Starting from the observation that the current provisions of the Code of Economic Law would not make it possible to ensure an effective level of protection for companies in a position of weakness or even economic dependence on other companies, the Belgian legislator adopted on 21 March 2019 a new law introducing three sets of new rules into the Code aimed at regulating relations between companies (B2B). In the upcoming months, new provisions on abuse of economic dependence, unfair terms and unfair, misleading or aggressive market practices will come into force. In practice, several of these will fundamentally change the legal framework for business relations. This law will be published in the Belgian Official Journal shortly.
A. Abuse of economic dependence
Based on the observation of abusive behaviour in unbalanced relations between companies, the Belgian legislator introduced in the Book IV of the Code of Economic Law (dedicated to the protection of competition) the prohibition to abuse a relationship of economic dependence on another company. This regulation is directly inspired by the French model.
1)How is a position of economic dependence defined?
This notion is defined as follows: a position of subordination of one company towards one or more other companies, which is characterised by two criteria, namely: (1) the absence of a reasonably equivalent alternative available within a reasonable time, on reasonable terms or at reasonable cost, (2) which allows the said company to impose services or conditions which could not be obtained under normal market circumstances.
In order to be able to determine this position, the specific factors to the case may be taken into consideration, such as:
- the market power of a company;
- the fact that one company holds a significant share of another company’s turnover;
- brand awareness, product rarity, consumer purchase loyalty;
- fear of serious economic disadvantages, reprisals or termination of the contractual relationship (“fear factor”);
- the regular granting to a company of special conditions which are not granted to other companies in parallel circumstances, such as discounts or special promotions;
- obtaining benefits without compensation or disproportionate benefits;
- obtention of apparent abusive conditions under the threat of a sudden termination of commercial relations:
- subjecting a business partner to penalties for late delivery in the event of force majeure;
The notion of economic dependence is therefore distinct from the notion of dominant position. Likewise, a situation of economic dependence may well exist in the case of a company that is not a SME, even though it is primarily this category of companies that the law seeks to protect, particularly in the food retail sector.
2) In which cases is there a question of abuse?
The legislator gives five examples of practices that can establish the abuse of economic dependence:
- refusal of sale, purchase or other trading conditions;
- direct or indirect imposition of purchase or sale prices or other unfair trading conditions;
- limitation of production, markets or technical development to the detriment of consumers;
- applying unequal conditions to equivalent services to economic partners, thereby placing them at a competitive disadvantage;
- making the conclusion of contracts subject to the acceptance by the economic partners of additional services which, by their nature or according to commercial practice, are not related to the subject matter of such contracts.
To the exception of the first example, the others derive from the provision against the abuse of a dominant position. Otherwise, it will be the circumstances of the case that will have to be assessed and analysed. Even if the concepts of abuse of dominance and abuse of economic dependence are distinct, the case law on the former should provide useful insight into how the latter can be interpreted.
3) Which consequences ?
As soon as these new provisions enter into force, i. e. on the 1st day of the 13th month following the publication of the law in the Belgian Official Journal, a company may be sanctioned if it is established:
- that the other party is in a position of economic dependence;
- that the offending company abuses this position, whether through an abusive practice referred to in Article IV.2/1 or other practices recognised as abusive; and
- that this abuse is likely to affect competition on the Belgian market or a substantial part of it. It should be noted that, as in French law, the impact of competition on the market may be real but also potential, although difficulties may be expected in characterising this concept.
If these cumulative conditions are met, the Belgian Competition Authority could impose on the company a fine not exceeding 2% of its annual turnover or a prohibition with a penalty payment of 3% of its average daily turnover per day of delay.
Similarly, such a practice may be the subject of an action for a commercial injunction before the President of the commercial court and may be prohibited under penalty.
It will therefore be up to the companies affected by such abuses to weigh up the advantages and disadvantages of each path (in particular regarding the rules of evidence, speed, cost, etc.), it being understood, however, that given the Belgian Competition Authority’s priority policy, there will probably be few cases of abuse of economic dependence that it will be able to deal with, at least as it stands at the moment.
