Global menu

Our global pages

Close

The modernization of the Belgian Civil Code - Part IV: My debtor does not comply with its obligations, what can I do?

  • Belgium
  • Commercial agreements

03-11-2022

Over the last few years, the Belgian legislator has been working on the reformation of the Belgian Civil Code in order to modernise its content and structure; but also to incorporate long standing case law. Certain books have already entered into force, such as Book 8 on ‘Evidence’ and Book 3 on ‘Property Law’.

On 1 January 2023, Book 1 on ‘General Provisions’ and Book 5 on ‘Obligations’ will enter into force. Most of this new content is codification of case law rather than creation of new legislation. In order to help you navigate through Book 5 of the new Civil Code and to understand the important changes, the Eversheds Sutherland’s team will highlight and explain a noteworthy topic during each day of this week.

Today we will dive deeper into the sanctions for attributable non-compliance. We will explain the different options available at your disposal when being confronted with a debtor who is not complying with its imposed obligations. In doing so, we will highlight the novelties of the new Civil Code and point out any (re)codifications therein.

Article 5.83 of the new Civil Code (the “new CC”) provides a list of the various sanctions applicable to an attributable non-compliance by the debtor. A non-compliance is attributable to a debtor if he/she is at fault or if he/she is responsible for it under the law or a legal act (e.g. a contract). The fault shall be assessed according to the criterion of a prudent and reasonable person placed in the same circumstances.

Should your co-contracting party fails to perform its obligations, the following sanctions are available to you:

 

(1.) The right to execution in kind (Cfr. Articles 5.84 to 5.85, juncto 5.234 to 5.236 new CC)

First, the creditor has the right to demand for the execution in kind of the obligation before the court, unless it would be impossible or abusive.

When the performance of an obligation does not have to be carried out by a specific designated person, the creditor has the right to be authorised by the court to perform the obligation itself or have it performed by a third party at the debtor's expense. This provision comes from the former Articles 1143-1144 of the old Civil Code.

In case the creditor prefers to replace the debtor without going to the court, two other options exist:

  1. First, if they have contractually agreed that the creditor is authorised to perform the obligation himself or to have it performed by a third party at the debtor's expense, it could apply such clause; or
  2. Second, the creditor could replace the debtor by sending him/her a written notice, at his/her own risk, stating the defaults with which the debtor is charged and the circumstances justifying such replacement. This is a codification of existing case law and requires a few conditions to be fulfilled, in particular: (i) (urgent or other) exceptional circumstances, (ii) a prior notice of default providing for a reasonable remediation term (if it is still useful); and (iii) preceded by useful measures to establish the debtor's non-performance. As opposed to the dissolution decision through a written notice, no serious default is required (Cfr. sanction no. (iii)).

 

(2.) The right to compensate for damage (Cfr. Articles 5.86 to 5.89, juncto 5.237 to 5.238 new CC)

Second, the creditor has the right to demand for the full recovery of his/her losses suffered, in kind or in cash. However, it is limited to the damage the parties could reasonably foresee when the contract was formed (i.e. ‘direct’ damages, Cfr. Article 1150 of the old Civil Code), unless the non-compliance is due because of an intentional fault of the debtor.

The parties have the right to derogate from this principle and agree that in the event of an attributable non-compliance, the debtor is liable to (i) pay a reasonable lump sum, or (ii) deliver a specific performance (i.e. through a penalty clause in the contract). In this case, neither a higher nor a smaller compensation can be awarded to the other party.

Nevertheless, the court could mitigate a manifestly unreasonable penalty clause and in doing so, it must now take into account the damage and all other circumstances, in particular the creditor's legitimate interests. In that situation, the court cannot order the debtor to a compensation which is less than a reasonable amount or a reasonable performance. The ‘manifestly unreasonable’-criterion is new in the Civil Code, and offers a more flexible approach than the criterion under the old Civil Code (‘potential and foreseeable damage’). A second novelty is that the court has to take into account all other concrete circumstances, such as actual and potential damage, the legitimate interests of the creditor and this at the time of contract conclusion, as well as at the time of performance of the contract.

