New extra-contractual liability rules affect directors and employees

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On 1 February 2024, the Chamber of Representatives approved the draft law containing Book 6 "Extra-Contractual Liability” of the Civil Code.

This Book will fundamentally reform the rules on extra-contractual liability as it introduces the concurrence of contractual and extra-contractual liability, as well as the quasi-liability of the auxiliary person (“uitvoeringsagent” / “agent d’exécution”). This last aspect is the most contentious as the abolition of the quasi-immunity of the auxiliary person directly impacts directors and employees. 

It is expected that the new Book 6 will come into effect on 1 January 2025, and shall immediately apply to facts giving rise to liability which occurred after this date. Contracting parties are thus not given time until their next normal renegotiations to anticipate or consider the abolition of the quasi-immunity of the auxiliary person. When concluding new contracts, it is recommended to dedicate particular attention not only to contractual liability but also to extra-contractual liability.

This newsflash will focus on the abolition of the quasi-immunity of the auxiliary person and its immediate impact on directors and employees.

Abolition of the quasi-immunity of the auxiliary person

Contracting parties constantly rely on auxiliaries (such as directors, employees, or independent services providers) in the execution of their contracts. Today, these auxiliaries are quasi-immune against claims by their principal’s co-contractor as such co-contractor cannot hold the auxiliary person liable for flawed performance of the contract, neither on a contractual basis (as there is no contract between the auxiliary person and the co-contractor) nor on an extra-contractual basis, the latter except in case of a criminal offence or in case of an extra-contractual fault (a violation of the standard of care) of the auxiliary person leading to damages other than damages purely due to the flawed performance of the contract. 

Nevertheless, significant differences between both systems remain. For instance, contractual liability law only allows compensation for damages that the parties could reasonably foresee, whereas extra-contractual liability law allows compensation for all (foreseeable and non-foreseeable, direct and indirect) damages.

Alongside with the distinction between the contractual and extra-contractual liability, the quasi-immunity of the auxiliary person has been a cornerstone of the Belgian legal system for decades. Particular attention has been paid to the scenario where an auxiliary person assisting or substituting a contracting party (the principal debtor) in the execution of contractual obligations (the main contract) causes damage to his principal’s co-contractor (the principal creditor). The latter has no contract with the auxiliary person; he is a third party with respect to the agreement between the principal debtor and the auxiliary person.

Today, the old Civil Code does not contain any general rule regarding the extra-contractual liability of auxiliary persons towards third parties. The general principles, further nuanced by the “stuwadoorsarrest” of 7 December 1973, are thus applicable, meaning that under the old Civil Code, the principal creditor can only hold liable auxiliary persons of the principal debtor on an extra-contractual basis under the same conditions as he can hold liable the principal debtor on such extra-contractual basis (i.e. for damages other than damages resulting from the non-performance of the principal contract). The auxiliary person cannot be contractually sued by the principal creditor, but only by his own co-contractor, i.e. the principal debtor. Legal doctrine refers to this as the "quasi-immunity" of the auxiliary person. 

The legislator now emphasizes that the extra-contractual immunity of the auxiliary person under the old civil law is unreasonably disadvantageous to the principal creditor in numerous circumstances. As from the entry into force of Book 6 Civil Code, the co-contractor will be able to bring an extra-contractual liability claim against the auxiliary person for damages resulting from a failure to properly perform the undertakings of the auxiliary person.

The draft law allows the auxiliary person to invoke the exonerations (i) in the contract between the principal creditor and the principal debtor (as the auxiliary person cannot be held liable towards the principal creditor for more than the principal itself) and (ii) taken up in the contract with its co-contractor (being the principal debtor) (the Contractual Exonerations).

However, the draft law does not allow the auxiliary person to invoke such defences (i) in case of damage due to impairment of physical or psychological integrity or (ii) in case of wilful misconduct.

Consequences for auxiliary persons – contractual protection mechanisms against third parties

It is important for auxiliary persons to know that their liability in respect of performance of their obligations under a contract will not only apply towards the principal debtor (being the direct contract party), but such liability might extend to principals higher in the contractual chain. However, the auxiliary person will in such case (in principle) be able to invoke the Contractual Exonerations.

Consequently, companies should (i) ascertain whether their co-contractor is involving them in the performance of obligations for another principal as an auxiliary person and thus should have a full view on the contractual chain, and (ii) include protection mechanisms in their contracts/general terms and conditions.

