Can you unilaterally terminate an IT contract if the budget derails?

When an IT project drastically exceeds the agreed budgets, the question often arises as to whether you, the client, may unilaterally terminate the contract. A judgment by the French-speaking Enterprise Court of Brussels dated August 1, 2025 confirms that an IT supplier who refuses to complete the project within an agreed budget cap is committing a serious breach of contract. Moreover, the supplier violates its information and advice obligation when it fails to warn the client in a timely manner of such overruns, justifying an out-of-court termination.

The facts and legal context

In this case, a company commissioned an IT service provider to modernize its IT systems through the implementation of Microsoft Dynamics 365. The parties entered into a contract in October 2018 on a time & material basis, but with a defined budget cap.

After significant delays and budget discussions, the parties entered into a settlement agreement (transaction protocol) in July 2020. This increased the budget by 103,000 euros and set a new delivery deadline, coupled with a penalty clause for late delivery.

Despite these new agreements, the project was again delayed and the IT vendor announced in June 2021 that the project could only be completed with an additional budget of 436,850 euros (excluding a potential margin of 35%). The customer lost confidence and proceeded to terminate the contract out of court in July 2021.

The court's decision

The Brussels Enterprise Court had to rule on the legality of this unilateral dissolution. The court reached the following remarkable decisions:

• Delay is not a ground for termination due to penalty clause: The court ruled that the delay itself could not justify rescission. After all, the transaction protocol contained a penalty clause that was expressly worded as the client's sole and exclusive remedy in case of delay.
• Budget overrun is a serious mistake: The fact that the IT vendor refused to complete the project unless the budget cap was substantially increased (by 38.5%) constitutes a serious breach of contract.
• Breach of duty to disclose: The supplier had failed to warn the client in a timely manner of this huge budget overrun, in violation of good faith performance and the general duty to advise and inform.
• Nuanced retroactive operation: Although the termination is in principle retroactive, the court ruled that the contract was divisible. The customer must pay only for the already completed modules that provided him with a concrete and actual benefit. The unfinished and unusable work should not be paid for.

Legal analysis and interpretation

Extrajudicial termination (dissolution by notice by the creditor) was under the old Civil Code (article 1184 old Civil Code) an exception accepted by case law to the rule that termination had to go through the courts. Today, this principle is also explicitly enshrined in article 5.93 of the Civil Code. The condition, however, is that the co-contractor has committed a sufficiently serious breach of contract and the party dissolving does so at its own risk.

This decision perfectly illustrates the relationship between exclusive remedies and the right to terminate a contract. Contractual clauses that designate a particular penalty (such as a delay penalty) as the sole compensation for a specific breach exclude the possibility of terminating the contract on the basis of that same breach.

In addition, the ruling emphasizes the heavy responsibility of an IT supplier. From the obligation to execute contracts in good faith stems a general duty to advise and inform. Even if the contract is silent on this, the supplier has a duty to prepare a correct initial budget and proactively inform the customer as soon as the agreed budget is compromised.

What this specifically means

This case law has important implications for parties involved in complex (IT) projects:

• For the client (customer): You stand strong when a supplier refuses to deliver within an agreed budget cap. Pay very close attention to the wording of penalty clauses: if a contract stipulates that a penalty is the only remedy for delay, you lose the right to terminate the contract on that ground. Moreover, in the event of a successful rescission, you will only owe compensation for performance that still provides you with an effective benefit.
• For the (IT) vendor: You bear a heavy duty of information and advice. Fixed budgets or caps are binding. If unforeseen circumstances or scope changes arise, you are obliged to inform the client immediately and transparently. Merely sending invoices is insufficient to fulfill this duty of warning.

Frequently asked questions (FAQ)

Can I just unilaterally terminate an IT contract?
No, this cannot be done just like that. A unilateral (out-of-court) termination is done at your own risk and requires that the other party has committed a very serious contractual default. Think of refusing to deliver within a binding budget. If the court subsequently rules that the breach was not serious enough, you may be held liable yourself.

Do I lose my right to termination if there is a penalty clause in the contract?
It depends on the wording. If the contract expressly states that payment of a penalty is the sole and exclusive remedy for a particular default (e.g., delay), then you can no longer terminate the contract based on that particular default.

Do I have to pay for unfinished software after termination?
Not necessary. For contracts with successive deliverables, such as IT development, one often applies a nuanced retroactive termination. You should only pay for the modules or functionalities that are effectively finished and provide you with a tangible benefit. You are not liable to pay for useless or unfinished work.

Conclusion

Out-of-court termination is a powerful weapon in Belgium for companies confronted with IT suppliers who violate their budgetary agreements and information obligations. However, the presence of exclusive penalty clauses and the settlement of services already rendered make such cases legally complex.