The New Contract law (Book 5 of the Civil Code)

Entry into force

Book 5 of the Belgian Civil Code enters into force on 1 January 2023. The new rules will therefore apply to contracts entered into as from the date of entry into force. Contracts entered into before that date (including any amendments thereto agreed after that date) will continue to be governed by the old Civil Code, unless the parties agree to apply the provisions of the new Book 5.

Goals of the reform

With this reform, the legislator intends to make contract law more accessible by integrating relevant case law and contributions from legal scholars into the Civil Code. The new legislation also contains a whole series of definitions of legal terms, as well as introductory articles and a more coherent structure.

Most of the current rules therefore remain substantially unchanged. However, Book 5 introduces a number of important new rules into our law that will apply both to  individuals and businesses.

Change in circumstances (hardship doctrine)

Of all the changes made by Book 5 of the new Civil Code, the most notable one is undoubtedly the introduction of the hardship doctrine.

The “pacta sunt servanda” principle remains the rule, implying that the parties are bound by the contracts they have entered into and are obliged to perform them. However, the new contract law provides that a contract can be amended if a change in circumstances makes its performance so onerous that it would be unreasonable to maintain the original terms.

Since it is an exception to the general rule, this mechanism can only be invoked in exceptional circumstances if five strict conditions are met.

Under what conditions?

1. Firstly, there must be a change in circumstances after the conclusion of the contract which makes its performance excessively onerous for the debtor. This change can be of various kinds (economic, political, health, etc.) and need not be the result of a sudden event. The debtor who wants to invoke the hardship doctrine will also have to prove that the change in circumstances creates such an imbalance between the parties' performances that the performance of the contract can no longer be reasonably requested. It is important to note that it is not necessary to prove that the performance of the contract has become impossible (as in the case of force majeure) or that the other party has committed a fault.  However, it will not suffice to argue a loss of profit or higher than expected costs.
2. Secondly, there must be a change which was unforeseeable at the time when the contract was entered into. This unforeseen change must be assessed taking into account what the parties could reasonably expect. In B2C relations, there is a risk of being more demanding on the professional, who may be considered more capable of assessing the risks associated with his activity, whereas, conversely, there may be more leniency towards the consumer, who often has little room to negotiate the terms of the contract.
3. Of course, the change must not be attributable to the debtor invoking it.
4. The debtor must not have assumed the relevant risk. The acceptance of the risk by the debtor may be implicit and derive from the very nature of the contract (speculative transaction, contract with a hazard component, etc.) or it may be explicit and derive from a waiver to invoke all or part of the possible changes in circumstances.
5. Finally, the law or the contract must not have excluded recourse to this mechanism. As this is a suppletive rule, the parties may therefore either completely waive the hardship doctrine or limit its application.

These last two points underline the importance of paying due attention to the drafting of contracts. Some clauses could indeed be interpreted as limiting the possibility of invoking unforeseen circumstances.

What are the consequences?

The debtor who believes he can invoke the change in circumstances must first approach his creditor and ask him to renegotiate the terms of the contract in order to adapt it to the new circumstances or to rescind it.

If the creditor refuses to negotiate, for example because it disputes that the conditions for invoking a change in circumstances are met, or if the negotiations do not lead to a successful outcome within a reasonable period of time, both parties may apply to the court for an order pursuant to the rules of summary proceedings. The judge may amend the contract to bring it into line with what the parties would reasonably have agreed upon in view of the change in circumstances. The judge may also decide to dissolve the contract in whole or in part.

Please note that invoking a change in circumstances has no suspensive effect. The contract must continue to be implemented during the renegotiation and judicial phase.

In a nutshell, after two years of a pandemic and at a time when energy prices are the focus of attention, the introduction of the hardship doctrine into the Civil Code seems to provide an effective instrument to adjust contracts that have become unreasonably onerous for one of the parties. However, the effectiveness of this instrument will depend to a large extent, not only on the specific circumstances, but also on the way in which the contracts, to which it is to be applied, are drafted.

Other changes

Among the other innovations introduced by Book 5 of the Civil Code, we would like to highlight the following provisions:

Liquidated damage clauses (formerly called 'penalty clauses'): these clauses which exempt the creditor from the obligation to prove the extent of his damage are very widespread. They are subject to a new regime, the most important development of which concerns the criterion which the court will now have to apply to reduce the amount thereof (i.e. the manifestly unreasonable character of the clause, taking into account the damage and all other circumstances).

Early termination: a contract can now be terminated (by a court decision, the application of an express termination clause or a notification from the creditor to the debtor), not only in the event of a serious breach by one party of its obligations (as was the case under the old Civil Code), but also when it is clear that the debtor will not perform in time. However, such termination is subject to certain conditions (existence of exceptional circumstances, prior notice to the debtor, sufficiently serious consequences for the creditor, etc.).

Non-performance exception: under similar conditions, the creditor may also suspend the performance of its obligations if it is clear that the debtor will not perform its obligations in time.

Price reduction: this is a new sanction. If the non-performance is not serious enough to justify the termination of the contract, the creditor may ask the court (or the debtor) to reduce the price. The price reduction must be proportionate to the difference, at the time the contract was entered into, between the value of the performance received and the value of the agreed upon performance.

For additional information or if you have any questions in this respect, you can always contact your trusted BDO advisor or one of our experts, Didier Leclercq of Jean-Philippe Weicker.