 

(3.) The right of dissolution (Cfr. Articles 5.90 to 5.96 new CC)

Third, the right of dissolution is now enshrined in Article 5.90 new CC. A reciprocal contract can be dissolved if: (i) the non-compliance is sufficiently serious, or (ii) when the parties have agreed that it justifies the dissolution.

The dissolution results from either:

  1. A judicial decision;
  2. Through the application of a dissolution clause, which will be triggered by giving a written notice to the debtor, stating the defaults attributed to him (and after a notice of default has been giving which provides for a reasonable remediation term);
  3. Through a written notice of the creditor to the debtor, at his/her own risk, which states the defaults with which the debtor is charged. It must be preceded by useful measures to establish the debtor's non-compliance and by a prior notice of default providing for a reasonable remediation term. Hence, no ‘exceptional circumstances’ are required.

The notice by which the creditor dissolves the contract is ineffective if the requirements of the dissolution are not complied with or if the dissolution is abusive. A judge must thus perform a twofold retrospective check: (i) whether the substantive and formal requirements are fulfilled; and (ii) whether the dissolution is abusive.

If a recovery of the damage is granted in addition to the dissolution of the contract, the purpose is to place the creditor in a situation it would have been if the contract had been performed, meaning that the positive contractual interest will be taken into account.

In addition, the new Civil Code introduces an anticipatory application of the right of dissolution. In particular, in strict exceptional circumstances, the contract could also be dissolved in case of premature failure to comply with the obligations stipulated therein (i.e. ‘anticipatory breach’). We will dive deeper into this topic in tomorrow’s article.

 

(4.) The right to price reduction (Cfr. Article 5.97 new CC)

Fourth – and this is also a novelty as a general sanction – a price reduction can be claimed in court in case the non-compliance is not sufficiently serious to justify the dissolution of the contract (i.e., in fact for more minor non-compliances).

Equivalent to the sanction of replacement and dissolution, a price reduction could also be claimed unilaterally through a written notice stating the reason for the reduction. Such price reduction must be proportionate in relation to the difference, at the time of the conclusion of the contract, between the value of the performance received and the value of the performance agreed upon.

The creditor obtaining the price reduction cannot claim recovery to compensate for that difference in value. The creditor can however demand this for any other damage.

 

(5.) The right to suspend the own commitment (Cfr. Article 5.98, juncto 5.239 new CC)

Last, the right of the creditor of a due commitment to suspend his/her own commitment until the debtor executes or offers to execute his/her own commitments (i.e., ‘exceptio non adimpleti contractus’ or ‘enac’) is now enshrined in the new Civil Code.

An important novelty is the introduction of ‘exception temporis’. A creditor could already suspend his/her own commitment if it was clear that the debtor would not have performed his/her own commitment at the expiry of the performance period. Furthermore, the consequences of the non-compliance must be clear and sufficiently serious for the creditor, and the debtor does not provide sufficient guarantees for the proper performance of it. A written notice which states the reasons of the suspension and the circumstances justifying it must be provided.

 

General remarks

The creditor is free to choose which sanction it prefers to invoke, but such choice remains of course subject to the prohibition on the abuse of rights.

Furthermore, the above-mentioned sanctions could be cumulated, except for incompatible ones, e.g., one cannot invoke the right to execution in kind together with the right to dissolution.

 

Tip of the day

Parties are free to adapt or waive the above-mentioned sanctions in their contract, as they are supplementary law.

For example, the co-contracting parties could adapt or limit the rules regarding the right to dissolute the contract by e.g., excluding the right to unilaterally dissolve through a written notice in the certain circumstances, making the written notice subject to specific period terms, etc.

 

If you have any queries on the matter, our team would be happy to assist.