New legislation on extra-contractual liability: how does it affect the liability of directors and employees ?

On 1 February 2024, the draft Act introducing Book 6 of the New Civil Code on extra-contractual liability (tort law) was approved in  Parliament. It is expected that the new Book 6 will enter into effect on 1 January 2025.

The abolition of the principle of the quasi-immunity of auxiliary persons is one of the most important aspects of the reform of the rules on extra-contractual liability and will have an enormous practical impact.

Under the current law, auxiliaries are automatically protected (“quasi-immune”) against claims by their principal’s co-contractor. Currently, in principle, a co-contractor cannot hold the auxiliary person liable for failed performance of the contractual obligations of the principal.  The exception to the rule is in case of criminal offenses, which is why the protection is only a quasi-immunity.

Under the new Code, this protection is simply abolished. The co-contracting party (“co-contractor”) of a company (“principal”) can launch a direct claim against the auxiliary person of the principal such as employees, subcontractors or directors who did not execute the contractual obligations of the principal in a correct manner. Such auxiliary persons can be held liable on an extracontractual basis by the co-contractor when they acted negligently and therefore bear the risk of being sued directly by the co-contractor of their principal.

As a counterbalance new Book 6 provides for mechanisms to protect auxiliaries. The increased liability is tempered by special laws (see 1 below)  and can be further tempered by inserting contractual clauses in the contract between the principal and the auxiliary person (see 2 below) and/or the contract between the co-contractor and the principal (see 3 below).

• In any case, the auxiliary persons can invoke any defences that they have under applicable law. This means, amongst others that:
  • workers retain their limitation of liability under Article 18 of the Employment Contracts Act, i.e. an employee who causes damage to third parties in the performance of his/her contract is only liable for repeated minor misconduct, fraud or serious misconduct, and not for ordinary negligence.
  • directors are protected by the liability caps included in the Code on Companies and Associations, but remain subject to the increased liability standards of the special regimes regarding directors’ liability.

• In the subcontract between the principal and the auxiliary person the auxiliary persons can be protected from claims (in tort) by the co-contractor of the principal by limiting their liability towards the principal as much as possible or by a hold-harmless clause to protect against claims of the contractor. Such contractual clauses can regulate the (extra)contractual liability of the auxiliary person to the extent possible under the Belgian law. Note, however, that companies cannot hold their directors harmless or limit their liability contractually in a more extensive way than provided by law. The auxiliary person will be able to invoke such contractual limitations/exonerations (“defences”) in their relation to the co-contractor. Of course, by including such clauses in the contract with the auxiliary, the principal will protect the auxiliary but also weaken its own position in case of conflict with the auxiliary.

• The auxiliaries can invoke clauses inserted in the main contract between the principal and the co-contractor.
• The law provides that the auxiliary persons can invoke the same defences as their principal. Thus, the contractual clauses between the main contractors continue to apply even if the claim is brought against the auxiliary person. This means that the co-contractor is not able to circumvent contractual clauses (e.g., exoneration clauses) by bringing the claim against the auxiliary person instead of against their own contractor.
• It is also possible to stipulate that the co-contractor waives or limits his right to launch extra-contractual claims against the auxiliaries.

Exception: the auxiliary who commits a fault that “causes an impairment of physical or psychological integrity” cannot invoke the contractual defences from the main or sub-contract. Nor can they do so if they committed a fault with the intention of causing damage (willful misconduct).

Under this new law, auxiliary persons may become a target for unsatisfied co-contractors, who can initiate a claim against them. They could do so simply to increase pressure on their co-contractor who may wish to avoid claims against its employees or directors. They could also do this in case of insolvency of bankruptcy of the principal. 

In theory, auxiliaries already face the same legal risk today, as the principal who is held contractually liable by a co-contractor can seek recourse against the auxiliaries.  In practice, however, principals do not always bring such recourse claims against the auxiliaries (their own directors, employees, etc.), even if they might theoretically be held liable.  Of course, for the co-contractor there is much less of a psychological hurdle to do so.

It is hence recommended to anticipate the abolition of the quasi-immunity and to assess whether and to what extent it is desirable to contractually limit the potential liability of your directors and employees and/or to negotiate with your co-contractors to waive or limit their rights against your directors or employees.