highly uncertain. All clauses with ambiguous or unclear wording that grant certain rights to a party without reference to objective criteria may fall under the ambit of this prohibition, e.g. a service provider that has the right to ask a deposit in the event of an ‘abnormal’ high consumption. This implies that also unilateral termination rights, e.g. in the event of a ‘material’ breach, may fall within the scope of this ‘black clause’.

It is therefore strongly recommended to use clear/unambiguous wording where possible, to avoid broad and general wording when granting certain unilateral rights to a party, and to make these rights subject to objective criteria.

3° Clauses that aim, in the event of a dispute, to have a party renounce any means of recourse against the other party

This clause should be interpreted strictly and only targets contractual provisions excluding all means of recourse and/or excluding all access to justice. As a consequence, this clause has no additional value compared to the general principles that are already applicable today. The impact of this clause is therefore limited.

Note that, while the parliamentary discussions also refer to arbitration clauses as possibly being caught by this provision, it is generally accepted that arbitration is a “means of recourse” equivalent to court proceedings.

4° Clauses that aim to irrefutably establish a party’s knowledge or acceptance of terms of which that party did not have actual knowledge before the conclusion of the contract

This prohibition envisages clauses that often appear in general terms and conditions according to which a party (irrefutably) acknowledges knowledge and/or acceptance of general terms and conditions or of certain policies, annexes, etc. that contain additional obligations. Such clauses only have any value if the counterparty reasonably had the opportunity to have actual knowledge of such terms.

The burden of proof however still lies with the party that claims that it did not have actual knowledge of the relevant terms (or that it has never accepted them). Also, in B2B relationships, if general terms and conditions appear on an invoice that has not been protested by the other party, these are generally deemed to be accepted and proving the contrary may be difficult.

Common clauses in general terms and conditions envisaged by the"grey list"

The eight clauses on the ‘grey list’ are presumed to be unfair This presumption can be rebutted if it can be proven that, taking into account the circumstances and characteristics of the agreement, the clause does not create a significant imbalance between the rights and obligations of the parties, or if it is demonstrated that both parties ‘truly’ wanted the arrangement.

1° Clauses that aim to give a party the right to unilaterally modify, without a valid reason, the price, characteristics or terms of the contract

This presumption of unfairness will only apply to clauses allowing a party to unilaterally modify the contract without a valid reason. Clauses allowing a party to unilaterally determine – which is not the same as modifying – part of the agreement (“partijbeslissing”) therefore do not fall within the scope of the ‘grey clause’. Clauses regarding indexation are as such not envisaged by this presumption, but are (still) subject to the conditions set forth in article 58 of the law of 30 March 1976 on economic revitalization measures (establishing the 80% rule).

General terms and conditions often contain clauses that give a party the right to unilaterally change conditions of the agreement, e.g. price, amounts, delivery conditions, etc. If such changes can be made by a party for convenience, the clause will be presumed to be abusive.

It is therefore recommended to mention, by way of example, objective criteria or ‘valid’ reasons that gives such party the right to change certain conditions of the agreement, e.g. the right to change the price of the goods or services in the event that the price of the raw materials, taxes, prices of suppliers, etc. has increased.

Another way to avoid a clause falling under the ambit of the presumption of unfairness, is to add a precision to the effect that the counterparty is deemed to have accepted the change in the absence of any protest within a defined (reasonable) period of time.

Adding a right for the counterparty to terminate the agreement after the unilateral can also be envisaged. However, whether such addition suffices as a “balancing measure” is not clear as the Dutch and French text of the parliamentary discussions contradict each other on this point.

2° Clauses that aim to tacitly extend or renew an agreement of definite term without providing a reasonable notice period

Tacit renewal or extension clauses that do not provide a notice period or reasonable notice period to the counterparty, are presumed to be abusive.

It is common practice in Belgium that, if general terms and conditions include a tacit renewal or extension of the agreement, such renewal or extension does only take place unless a party has given a prior written notice, i.e. opposed against such renewal or extension.