A company that may act as an auxiliary person could envisage a combination of the following contractual protection mechanisms including:

1. a confirmation from its contracting party  that it is the “end customer” and there is in principle no further contractual chain to be taken into account;
2. an obligation for the principal debtor to include in its contract with the principal creditor that the principal creditor expressly renounces the application of Article 6.3 Civil Code, and to impose the same obligation on each subsequent principal creditor throughout the higher contractual chain. In this way, the above rules will not apply and the risk for extra-contractual liability vis-à-vis an auxiliary person will be tempered. This may be combined with an indemnification and hold-harmless obligation should the principal debtor have disregarded this obligation; and more generally
3. integrate – insofar as legally possible – liability caps, liability limitations and general liability exclusions in its contracts, as the company will be able to rely (in principle) on the exonerations taken up in its contracts with the principal debtor.

Applicable B2B and B2C-legislation must be taken into account at all times when including liability limitations.

Consequences for employees and directors

Consequences for employees

Currently, employees are protected against third party claims by (i) the quasi-immunity of the auxiliary person and (ii) the specific regime of Article 18 of the Employment Contracts Act of 3 July 1978. The latter implies that employees causing damage to the employer or third parties when performing their employment contract, are only liable for fraud, serious fault, or repeated minor fault.

Under the new draft law, employees can no longer avert their liability in case of a direct claim by relying upon the quasi-immunity of the auxiliary person. However, as Article 18 of the Act of 3 July 1978 remains in force, the outcome remains the same: employees are only liable to third parties for fraud, serious fault, or repeated minor fault. In the current regime, an employee can be liable on these grounds to the employer that wants to recover any damages (for own damage or damage of a third party ). Under the new draft law, the employee can receive a claim from either the employer or the third party, but only for situations that also today can result in the employee’s liability. 

However, the fact that third parties can directly hold the employee liable, can certainly impact employees, since they may become the primary target for unsatisfied third parties in specific situations or if the third party believes that it would be in its interest to initiate the claim against as many parties as possible. Companies will have to assess whether they want to provide automatic assistance/exoneration in case of direct claims. To this extent, adequate provisions could be included in the individual employment contract or broader HR policies.

Furthermore, employers can exclude the possibility for direct claims against their employees based on civil liability in contracts with third parties.

Consequences for directors

Today, directors are protected against third party claims by the quasi-immunity of the auxiliary person. As discussed above and like what is set out in relation to employees, under the new law, directors can no longer avert their liability in case of a direct claim by relying upon the quasi-immunity of the auxiliary person (as this mechanism shall be abolished as from the entry into effect of Book 6 Civil Code). For directors, the entry into force of Book 6 Civil Code implies that on top of the grounds for directors’ liability, they can potentially be held liable by third parties (such as co-contractors of their principal) if the conditions for such liability are met. 

However, based on a strict reading of Article 2:56 of the Belgian Companies and Associations Code (BCAC), it could be argued that an extra-contractual claim by a third party vis-à-vis a director qualifies as a matter of director’s liability meaning that the director can consequently only be held liable for decisions or acts that are manifestly outside the range within which normally prudent and diligent directors in the same circumstances could reasonably act.

Such narrowing of potential liability claims obviously also limits the risk of successful claims in extra-contractual liability against directors, as opposed to claims in extra-contractual liability towards self-employed auxiliary persons without director’s mandate for whom no similar limitation on liability exists.

If an extra-contractual claim vis-à-vis a director can be a matter of director’s liability, the cap on the maximum liability of a director in accordance with Article 2:57 BCAC comes into play, as well as the restrictions on exoneration and indemnification between a company and a director as set out in Article 2:58 BCAC.

We further also refer to the contractual protection mechanisms against third parties as set out above and kindly draw your attention to the fact that directors' and officers’ insurances should potentially be renegotiated in this respect.

Actions to be taken

In general, it will be particularly important for companies to review their contracts and general terms and conditions in detail, to anticipate on the abolition of the quasi-immunity of the auxiliary person and to include sufficient protection in this regard.

Should your company require any guidance or help in the review and/or integration of any amendments in your current general terms and conditions or in any other contractual documents, pursuant to this new law, please do not hesitate to contact us.