New Civil Code – Unforeseen Circumstances - Frustration of a Contract’s Purpose

For the past years, Belgian law has been through numerous reforms, including its Civil Code, with the adoption of a new version of such seminal piece of legislation. Its Book 5, titled "Obligations" (reforming general contract law), is due to come into force on January 1st, 2023. This post, the second of a short series, introduces one of the reform’s noticeable aspects: the enshrinement of the theory of unforeseeability within the new Code.

Indeed, contracts are negotiated in a given context and according to the economic balance existing at the time they are entered into. However, the (future) old Code was silent in the hypothesis of a disruption of the contract’s economic balance and, consequently, of the contractual relationship.

The Court of Cassation (Supreme Court) had refused to rule favourably over the issue.

The result was to leave the parties to their own devices, and only a (well-drafted) contract could provide for a possible arrangement in the event of a breakdown in the relationship’s economic balance. This also meant that weaker parties found it more difficult to negotiate such arrangements. This issue has been corrected with the new Code.

Indeed, Article 5.73 of the new Code recalls that every contract must be performed in good faith and that no party may abuse their rights under the contract. There can be no derogation from these principles.

Article 5.74, which constitutes the core of the new regime, provides that both parties must perform their respective obligations, even if their performance has become more onerous, either because the cost of performance has increased, or because the overall compensation for said services has decreased.

Derogating from this general principle, the debtor may request the promisee to renegotiate the contract and seek to adapt or terminate it when several prerequisites are met, namely:

1) a change of circumstances makes the performance of the contract excessively onerous so that it cannot reasonably be required to continue its performance;

2) the change was unforeseeable at the time the contract was concluded; and

3) the change is not attributable within the meaning of Art. 5.225 to the debtor;

4) the debtor has not assumed that risk;

5) the law or the contract does not preclude this possibility.

If renegotiations are rejected by a party or fail within a reasonable period of time, the court may alternatively, at the request of either party:

(i) adapt the contract to have it meet what the parties would reasonably have agreed upon at the time it was entered into, had they taken the changed circumstances into account.

(ii) terminate the contract in whole or in part at a date which cannot be earlier than the change of circumstances and in accordance with terms fixed by the court.

The court is thus a last resort, the parties being explicitly invited to settle the matter.

Two important caveats:

(i) the parties are bound to respect their commitments during the negotiations. It is not an authorization to stop providing services;

(ii) this new regime will only apply to new contracts. Indeed, unless the parties agree, existing contracts will still be governed by the old Code.

The parties will therefore be well advised to seize any opportunity to renegotiate their contracts and to make the necessary provisions in addition to the new Code as of January 2023.

Indeed, such a regime can only be beneficial to the preservation of business flows in an economy shaken by a nearby war, an energy crisis and its various consequences and what the future holds.