On 21 March, 2019, the Belgian Parliament adopted a new act on the abuse of economic dependence, unfair terms and unfair practices in B2B relationships (the "Act"). The final text of the Act is expected to be published in the Belgian Official Gazette in the course of April 2019.
The Act consists of three parts. (1) A prohibition on abuse of economic dependence. (2) Unfair terms and conditions in B2B contracts. (3) Unfair market practices between companies, including aggressive and misleading market practices.
1. Prohibition on abuse of economic dependence - In addition to the existing prohibition on the abuse of dominant position under Belgian law (Article IV.2 ELC ), the Act introduces a prohibition on abuse of the economic dependence of a company.
Economic dependence refers to a situation in which a company enjoys relative market power towards certain other companies. A situation of economic dependence is defined as a position of submission of a company to another company, characterised by the absence of a reasonable equivalent alternative, available within a reasonable time, and under reasonable conditions and costs, that allows this company to impose conditions that cannot be obtained under normal market conditions. According to the preparatory works of the Act, factors such as (i) the relative market power of a company, (ii) representing a significant share in the other company's turnover, (iii) the reputation of a brand, the scarcity of the product, the perishable nature of the product or loyal consumer buying behaviour; (iv) fear of serious economic harm, retaliation or the termination of a contractual relationship; (v) regularly granting special conditions to one ore more companies, such as discounts, which are not granted to other companies in similar cases, (vi) the deliberate choice to put oneself in a position of economic dependence etc., could be considered to establish whether a situation of economic dependence exists in practice.
A situation of economic dependence is, however, not as such prohibited. There needs to be an abuse of the situation of economic dependence. According to the preparatory works, any conduct a company can take due to the fact that its partner is economically dependent upon him, constitutes such abuse. The Act also contains a non-exhaustive list of practices which could be considered abusive, such as (i) refusing a sale, purchase or other transaction terms, (ii) imposing, directly or indirectly, unfair trading conditions, (iii) limiting production, markets or technical development to the detriment of consumers, (iv) applying dissimilar conditions to equivalent transactions with economic partners, thereby placing them at a competitive disadvantage and (v) making the conclusion of contracts subject to the acceptance by the economic partners of additional services which, by their nature or according to commercial usage, have no connection with the subject matter of such contracts.
Finally, in order to be prohibited, the abuse of economic dependence also has (to be able) to affect (a significant part of) the relevant Belgian market. This third condition could be explained by the fact that competition law is aimed at protecting the general public interest, and therefore requires a (potential) market-wide impact. However, the Act does not require the impact to be "significant" and it will be up to the competition authorities and the courts to decide to what extent a "significant" impact will be required, and what would constitute "significance". In the absence of such impact, the abuse of economic dependence could nonetheless still constitute a (prohibited) unfair B2B market practice (see point 3 below).
The maximum amount of the sanctions which can be imposed in case of infringement of the abovementioned provision of competition law will be capped at 2% of the turnover of the abusing company on the national market and through export, obtained during the financial year preceding the decision.
In other Member States similar provisions prohibiting abuse of economic dependence have not always been enforced widely. Whether this will be the case in Belgium will likely depend on whether (i) the competition authority will be sufficiently equipped to exercise its new competence, (ii) sufficient budget will be allocated for this purpose, (iii) the scope of the interpretation that will be given to the condition of 'having an impact on the relevant Belgian market' and (iv) the availability of other means of redress such as a claim for unfair B2B market practices.
What does this mean in practice?
A unilateral change by a supplier of the quantitative selection criteria for a selective distribution network leading to a previously authorized reseller no longer being included in the selective distribution network, might be considered abusive if the authorized reseller is mainly or only selling products from that supplier and only a short notice period is being granted.
A refusal by a distributor to purchase products from a supplier if the distributor accounts for most of the sales of the supplier and is only one of the few distributors who are active nationwide might be considered abusive.
2. Unfair terms in B2B contracts - The Act contains a number of provisions on unfair terms in B2B contracts. Contracts in relation to financial services and public procurement are currently excluded from the scope.
As a general rule, any unfair term shall be prohibited and therefore be null and void. The contract remains binding on the parties if it can continue to exist without the unfair clauses
A contractual term is unfair if it is concluded between companies and creates a manifest imbalance between the rights and obligations of the parties. It does, however, not concern the subject-matter of the contract or the equivalence between the price and the products to be supplied in return in so far as the terms are clear and comprehensible.
The Act furthermore contains a black list and a grey list of unfair terms. The black list consists of terms that are in any event unfair. The grey list includes terms that are presumed to be unfair, unless proved otherwise.
The following terms are currently included in the black list:
- terms that are intended to bind the other party irrevocably, while the performance of the company's own obligations is subject to a condition of which the fulfilment depends exclusively on that company's own will;
- terms that are intended to give the company the unilateral right to interpret any clause of the contract;
- in the event of a dispute, terms that are intended to make the other party waive any means of redress against the company;
- terms that are intended to irrefutably establish the acknowledgement or acceptance of the other party of clauses which the other party was not actually able to review prior to the conclusion of the contract.
Most of the terms that are included in the black list were already problematic under general Belgian contract law, but with the new Act, a clear prohibition has been provided for.
The following terms are included in the grey list:
- terms that are intended to give the company the right to unilaterally alter the price, characteristics or conditions of the contract without a valid reason;
- terms that are intended to tacitly prolong or renew a fixed-term contract with an unreasonable term, without specifying an exit possibility with a reasonable notice period;
- terms that are intended to impose, without any consideration, the economic risk on one party if this risk normally is born by the other company or party to the contract;
- terms that are intended to inappropriately exclude or limit the legal rights of a party in the event of full or shared breach or poor performance by the other company of one of its contractual obligations;
- without prejudice to Article 1184 of the Civil Code, terms that are intended to bind the parties for a considerable period of time without specifying an exit possibility with a reasonable notice period;
- terms that are intended to release the company from its liability for its wilful misconduct, its gross negligence or that of its employees or, except in cases of force majeure, for the non-performance of the essential obligations that are the subject of the contract;
- terms that are intended to limit the means of proof that the other party can rely on;
- in the event of non-performance or delay in the performance of the other party's obligations, terms that are intended to determine compensation amounts that are manifestly disproportionate to the loss that may be suffered by the company.
