- Pre-contractual negotiations
In addition to the general contractual principles set out below which apply to all contracts, since 01 February 2006 (now included in title II of Book X of the Codes of Economic Law), Belgium has had a specific law on “Pre-contractual Information for Commercial Cooperation Agreements”. This legislation imposes pre-contractual requirements on parties proposing to enter into agreements such as distribution, licence and franchise agreements.
Under this law, prior to entering into a commercial agreement relating to the sale of goods or the supply of services between two independent parties, where know how is transferred, the party granting the rights under the agreement must disclose to the other party a draft proposal of the agreement and an information memorandum containing important corporate, commercial and marketing information. The documents must be sent to the other party at least one month before the start of the negotiations. If the parties do not comply with these mandatory requirements, the final agreement could be declared partly or completely void. After completion of the mandatory waiting period, the acquiring party under the agreement may cease negotiations without incurring further liability.
Is there an implied duty of good faith to continue to negotiate?
Belgian law implies a duty of good faith in contractual negotiations. Subject to this good faith principle, there is no implied duty on the parties to continue negotiations or not to break off negotiations. The duty of good faith also means that a party may not terminate the negotiations in such a way which would harm the other parties, as this would be considered an abuse of the trust relationship between the parties.
What are the consequences of termination of negotiations by one party unilaterally?
Termination of negotiations in circumstances which amount to a breach of the duty of good faith may result in the non-defaulting party being entitled to claim damages, on the ground of tortious liability (as described in article 1382 of the Belgian Civil Code), for compensation for costs incurred and possibly also the loss of other opportunities.
- Confidentiality agreements
Are there implied confidentiality obligations where there are no formal confidentiality agreements entered into by the parties?
The principle of good faith implies a duty of discretion on the parties with regard to the confidentiality of any information exchanged between the parties and which is not available to the public.
What are the consequences of breach?
A breach of this duty may result in tortious liability to pay damages or in a court order prohibiting the use or disclosure of the confidential information.
Are specific terms/formalities required for a binding confidentiality agreement?
No. It is however current practice for parties to enter into a specific confidentiality agreement which provides, among other provisions, for remedies in case of breach (such as a fixed amount for damages).
- Exclusivity arrangements
Can an obligation to negotiate exclusively be implied where no formal agreements are entered into by the parties?
Belgium law does not imply exclusivity in negotiations.
Are any specific terms/formalities required to make exclusivity arrangements enforceable?
There are no required formalities for a valid exclusivity agreement, which can be oral or written. Of course, it is advisable to conclude a written agreement. However, the exclusivity arrangement needs to be in the form of a “lock out” and the duration of the arrangement must be limited in time in order to prevent the arrangement from being unenforceable.
- Heads of agreement
Are they legally binding?
Where there is agreement between the parties on the essential elements of the transaction (the object, price and extremely important conditions), the heads of agreement (or similar documents such as a letter of intent) will be legally binding, even if they are stated to be subject to due diligence or written contract. It is therefore of the utmost importance to include carefully drafted conditions precedent. Even where pre-contractual arrangements are not legally binding, confidentiality and/or exclusivity arrangements or costs arrangements contained in the heads of agreement will be legally binding.
Are any specific terms/formalities required to make them legally binding?
What are the consequences of breach of a legally binding arrangement?
The heads of agreement or similar pre-contractual documents may contain two types of obligations: those with specific results (eg confidentiality clauses) and those which are obligations to take a particular action, irrespective of the results.
In the first category of obligations, the breach is demonstrated by the absence of the agreed result.
Proof of breach tends to be more difficult for the second category of obligations. The claimant will need to prove that the party liable for breach did not invest sufficient means and efforts in the performance of the obligation, when compared to the normal efforts of a diligent person in the same circumstances.
Breach of both categories of obligations may lead a court to decide that the specific obligation must, if possible, be performed by the breaching party or that damages must be paid to the injured party, who will have to prove loss.
- Break fees
Are break fees usually payable?
Only if they are provided for in the pre-contractual arrangements. They are sometimes agreed to reimburse the other party for consultancy costs.
What are the main legal issues to be considered eg enforceability?
The break fees must be construed as an indemnity for losses and not as a mere penalty.
This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.
M&A - Comparison of private share acquisition regimes
Our international corporate team has put together a comparison guide that summarises some of the key legal issues in certain EU jurisdictions that may arise for parties involved in a cross-border private share acquisition. See here.