It is however not clear whether the reasonable notice period should be provided before or after the tacit extension or renewal of the agreement, i.e. must a party have had the opportunity to oppose before a tacit extension or renewal, or must a party have the opportunity to terminate the extended or renewed agreement afterwards? To our knowledge, all legal scholars have rejected the second interpretation. However, the parliamentary discussions are more ambiguous on this point.

Whether a notice period is ‘reasonable’ depends on the circumstances of the specific case, e.g. nature of the goods and services, sector, etc. Both notice periods that are too long and those that are too short are presumed to be unfair.

3° Clauses that aim to place, without compensation, the economic risk on one party, where that risk is normally borne by the other party or by another party to the contract

This presumption raises a lot of questions, e.g. how to distinguish between an economic/commercial risk and legal risks, how to determine which party should normally bear a certain risk, does any compensation suffice to justify a shift of risk, or only a reasonable compensation? All these questions are left to legal scholars, practitioners and case law as neither the B2B Law nor its parliamentary discussions offer any useful guidance.

The list of clauses used in general terms and conditions that may fall within the scope of this provision is endless, e.g.:

  • stock protection clauses;
  • clauses that fix the price of goods and services depending on the future results of a party;
  • INCO-terms;
  • exoneration clauses;
  • hardship clauses;
  • minimum purchase obligations;
  • warranties; or
  • choice of law clauses, e.g. excluding the Vienna Convention on International Sale of Goods.

To minimize the risk, one may consider including a clause that stipulates that the parties acknowledge that the allocation of the (economic and legal) risks in their agreement is not done without compensation. This is however less appropriate for general terms and conditions imposed unilaterally.

4° Clauses that aim to inappropriately exclude or limit the legal rights of a party in the event of total or partial non-performance or faulty performance of the other company’s contractual obligations

After the ‘general norm’, this is the second ‘catch all’ provision in the B2B Law, and may thus apply to a wide variety of clauses that exclude or limit the rights of a party in the event of non-performance (whether faulty or not) of the agreement by the other party, e.g. the right to claim:

  • the (forced) execution of the agreement;
  • replacement/substitution;
  • reduction (e.g. of the price);
  • damages;
  • termination of the agreement;
  • hold harmless obligations or limitations of the rights against third parties;
  • suspension of the execution of the agreement; or
  • a right of retention.

General terms and conditions often also contain clauses that limit or exclude the exposure of (one of) the parties – compared to what this party would have been entitled to according to the applicable law – in the event of a non-performance of the agreement, e.g.:

  • exoneration clauses;
  • clauses regarding the limitation period;
  • ENAC-clauses;
  • netting-clauses;
  • performance clauses;
  • force-majeure/hardship clauses;
  • clauses regarding the risk of loss of the goods; or
  • clauses that reverse or increase the burden of proof or that limit the means of proof.

It is however uncertain when such clause(s) will be considered ‘inappropriate’, as this belongs to the discretionary power of the courts to make this assessment. In any event, as already mentioned, courts must act with caution when assessing the abusive character of contractual clauses, taking into account the specific circumstances of each case, e.g. the nature and importance of the non-performed obligation, the importance of the non-performance itself, the faulty character of the non-performance, etc.

In general, it can be expected that, the more the rights of a party are limited by one or more clauses in general terms and conditions, the more likely it will be that this/these clause(s) will be presumed to be abusive.

5° Clauses that aim, without prejudice to Article 1184 of the Belgian Civil Code, to bind the parties without providing a reasonable notice period

If this clause is interpreted literally, each agreement that does not provide for a ‘reasonable’ notice period, will be presumed to be unfair, without distinction between agreements concluded for an indefinite term and agreements of a definite term.

While, as a general principle of Belgian law, agreements concluded for an indefinite term can always be terminated by giving a reasonable notice period, the obligation to provide such notice period in an agreement concluded for a definite term, would imply a (heavily criticized) change to a well established principle of Belgian contract law. Such obligation would render it impossible to conclude agreements for a fixed (minimum) term.

Therefore, two alternative interpretations are suggested:

  • Most scholars suggest that this clause only applies to agreements of an indefinite term;
  • Other scholars suggest that this clause applies to both contracts of indefinite and definite term, but that only if the parties stipulate a notice period, this period must be reasonable.