B. Unfair terms between companies
The legislator also intended to intervene in the contractual field of B2B relations by introducing a regime similar to the one provided for in B2C relations. After having noticed thatthere may also be unequal power struggles in B2B relations that may lead to the application of unbalanced conditions between the parties, the legislator introduced a new regulation on unfair terms in contracts concluded between companies. This is certainly the part of the regulation that will most likely change the lives of companies as it will affect their entire contractual practice.
These new legal provisions provide in particular that a term in a B2B contract is unfair when, alone or in combination with one or more terms, it creates a clear imbalance between the rights and obligations of the parties. When the unfairness of such a clause is proven, it will be prohibited and therefore void.
The unfairness of the term will be assessed in particular by taking into account the circumstances surrounding the conclusion of the contract, but also the nature of the products covered by the contract, its general scheme, commercial practices and other terms of the contract.
In addition, the law accompanies this general prohibition with two lists of prohibited terms: one known as the “black” list of terms deemed unfair in all circumstances (irrefutable presumption) and the other known as the “grey” list of terms presumed unfair until proven otherwise (rebuttable presumption).
Among the terms included in the black list are those aimed at:
1° providing for an irrevocable commitment by the other party, while the performance of the company’s services is subject to a condition which achievement depends solely on its will;
2° granting the company the unilateral right to interpret any term of the contract;
3° in the event of a conflict, having the other party waive any means of remedy against the company;
4° irrefutably establishing that the other party is aware of or accepts clauses of which it has not actually had the opportunity to become aware before the conclusion of the contract.
Among the terms included in the grey list are those aimed at:
1° authorising the company to unilaterally modify the price, characteristics or conditions of the contract without valid reason;
2° tacitly extending or renewing a fixed-term contract without specifying a reasonable period of termination;
3° placing, without a counterparty, the economic risk on a party when it is normally the responsibility of the other company or a third party to the contract;
4° inappropriately excluding or limiting the legal rights of a party in the event of total or partial non-performance or defective performance by the other company of one of its contractual obligations;
5° without prejudice to Article 1184 of the Civil Code, binding the parties without specifying a reasonable period of termination;
6° releasing the company from liability for its wilful misconduct, serious misconduct or that of its employees or, except in cases of force majeure, for any failure to fulfil the essential commitments covered by the contract;
7° limiting the means of proof that the other party may use.
It can now be said that certain terms, by their wording, will inevitably give rise to many conflicts, whether during the negotiation of contracts or in case of litigation, since their wording may seem vague or their content difficult to determine. How, indeed, determine what “economic risk normally rests with the other company” or what constitutes an “inappropriate” limitation of a party’s legal rights? It will be up to the case law to determine this, not without difficulty.
Unlike the terms that form the black list, those forming the grey list may be declared valid if the company succeeds in demonstrating their fairness in the circumstances of the case or if they are part of a context of the parties’ genuine desire to include such terms in their contractual relationship.
The provisions relating to unfair terms will enter into force on the 1st day of the 19th month following the publication of the law in the Belgian Official Journal and will only be valid with regard to contracts concluded, renewed or amended after that date.
In addition, the legislator has expressly excluded the application of these provisions to public procurement and financial services, unless otherwise provided by Royal Decree.
C. Unfair, misleading or aggressive market practices
Finally, the legislator has extended to B2B relations a large number of provisions from the regulation of unfair, misleading and aggressive commercial practices towards consumers, which transposes the Directive 2005/29/EC into Belgian law. On this point, however, the amendment of the law should not lead to a revolution, given that unfair and deceptive practices against other companies were already prohibited and sanctioned under the previous regulations.
The new provisions will enter into force on the first day of the 4th month following the publication of the law in the Belgian Official Journal.
Partner THALES Attorneys – Commercial, IP & Food Law
Associate THALES Attorneys – Commercial, IP & Food Law