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Do not fear – you can bolster your contracts against an imminent breach

Jari Vermeulen and Laura Van Gompel – September 2021 – It is possible that your business partner does not honour the commercial deal you both made (for example, to deliver certain merchandise on a due date). Under Belgian law, you are then entitled to temporarily defer your own related obligations (for example, to pay the merchandise). “temporarily” meaning: until your business partner complies again.

This remedy tool is called “the exception of non-performance” (ENAC) and is triggered when your business partner has actually failed to perform the contract. In the example, the buyer protects himself by withholding payment, as the underlying merchandise has not been delivered yet by the supplier, in breach of contract.

Often, however, the breach of contract is not yet a fact. Nevertheless, may there be clear indications that your business partner shall not comply at the end.

  • Example: You have to deliver merchandise. You know for a fact that your buyer-commercial partner is facing cessation of payment or seriously interrupted cash flow. In other words, it is likely that you will not receive payment as agreed for the merchandise that you ought to deliver.
  • Example: Your business partner has informed you that this months’ delivery of finished product will not proceed as planned. He was not able to make advance payments for raw materials. You shall need to supply with another provider.

Also in these cases, you can (temporarily) postpone compliance with your own obligations, in virtue of the so called “exceptio timoris” or the “Exception of fear”. This exception allows you to protect your assets by way of anticipation, as a preventive measure, before the breach of contract is accomplished.

Please note that the exceptio timoris is not (yet) accepted as general principle of law in Belgium (*). You need to include this remedy explicitly in the underlying commercial contract. You are best to specify the situations in which it shall apply (for example, cessation of payment or involvement in an insolvency procedure) and under which conditions (for example, after written notice to the business partner-debtor or when there is no additional collateral, such as payment in advance or bank guarantee).

(*) The exceptio shall most probably be acknowledged in Book V “Contract law” of the New Civil Code for Belgium (Nieuw Burgerlijk Wetboek).

The exceptio timoris, the smaller brother of the exception of non-performance (or is the other way round (?)), is a very relevant protective, anticipatory tool; even more so during uncertain (pandemic) times. Should you need any assistance with the drafting or revision of your contracts, feel free to contact us.

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