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Hardship and anticipatory breach revisited. Belgian civil law concepts?

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Tom Schoors

Managing Partner Belgium

Antwerp

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07 January 2009

The current market conditions have sparked a renewed focus on hardship and anticipatory breach: to what extent can the financial crisis be used to trigger contract termination or a contract review?

But first of all, are hardship and anticipatory breach Belgian civil law concepts that can be applied in the absence of a contractual clause?

In Belgium, hardship is traditionally compared to force majeure: while the latter is generally defined as an event that makes it impossible for a party to perform its obligations, a hardship event will only make it more difficult or onerous.  Unlike in other European jurisdictions (eg Germany, Italy, the Netherlands, the UK), the vast majority of Belgian courts do not apply the theory of 'imprévision' or hardship or frustration, unless specifically provided for by the law (eg the possibility to request a revision of rent under a commercial lease agreement).  This is because of the general civil law principle of 'convention-loi'.

However, Belgian courts sometimes apply the theory of 'imprévision' using other legal concepts, such as force majeure (by giving a broad interpretation to the notion of 'impossibility to perform') or the general duty to perform contracts in good faith (although this is highly debated).

Whilst the above sets out the general civil law regime that applies in the absence of a hardship clause in the contract, Belgian law does not prevent the parties to a contract from agreeing on a hardship clause (eg MAC clauses in M&A and credit agreements). The parties may also agree in their contract to refer to an independent third party to adapt their contract to new situations, such as provided for in the Cepani Rules of Adaptation of Contracts.

Anticipatory breach entitles a party to make a non-performance plea (to suspend the performance of its own obligations) or even to terminate the contract if it can be established in advance that the other party will not perform its obligations, for instance, due to its financial situation.

Unlike in other European jurisdictions (eg Germany, Italy, the Netherlands, the UK), the anticipated non-performance has no impact, under Belgian law, on the contractual relationship, except where specifically provided for by the law (eg delivery of goods upon the buyer's insolvency). This is because under Belgian civil law, where a debt is payable at a future date, nothing can be claimed or enforced before that date.

However, by giving a broad interpretation to and linking the concepts of non-performance and of good faith, some courts have accepted the suspension of the performance of a party's obligations on the basis of anticipated non-performance by the other party. A court may well approve or order contract termination on the grounds of anticipated non-performance. However, self-declared contract termination (ie without court intervention) on that basis is obviously a risky decision (as this could lead to the payment of damages if the termination is found to be unlawful). Finally, 'partially anticipated' breaches may be relevant if a party has already defaulted: anticipating the non-performance may be an aggravating factor in relation to the actual non-performance which in itself might not have been sufficient. Rescission may then be obtained more easily. 

Belgian law does not prevent parties to a contract from agreeing to an anticipatory breach clause. The suggested wording in the Unidroit Principles of International Commercial Contracts could serve as an example.