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General terms and conditions: no absolute shield against liability
General terms and conditions are a key instrument for many entrepreneurs aiming to minimize legal risks. These documents typically contain clauses on liability, complaint periods, payment terms and governing law.
In practice, however, entrepreneurs often rely on their own terms, sometimes neglecting to properly agree to the applicability of general terms and conditions or falling into other common traps. The result may be that the general terms and conditions are wholly or partially unenforceable.
This article explores several frequently encountered pitfalls in the use of general terms and conditions, with a particular focus on liability limitations.
1. No automatic applicability of general terms and conditions
General terms and conditions only form part of an agreement if they have been accepted by the counterparty. Under Dutch law, acceptance is deemed to have occurred if the counterparty knew or ought reasonably to have known that the general terms would form part of the agreement. Such acceptance may be: (i) explicit – for example, by signing for the applicability of the general terms and conditions or by ticking a confirmation box; or (ii) implicit – for instance, where the counterparty does not object against a declaration that the general terms and conditions form part of the agreement and proceeds with performance under the agreement.
However, merely declaring the terms applicable is not sufficient. A clause within the terms may be voidable if the counterparty was not given a reasonable opportunity to take note of them. In practice, this means the terms must be provided to the other party before, or at the latest upon, conclusion of the agreement. There are exceptions. For example, if the counterparty qualifies as a ‘large entity’ (e.g. a company with more than fifty employees or a published set of annual accounts), or where parties regularly contract with one another in their course of business, it may not be necessary to reissue the terms each time.
2. The limits of excluding liability
While it is standard commercial practice to limit or exclude liability contractually, such exclusions are not unbounded. In consumer contracts, sweeping limitations of liability are often unenforceable, as they may be deemed unreasonably onerous. Under Dutch law, a clause is voidable if it is unreasonably burdensome, considering the nature and content of the contract, the manner in which the terms were concluded, the interests of both parties and all other circumstances of the case. Such provisions may be set aside at the request of a consumer or a ‘small business’ (defined as a company with fewer than fifty employees).
Even in B2B-relationships, liability exclusions are not boundless. Clauses excluding all liability for damages may, depending on the facts, be considered unacceptable. Courts apply the principles of reasonableness and fairness and weigh all relevant circumstances.
Furthermore, any clause in your general terms and conditions that seeks to exclude liability for intentional or wilfully reckless conduct is null and void and shall be deemed not to exist.
3. Outdated or ambiguous clauses can backfire
General terms must be clear, precise, updated and legally sound. Vague wording can give rise to interpretation disputes and outdated provisions may no longer align with current legislation or case law.
Courts may disregard clauses they consider, in the specific context, unacceptable based on the principles of reasonableness and fairness.
Regular reviews and updates are essential to ensure your terms remain compliant and enforceable.
4. Practical recommendations
To use general terms and conditions effectively, consider the following best practices:
- ensure your agreement contains an explicit reference to the general terms and conditions;
- provide the general terms and conditions timely and in a proper manner, both in B2C and B2B-relationships;
- avoid overreaching or overly broad exclusions of liability;
- tailor the general terms and conditions to the nature of your business, products or services; and
- periodically review the general terms and conditions in light of current law and case law.
Conclusion
General terms and conditions are an important tool for managing risk in commercial relationships, but they are not a watertight shield against liability. Consider involving legal assistance to ensure proper drafting, implementation and maintenance of your general terms and conditions. This proactive approach helps avoid protracted legal disputes and ensures that your general terms and conditions serve as a robust component of your contractual arrangements, rather than a mere formality.
Would you like to discuss whether your general terms and conditions are sufficiently comprehensive and enforceable? Feel free to get in touch with Luuk Rietveld.