On 1 September 2027, the new Book 7 of the Civil Code will enter into force. In our previous contributions, we discussed what this means for sales, lease and service contracts.
However, the reform extends beyond Book 7 alone. The rule on conflicts of interest in the context of representation set out in Book 1 of the Civil Code is also being amended. The key changes are summarised below.
The general conflict-of-interest rule in article 1.8, §6 of the Civil Code will be removed
Article 1.8, §6 of the Civil Code contains the general rules on conflicts of interest in the context of representation. This provision comprises two aspects:
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The first aspect concerns the prohibition on a representative acting as the counterparty of the principal. This prohibition has long been recognised in the case law of the Court of Cassation (Cass. 18 March 2004, C.02.0249.N).
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The current article 1.8, §6 of the Civil Code nevertheless goes beyond earlier case law. It also provides, more generally, that a representative may not act in the event of a conflict of interest.
Failure to comply with this rule has severe consequences: the legal act is (relatively) null and void, unless the principal has consented to it.
Article 1.8, §6 of the Civil Code is now being revised. As of 1 September 2027, the reference to conflicts of interest will be removed from article 1.8, §6 of the Civil Code, as follows:
‘A person who is required to perform legal acts on behalf of another may not act as that other person’s counterparty nor in the event of a conflict of interest. Such a legal act is null and void, unless the principal has expressly or tacitly consented to it.’
The new provision therefore only targets the representative who acts as counterparty. A breach of that rule will still result in nullity.
Book 7 of the Civil Code contains a rule on conflicts of interest in service contracts
To offset the removal of the conflict-of-interest rule in article 1.8, §6 of the Civil Code, the section of the new Book 7 of the Civil Code dealing with service contracts introduces a general obligation for service providers to avoid conflicts of interest where the law, custom, the contract or good faith so requires (article 7.4.12, §3 of the Civil Code).
This new rule will apply to every service contract, for example where intellectual or confidential services are provided. It is therefore not limited to mandates or formal representation.
Take, for instance, a marketing consultant who is approached by two clients with competing products. Depending on the circumstances, that consultant may be expected to avoid, disclose or manage a conflict of interest.
Unlike article 1.8, §6 of the Civil Code, however, the new provision does not impose an absolute prohibition. Whether a conflict of interest must be avoided depends on the law, custom, the contractual arrangements and good faith. Everything therefore depends on the specific circumstances.
A breach of this provision does not render the legal act entered into in a situation of conflict of interest null and void. Where the service provider breaches this obligation to avoid a conflict of interest in an attributable manner, the client has the remedies for non-performance available under the general law of obligations. Such remedies may include damages, termination or other appropriate remedies.
The client must, however, prove an attributable failure to perform – in essence, fault on the part of the service provider. A merely potential conflict of interest is therefore not necessarily sufficient. What matters is whether the service provider has in fact breached the obligation owed to the client and thus committed a breach of contract.
Where a third party knowingly participates in that breach, a claim for third-party interference with the contract may also arise. The legal act concluded with that third party’s complicity may be held unenforceable against the injured client.
Finally, the legislative history confirms that the conflict-of-interest rule in Book 7 of the Civil Code does not affect any specific rules on conflicts of interest, such as those in company law, financial law and administrative law.