All in all, even if the presumption must be interpreted in the broadest sense, in many cases there will be good arguments of a commercial and economic nature that justify that the parties need certainty about the (definite) term of their agreement, which allow the presumption of unfairness to be rebutted.

Whether a notice period is ‘reasonable’ depends on the circumstances of the specific case, e.g. nature of the goods and services, sector, etc. Both notice periods that are too long and those that are too short are presumed to be unfair.

6° Clauses that aim to discharge a party from its liability for its willful misconduct, its gross negligence or that of its representatives (“aangestelden” / “préposés”) or, except in case of force majeure, for the non-performance of essential obligations that are the subject matter of the contract

First of all, this presumption only envisages exclusions of liability, and not mere limitations. The prohibition of exoneration of liability for willful misconduct is already known under Belgian civil law. The ‘grey clause’ adds gross negligence to this prohibition.

Contrary to the general rules of Belgian civil law, the presumption also envisages clauses that exclude a party’s liability for willful misconduct/gross negligence of its representatives. A representative is every person that executes its activities under the (factual) authority of another party. Proxies or independent contractors are thus not envisaged. Finally, like in civil law, the prohibition also envisages exoneration for non-performance of essential contractual obligations.

As general terms and conditions (almost) always contain exoneration clauses, this ‘grey clause’ is an important one to note. However, as the impact of the clause – compared to civil law – is rather limited, it will also be difficult to refute the presumption in this case.

7° Clauses that aim to limit the means of proof the other party may rely upon

As any clause limiting the means of proof available to a party will be presumed unfair and unlawful. Neither the B2B Law itself, nor the parliamentary discussions, provide further clarifications on the rationale behind this ‘grey clause’.

Only clauses limiting the means of proof will be presumed to be unfair and unlawful. Are, according to legal scholars, not envisaged by this presumption, clauses that:

  • reverse or increase the burden of proof;
  • rank the means of proof; or
  • determine the formalities for a valid legal act (not to prove the act as such) e.g. the requirement to send a notice per registered mail to (validly) terminate an agreement.

If a clause limits the means of proof, the parties can still reverse the presumption of unfairness, e.g. by showing that the limitation is not unilateral and applies to all parties to the agreement. However, the assessment will always depend on the specific circumstances of each case.

8° Clauses that aim, in the event of non-performance of a party’s obligations, to fix damages which are manifestly disproportionate to the damage that may be suffered by the other party

This final ‘grey clause’ concerns clauses providing for excessive liquidated damages, i.e. liquidated damages manifestly exceeding the amount of damages a party could reasonably be expected to suffer as a result of the breach.

Many scholars doubt the added value of this presumption, in particular as civil law already contains a similar prohibition in article 1231 of the Civil Code. The main difference between the ‘grey clause' clause and article 1231 CC lies in their sanction. While the latter leads to a adjustment of the amount of the damages, which may be not lower than the actual damage suffered, the sanction in the B2B Law is the (partial) nullity of the clause. However, in any event, the nullity of the penalty clause is without prejudice of a party’s right to prove the damage it has suffered and to receive compensation for such actual damage.

Conclusion : pay extra attention to drafting of your general terms and conditions

On the one hand, it is expected that companies will add additional boilerplate clauses in their general terms and conditions regarding e.g. the (absence) of manifest imbalance of the rights and obligations of the parties. They may be useful in some cases, but there added value will often be rather limited if the terms and conditions have in fact not been negotiated (or clearly communicated/accepted) at all.

On the other hand, a severability clause governing the consequences of an abusive, and thus void clause, is in any case strongly recommended. Such clause could for example oblige the parties to re-negotiate a clause or instruct the court to replace the abusive clause by a valid clause.

Related : Loyens & Loeff CVBA ( Mrs. Stéphanie De Smedt )

[+ http://www.loyensloeff.com]

Mrs. Stéphanie De Smedt Mrs. Stéphanie De Smedt
Senior Associate - Attorney
stephanie.de.smedt@loyensloeff.com

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