As previously reported, Book 7 of the Civil Code on specific contracts has been adopted and will enter into force on 1 September 2027. In our previous articles, we have already discussed what this means for sale, lease, services and conflicts of interest.
This contribution specifically addresses the main new features relating to settlement agreements.
Confirmation of several traditional rules
With the new Book 7 of the Civil Code, the settlement agreement is also given a modernised set of rules.
In practice, a settlement agreement is an important contractual instrument for ending or avoiding disputes through mutual concessions by the parties.
In addition to this traditional definition, Book 7 of the Civil Code also confirms a number of other rules.
In this respect, it is confirmed that parties may enter into a settlement agreement regarding any dispute of a patrimonial nature, for example a disputed invoice or a damages claim. A settlement agreement is also possible for disputes of a non-patrimonial nature, provided they concern rights which the parties are free to dispose of.
The civil claim arising from a criminal offence may likewise be the subject of a settlement agreement, such as a claim for compensation by the victim. Note, however, that such a settlement agreement does not prevent the public prosecutor from nevertheless bringing criminal proceedings against the offender.
As with any contract, the object matter and the cause of the settlement agreement must be lawful. A settlement agreement contrary to public policy therefore remains ruled out.
Book 7 of the Civil Code further expressly confirms that public-law legal entities may enter into a settlement agreement, without prejudice to any specific legislation.
Finally, it is expressly reiterated that the dispute covered by the settlement agreement, and the waiver of rights resulting from it, must be interpreted strictly.
Fewer statutory provisions
The new regime contains fewer provisions than before. The legislator no longer repeats what is already set out in general contract law.
This is in line with the broader objective of the reform. According to the Explanatory Memorandum, Book 7 of the Civil Code is inspired by the principle of “economy of legal rules”. Provisions that are merely an application of the general rules of Book 5 of the Civil Code (the general law of obligations) have therefore been removed.
Written form requirement not retained
Under the old law, Article 2044, second paragraph, of the old Civil Code provided that a settlement agreement had to be drawn up in writing. This was not a validity requirement but a rule of evidence: a party wishing to rely on a settlement agreement had to be able to prove it by means of a written document.
This written form requirement has not been carried over into Book 7 of the Civil Code. From now on, proof of a settlement agreement is simply governed by the general rules of evidence of Book 8 of the Civil Code.
Even though a written document is no longer always required, it remains advisable to put a settlement agreement in writing. This avoids renewed disagreement later on about exactly what was agreed. Disagreements are, after all, precisely what a settlement agreement seeks to prevent.
Exclusion of several out-of-court remedies
General contract law (Book 5 of the Civil Code) allows a contracting party, in a number of cases, to apply a remedy unilaterally, by written notice to the other party, without first having to go to court. For settlement agreements, however, Book 7 of the Civil Code makes several exceptions to that principle.
First, a settlement agreement cannot be unilaterally annulled by written notice. Anyone who considers the settlement agreement to be void, for example on grounds of mistake or fraud, must apply to the court.
Out-of-court termination of a settlement agreement by written notice, which Book 5 of the Civil Code generally permits, is also excluded. If the other party fails to perform its obligations under the settlement agreement, termination will in principle have to be sought through the court. The exception is where the parties themselves have included an express termination clause in their settlement agreement. Only in such a case is out-of-court termination possible.
Finally, a party to a settlement agreement may not unilaterally apply a price reduction by written notice either.