The abovementioned lists can be updated from time to time.
What does this mean in practice?
A clause in a supply or distribution agreement that permits the supplier or principal to unilaterally change the prices of its products or services at its own discretion without giving valid reasons may be regarded as unfair and therefore prohibited;
Clauses in B2B agreements that exclude liability for gross negligence will, unless proven otherwise, be deemed unfair and will therefore be null and void.
3. Unfair B2B market practices - The Act furthermore contains a number of provisions on unfair B2B market practices.
As a general rule, unfair practices by which a company damages or may damage the professional interests of one or more other companies are prohibited. This is not new, as it already existed under Belgian law.
The new Act now supplements this general rule by providing that, in particular, misleading or aggressive commercial practices, as well as any practice that contributes to an infringement of, amongst others, Book VI of the ECL, constitute an unfair B2B market practice. In doing so, it follows the example of the Unfair Commercial Practices Directive 2005/29 which introduced similar prohibitions in a B2C context
A B2B market practice shall be regarded as misleading if it involves incorrect information and is therefore based on false facts or, even if the information is factually correct, deceives or is likely to deceive a company in any way, including by its general presentation, in relation to one or more of the following elements, and in either case causes or is likely to cause it to take a decision about a transaction that it would not have taken otherwise:
- 1° the existence or nature of the product;
- 2° the main characteristics of the product, such as availability, benefits, risks, execution, composition, accessories, customer service and complaint handling, process and date of manufacture or operation, delivery, suitability for use, usage possibilities, quantity, specification, geographical or commercial origin, results to be expected from the use, or the results and essential characteristics of tests or checks carried out on the product;
- 3° the scope of the company's obligations, the reasons for the market practice and the nature of the sales process, any statement or symbol that gives the impression that the company or the product is receiving sponsorship or direct or indirect support;
- 4° the price or the way in which the price is calculated, or the existence of a specific price advantage;
- 5° the need for a service, part, replacement or repair;
- 6° the quality, characteristics and rights of the company or its intermediary, such as its identity, assets, qualifications, status, recognition, affiliation, connections, industrial, commercial or intellectual property rights or its awards and distinctions;
- 7° the rights of the other company, or the risks that it may run;
- 8° the marketing of a product, including by way of comparative advertising, in such a way as to create confusion with other products, trade marks, trade names and other distinguishing features of a competitor;
- 9° the non-compliance by the company with obligations included in a sectoral code of conduct to which it has committed itself, insofar as it does not concern a declaration of intent but an obligation that is verifiable;
- 10° the spreading of denigrating statements or comments about another company, its goods, services or activity.
Also (i) omitting or hiding information which is required to take an informed decision or (ii) providing such information in an unclear, incomprehensible or ambiguous way or in an untimely manner, taken into account all its characteristics and circumstances and the limitations of the communication medium, can be considered a misleading B2B market practice, if it causes or is likely to cause the other company to take a decision about a transaction that it would not have taken otherwise.
A B2B market practice shall be regarded as aggressive if it, by harassment, coercion, including the use of mild force, or undue influence (i.e. exploiting one's dominant position in a way that significantly limits the ability to make an informed decision), it significantly limits or is likely to significantly impair the company's freedom of choice or conduct with regard to the product and thereby causes or is likely to cause it to take a decision about a transaction that it would not have taken otherwise.
In determining whether a market practice uses harassment, coercion, including physical force, or undue influence, the following factors have to be taken into account:
- 1° the time, place, nature and persistence of the market practice;
- 2° the use of threatening or abusive language or conduct;
- 3° the deliberate exploitation by the company of certain setbacks or circumstances that are so serious that they may limit the company's judgment, with a view to influencing its decision with regard to the product;
- 4° any cost entailing or excessive non-contractual impediments imposed by the company in relation to rights that the other company may wish to exercise under the contract, which may include the right to terminate the contract or to choose another product or another company;
- 5° threatening with taking measures that cannot legally be taken;
- 6° the contractual position of one company in relation to the other company .
Apart from a cease and desist claim (which could also be filed by the competent ministers) and a claim for damages, infringement of (most of) the above provisions on B2B unfair market practices could also result in criminal sanctions.
What does this mean in practice?
Companies wishing to act against unfair commercial practices in a B2B context can now rely on similar grounds as existed already to combat unfair B2C practices.
A particular novelty is that non-compliance with a code of conduct can in itself be considered as an unfair commercial B2B practice, meaning that e.g. not complying with sustainability goals subscribed to in a self-regulatory industry code can be challenged by competitors or authorities.
When published in the course of April 2019, the Act will enter into force:
- with regard to the ban on the abuse of economic dependence: on June 1, 2020.
- with regard to the unfair terms in B2B contracts: on December 1, 2020, but only in relation to contracts that are concluded, renewed or amended as from that date.
- with regard to the unfair B2B market practices: on September 1, 2019.
How to prepare?
1. Companies should review their Belgian B2B contracts to check compliance with the rules on unfair B2B terms to avoid that certain terms be declared null and void.
2. Specific training to marketing and sales personnel should be considered to ensure they are aware of the new rules.
3. Increased attention to how to describe commitments in self-regulatory industry codes to minimize the risk that non-compliance with (aspirational) targets be regarded as an unfair practice.