Sustainability clauses in commercial contracts

Achieving the goals in the Paris Agreement requires drastic economic actions. The private sector, responsible for a large part of the emissions, must therefore contribute to this. One development that is already emerging is that companies are contractually making their supply chain more sustainable, because this often contains the greatest emission risks. This raises the question of whether Dutch contract law can enforce these sustainability obligations. This article will discuss the two most used forms, namely explicit clauses and implicit customs, in the context of the regulations from the Civil Code and the Vienna Sales Convention* (hereinafter: “CISG”).

Explicit sustainability clauses

The first type of sustainability obligations is when an obligation is explicitly included in the contract in the context of sustainability. This is a different kind of obligation than the classic clauses in delivery contracts, because (at least not directly) the interests of the parties (for example the type of product or the delivery time) are safeguarded, but external interests such as the environment or respect for human rights are safeguarded. Explicit clauses can consist of a separate provision in the contract or by reference to general terms and conditions or rules of conduct. How these types of clauses can be legally enforced will be discussed below.

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CISG

A first possibility for this is the non-conformity regulation in the CISG. Whether goods do not conform to the sustainability goals of the parties depends on what has been agreed contractually. Based on article 35 paragraph 1 CISG, the seller must deliver in accordance with the agreed quality, quantity and description of the contract (which is supplemented with criteria from the second paragraph if nothing has been agreed about this). Whether there is non-conformity therefore expressly depends on the party agreements. For example, there may be non-conformity if a sustainable production method has been agreed and then deviated from.

Another possibility is the termination of the contract, for which the CISG requires a fundamental breach pursuant to articles 25 and 49 paragraph 1. This usually occurs if one of the main obligations of the contract is not met. Whether there is a fundamental breach again strongly depends on the agreements made and how these are reflected in the contract. Also, relevant here are the actions of the parties and the degree of foreseeability of the break.

In terms of remedies for compliance with sustainability clauses, the CISG provides limited options. Compliance is difficult as the physical quality of the goods is usually not affected. In addition, the requirement of foreseeable damage (Article 74 CISG) and the causal relationship required thereby is difficult to meet in most damage cases in breach of sustainability clauses. This could include reputation damage or future losses. In addition, the degree of non-material damages is unclear under the CISG and there must be some certainty regarding future damage. Of course, this also depends on how specific and binding the clauses are formulated.

Civil Code

Non-conformity can also be invoked under national law (Article 7:17 BW). It is important here that the correct information has already been requested before the conclusion of the contract because the non-conformity should not have been known before the conclusion of the contract (paragraph 2). If it concerns a specific use of which the seller is aware, he must notify the buyer. As with the CISG, what has been agreed between the parties is very important. Regarding non-compliant production methods, there is currently case law about products that turned out to be non-organic afterwards (see ECLI:NL:GHSGR:2012:1316).

Terminating a contract could be easier under national law. According to article 6:265 paragraph 1 of the Dutch Civil Code, every (reasonable) breach in the fulfilment gives the authority to fully or partially terminate the agreement. In other words, no fundamental breach is required. In addition, every shortcoming leads to a right of compensation and more types of damage are compensated (such as damage to reputation under Article 6:106 paragraph 1 under b BW). Compliance remains difficult as national law offers virtually the same options as the CISG.

Implicit customs

Implicit customs can also play a role. This concept does not so much encompass a printed clause, but rather norms and values between parties that emerge from the pre-contractual phase and their actions afterwards. In this context, one can also speak of a commercial practice. Below these customs will be interpreted again based on the CISG and national law.

CISG

Article 8 CISG concerns the interpretation of contracts, of which the clarity of the intention and the awareness of it on the part of the other party is decisive. If this does not provide sufficient relief, a subjective approach is applied: would a reasonable person with the same qualities in these circumstances have conceived the intention? All circumstances of the case play a role in this, making communication between parties about the sustainability standards particularly important. If a party invokes the sustainability standards as shown in the CSR Code of the other party’s website, while this has not emerged during the negotiations, it is unlikely that this will be seen as part of the contract. This is different if it has been referred to regularly during the negotiations.

In addition, Article 9 CISG is also relevant, because it relates to (international trade) customs. This may be the case if the parties have mutually agreed to certain uses or if they have designated a specific use as binding. In addition, parties may also be bound by international trade customs if they were or had been aware of this. So, if there are such (international trade) practices between parties in the field of sustainability, this can in principle be seen as part of the contract.

Civil Code

Based on the national law, the doctrine of justified trust could provide a way out. This was explained in the classic Haviltex case. It follows that the contractual obligations and the omissions therein cannot be interpreted purely textually. What is relevant is the meaning that the parties gave to the text and what they could expect from each other. This leads to a similar result as the article 8 CISG discussed above. Also comparable to the CISG is that usage can influence the legal consequences of a contract (Article 6:248 BW). Therefore, a particular behaviour or use in the field of sustainability can in principle also be covered by the contract, depending on the circumstances of the case.

Conclusion

Based on the above, it can be concluded that based on the CISG and national law, contractual sustainability goals between commercial parties are only enforceable if it is in the will of the parties. It depends to a large extent on how the clause is formulated, respectively on the behaviour and customs of the parties, partly in the light of international trade. The well-known phrase, “where there is a will, there is a way” clearly applies here.

Do you also intend to include a sustainability clause in your contract, and do you want to make sure that it must be adhered to? Or has a dispute arisen afterwards about what, according to you, was part of the agreement, or at least clearly agreed between the parties outside of it? In that case, contact Law & More. Our team specializes in sustainability and contract law and is happy to answer all your questions. If necessary, we will also be happy to give you advice and assistance during legal proceedings.

* The Vienna Sales Convention applies as standard regulation to international commercial contracts with regard to the sale of (movable) property between parties whose business is established in different states, when these states: (a) are contracting states to the treaty or (b) a choice of law has been made for a contract state. The Netherlands is a contracting state to this treaty.