Biased contracts between enterprises (business-to-business or B2B) are not uncommon. These are agreements in which there is an imbalance in the relationship between 'minor' and 'major' players and one party exerts more influence than the other. The new B2B Act of 4 April 2019 will put an end to these kinds of unjust practices with effect from 1 December 2020. It offers businesses better protection against a contracting party abusing its position in order to impose uncharacteristically unfavourable contract terms.
Which agreements are covered by the ban on unlawful stipulations?
The new law applies to all types of B2B contracts or general contractual terms and conditions. However, some contracts are slightly more susceptible to this kind of imbalance, e.g. service agreements, real estate agreements, trade contracts, sales concessions, franchise agreements, M&A agreements, licence agreements and energy supplier contracts.
When is a clause unlawful and therefore illegal?
In order to assess whether a clause in a B2B contract is unlawful, you will have to subject it to a legality test, which consists of four elements: the black list, the grey list, the open standard or significant imbalance test and the transparency test.
1. Black list
The black list comprises four clauses that are illegal in any circumstances. Parties cannot refute this illegality. These kinds of stipulations are simply prohibited.
These are clauses that:
- make the execution of a contractual obligation subject to a contracting party's own will (discretional clause), while the co-contracting party is bound by it;
- grant the right to unilateral interpretation of any stipulation in the contract;
- exclude any means of redress by the other party in the event of a dispute;
- undeniably establish the co-contracting party’s acknowledgement or acceptance of clauses, which the co-contracting party was unable to familiarise themselves with prior to the conclusion of the contract.
2. Grey list
The grey list comprises eight clauses that are presumed to be unlawful, although parties can refute this. They have to demonstrate that they definitely intended to agree to the terms in question, knowing full well that they were unlawful. These kinds of stipulations are consequently prohibited unless there is evidence to the contrary.
These are clauses that:
- contain, without a valid reason, a right to unilaterally change the price, characteristics or conditions of a contract;
- allow the tacit extension or renewal of a fixed-term contract without reasonable notice;
- inappropriately restrict the rights of a company in the event of a breach of contract by the other party;
- impose on one party, without any consideration in return, the economic risk which would normally be borne by the other company or party;
- bind parties without reasonable notice periods;
- exclude (limiting is acceptable!) a company’s liability for wilful misconduct, serious misconduct or failure to perform essential obligations, except in cases of force majeure;
- limit the means of evidence on which the other party may rely;
- fix disproportionate fixed damages, i.e. manifestly disproportionate to the damage incurred, in the event of a breach of contract.
3. Open standard or significant imbalance test
Any stipulation, with the exception of fundamental terms, which, individually or in combination with other stipulations, creates a significant imbalance between the rights and obligations of the contract parties, shall be unlawful and henceforth prohibited. This is a consideration that has to be taken into account and there is, therefore, scope for interpretation which could lead to legal uncertainty.
Remember! Fundamental contract terms relating to the object or price of a contract are consequently not covered by this rule, provided that they are transparent.
4. Transparency test
Any contractual provision in a B2B contract must be transparent. This is a legal obligation. It means that any stipulation must be explained in the contract in plain understandable language to ensure that both companies are aware of and understand all the economic and legal implications.
What happens if a clause is unlawful?
If a clause, contract or general terms and conditions do not pass the legality test, it may result in the invalidity of the clause in question or, in exceptional cases, of the entire contract.
What action should you take concerning existing contracts?
Many of the provisions usually included in B2B contracts are commonly included in the grey list (see above). They include price adjustment clauses, contract termination clauses, criminal law issues, the competent court, the exclusion or limitation of company liability. It is advisable to check them. Or perhaps certain clauses are not clear or transparent enough? You would do well to thoroughly evaluate your agreements and contractual terms and conditions with your business partners and update them if necessary.
What should you pay attention to when drawing up new contracts?
- Pay specific attention to the fair distribution of (economic and legal) rights, obligations and risks between the two companies.
- Document the pre-contractual phase in writing, including negotiations and drafts, so that you can better refute the assumption of the grey list.
- Ensure that your terms are formulated clearly and comprehensibly.
- Consider specifically stating which clauses are 'fundamental clauses' and ensure that they are transparent, so that they are exempt from the need for a legality test (see above).
- Avoid and refuse any clauses on the black list. They are illegal and should be removed from any agreement.
- Formulate a sound severability clause to prevent one unlawful clause from invalidating the entire agreement.
Do you have further questions on this subject? Would you like to check an existing contract or obtain advice on how to draw up a new agreement?