Entrepreneurship also means taking risks. You invest and you produce, but there is a chance that your products or services do not appeal to your target group.
In addition to this typical business risk, there is also a liability risk. What if your SaaS service is down for a while and therefore unavailable? Or what if your backups are inadequate and cause data loss?
It is therefore very important to protect yourself as an entrepreneur against unpleasant surprises. You can do this by drafting solid liability clauses, which offer an answer tailored to the risks of your company.
But what does liability actually mean? And is it enough to simply say that you are not liable? Or is it more complex than that?
What exactly is (contractual) liability?
As an entrepreneur, you obviously have an idea of what liability is. Nevertheless, it might be good to clarify the meaning. Liability is related to responsibility. It means that you are responsible for compensating the damage caused by your fault.
You can make a mistake when executing a contract with a customer. We then speak of contractual liability.
This can result that you, as an entrepreneur, are held liable fornon-performance. The other party (your client, or your supplier) can then claim compensation for damages (if the contract is not fulfilled) or additional damages (if the contract is not fully or properly fulfilled).
For this reason, too, it is very important to be very clear in your agreement about what your obligations are, and what they are not, so that there are no misunderstandings.
It is also important, as an entrepreneur, to limit your liability to the amount of the agreement, for example. Or to include some grounds for exclusion. These are possible faults for which you agree in advance that you will not take responsibility.
Finally, as an entrepreneur, you want to avoid being held liable without limitation.
The fault may, however, also be committed regardless of a contract. Instead of a contractual shortcoming as a fault, we then speak of an unlawful act, which leads to non-contractual liability.
You accidentally bump into someone on the street, this person trips and breaks his wrist. This damage occurs outside of any contract between the two parties.
In this blog, we will not discuss non-contractual liability any further.
Legal liability in B2B relations
For many years companies had a great liberty to exclude their liability in B2B relations. Because there was no legal regulation, you could try just about anything in your contracts.
Only the greatest excesses were restricted by case law. For example, it was rightly ruled that limitations of liability which exclude the essence of a contractual obligation are not valid. So, contractually, you could not say that you were definitely going to do something, and at the same time exclude that you were responsible if you did not do it.
Through the new law of 19 April 2021(hereinafter B2B legislation), a clear legal framework has now been created. Companies therefore no longer have a free pass in their liability arrangements.
The B2B legislation clicks on some principles from the old case law, as a result of which a company in its B2B relations will no longer be able to exclude its liability for:
- Its wilful intent, gross negligence or that of its appointees;
- Failure to perform the essential obligations that are the subject of the contract, except in cases of force majeure.
Liability of appointees vs. representatives
n B2C relations, it has long been the case that a company cannot exclude its liability for its own intent or gross negligence, or for that of its appointees or representatives. Appointees are employees or freelancers working for the company, and representatives are e.g. self-employed agents.
A similar limitation is now extended to B2B relations. The difference, however, is that this limitation between companies does not refer to representatives. In other words, companies can still exclude their liability for the wilful misconduct or gross negligence of their independent self-employed agents (insofar as this does not undermine the essence of the contract).
Apart from the circumstances of intent and gross negligence, entrepreneurs cannot limit their liability for the non-performance of the essential obligation of the contract.
An essential obligation is an obligation that constitutes the very essence of the contract. Think of an IT service provider who ultimately fails to deliver the services. You cannot exclude liability for this. After all, it would be the equivalent of not having taken any action while this had been stipulated. Incidentally, this prohibition was already recognised in case law before the amendment of the law.
The only exception to this is force majeure. In the event of force majeure, the entrepreneur will not be liable, regardless of what is regulated in terms of liability.
What happens to these unlawful terms?
The limitation of liability was included in the so-called grey list of the B2B Act, which means that the unlawfulness is presumed.
If you, as an entrepreneur, make an arrangement which is contrary to B2B law, it will be assumed that it is unlawful and therefore void. Since the law states that you can challenge the grey list, you can prove that your clause in the contractual agreement is nevertheless fair and balanced. However, it will not be easy to prove this to the contrary.
And if, as an entrepreneur, you fail to provide proof to the contrary, the limitation of liability will therefore be null and void. This means that it will have no further effect and you will be subject to the standard liability rules. This means that, as a company, you will be liable for foreseeable damage which has a causal connection to the committed a fault.
So what can you say about liability in a B2B relationship?
It is not because B2B law imposes limits on the freedom of contract that, as an entrepreneur, you have no possibility to regulate your liability. However, in certain cases it is still permitted to limit or exclude your liability as a company. For example, you can exclude liability for consequential damage, as well as for minor faults.
In addition, a company may legitimately agree to limit its liability to an exact and specifically described amount. A frequently seen clause here is that the liability is limited to the total cost of the agreement itself. In other words, the risk is set at the same level as the benefit for the entrepreneur.
However, bear in mind that these arrangements can also be reviewed by the court! If it turns out that the amount is rather symbolic, the arrangement can be set aside so that you will still have unlimited liability.
There is no doubt that the liability risk is one of the most essential risks of entrepreneurship. So it is best to include a good limitation of liability in your contracts or general terms and conditions, and thus secure your business.
The new B2B legislation has outlined a framework within which you must act. As an entrepreneur, you will therefore have to ensure that your limitation of liability gives you maximum protection, while it may not conflict with the new B2B legislation, and it must also be digestible for your counterparty. A lot of balls to keep in the air!
Do you want to know whether your current liability provisions still comply with the most recent legislation? Whether they protect you sufficiently and take into account the specific risks within your business? Contact us without obligation at firstname.lastname@example.org.
Written by Judith Fierens, Legal Adviser theJurists, and Kris Seyen, Partner theJurists