2B - SME – Abuse of economic dependency – Contract – Unfair terms – Market practices
By the law of 4 April 2019 the Belgian Code of Economic Law was amended to incorporate, as is the case in other EU countries such as Germany and France, additional rules prohibiting certain practices in business to business (B2B) relationships.
The main aim is to more adequately protect businesses against practices that are considered unfair also in a B2B relationship and to restore an equilibrium that is considered lacking in co-operations between small and big market players. The new rules partly build on what already applies in B2C relationships.
The new rules considerably affect current business practices and contract drafting.
1/ Abuse of economic dependence
Since the 1st of June 2020 abuses of economic dependency are prohibited in addition to the prohibition of abuse of a dominant position.
This prohibition aims at meeting the needs of (small) retailers, who often find themselves in a position of being abused by their contract party without being able to invoke an abuse of dominant position in absence of proof of the existence of a dominant position of the abuser on the relevant Belgian market as a whole or on an essential part thereof.
Especially hard practices used amongst the wholesale distributors and smaller suppliers in the food industry (e.g. pressuring for unreasonable low prices under the threat of imminent termination of the relationship) are envisaged but also other sectors (such as small independents in the automotive sector, licence contracts for website development).
According to art. IV.2/1 of the Code of Economic Law it is forbidden for one or more undertakings to abuse the position of economic dependency of one or more other undertakings, as a result of which the competition on the Belgian market or on an essential part thereof may be affected.
Three conditions are to be fulfilled for this prohibition to apply:
1° one or more undertakings are in a position of economic dependency;
2° abuse of this position by one or more other undertakings; and
3° the possibility that the competition on the Belgian market or an essential part thereof is affected.
A position of “economic dependency” refers to any situation where :
1° an undertaking is in a subordinate position towards one or more other undertaking, and
2° which allows the latter undertaking(s) to impose performance or conditions which cannot be obtained under normal market conditions. A subordinate position is characterised by the absence of a reasonable equivalent alternative that is available within a reasonable period of time and at reasonable terms and costs. (new article I.6,4° of the Code of Economic Law).
The following behaviours are listed as behaviours that may be considered as abusive in this case:
- refusing to sell, to buy or refusing other transaction conditions;
- directly or indirectly imposing unfair purchase or selling prices or any other unfair trading conditions;
- limiting production, markets or technical development to the prejudice of consumers;
- the application towards business partners of unequal conditions to equivalent transactions, hereby placing them at a competitive disadvantage; and
- making the conclusion of contracts subject to the acceptance by the business partners of additional performances which by their nature or according to commercial usage have no connection with the subject of such contracts.
As to the condition that the abusive behaviour should be able to affect the competition on the Belgian market (or part thereof) it is to be further seen how this condition will be interpreted for this case.
The general powers of the national competition authority (Belgische Mededingingsautoriteit) have been expanded to ensure enforcement of this prohibition. Violation of this prohibition can be sanctioned via fines up to maximum 2 % of the turnover of the concerned business (i.e. not 10% as is the case for abuse of dominant position) (note that this cap can be increased by a Royal Decree (new article IV.70 of the Code of Economic Law)). Enforcement may also be claimed through court proceedings.
2/ Specific prohibition of unlawful terms
Similarly as to what is foreseen for B2C agreements, a specific regime prohibiting unlawful terms in B2B agreements is inserted in the Belgian Business Code.
First of all, it is explicitly stated that written clauses of an agreement should be drafted in a clear and understandable manner. Directly related market practices may be used to interpret them (article VI.91/2 Code of Economic Law first).
Secondly, as a general matter, any clause in an agreement between businesses which creates - alone or together with other clauses - a manifest imbalance between the rights and obligations of the parties, is unlawful (article VI.91/3 Code of Economic Law). Unlawful terms are prohibited and considered null and void (article VI.91/6 Code of Economic Law).
This implies in practice that a business may, in case such clauses are taken up in a B2B agreement, request a court or arbitral tribunal to have them disregarded. Intervention of a court or arbitrator will thus still be necessary, but if the concerned clause is on the “black list” the concerned clause must be declared null and void.
Additionally, the economic inspection service and the minister of economy are granted the right to initiate a cease and desist order in case of violation of the prohibition.
These provisions on unlawful contract terms do not apply to financial services, nor to public procurements and the agreements that derive from that.
In addition these provisions do not apply to so-called clauses related to the core subject of agreements such as the price or the description of the object of the performance, nor to the adequacy of the price or remuneration in light of the products (broadly defined as including tangible moveable goods, immovable goods, services, rights and obligations) to be delivered in exchange, provided that these clauses are formulated in a clear and understandable manner. If these clauses are not clear and understandable, they may be challenged under the provisions on unlawful contract terms.
As is the case for B2C agreements a “black list” of terms that are in any event prohibited is introduced. This list only contains a limited number of prohibited terms.
In addition (and in deviation of what is foreseen in B2C context) a “grey list” of terms is introduced, containing clauses that are presumed to be unlawful unless the contrary is proven. Both lists of prohibited clauses apply along with the general definition of an unlawful term, that can serve as fall back to claim prohibition of those clauses that are not on the black or grey list.
Noteworthy, considering the overall aim of this law to protect the weaker business partner, is that the prohibition on unlawful terms applies regardless of the existence of a dependency relationship or regardless of the size of the affected undertaking, i.e. any undertaking in a B2B agreement can invoke this prohibition, not only the “weaker” party or an SME.
The “black list” is limited to the following 4 types of clauses:
- clauses that foresee an irrevocable obligation for one party whereas the performance of the other party is subject to conditions the realisation of which are exclusively dependent on the latter’s will;
- the unilateral right for one party to interpret the agreement;
- the waiver by one party of any recourse in case of dispute;
- irrefutably establishes that the other party has knowledge of or has accepted terms, of which such party did not have knowledge prior to concluding the contract.
The following clauses are e.g. on the “grey list”:
- the right for an undertaking to adapt without valid reason the price, the characteristics or the conditions of the agreement;
- shifting the economic risk which is normally to be borne by one party to another party without counterpart;
- limiting or excluding, in an inappropriate manner the legal rights of a party in case of breach of contract by the other party;
- the exclusion of liability for gross negligence.
The rules regarding unlawful terms apply to agreements entered into, renewed or adapted after 1st of December 2020. They do not apply to agreements that are already into force (to the extent they are not renewed or adapted after the given date).
3/ Prohibited unfair market practices
More detailed rules on unfair market practices in B2B relations apply since 1st of September 2019 (art. VI.103/1 e.s. Belgian Code of Economic Law).
By analogy to what is already the case in B2C relations, the new rules provide for a black list of misleading and aggressive market practices that are prohibited towards other undertakings, in addition to a more general definition of misleading and aggressive market practices.
Before an undertaking intending to challenge the market practices of another undertaking, it had, as a general matter, to prove a violation of a law or of the duty of care, affecting or capable of affecting the professional interests of one or more undertakings.
With the new rules an undertaking may now also challenge the market practises of another undertaking based on the new general definitions of the terms misleading and aggressive practices and claim a cease and desist order to have the malpractice stopped besides compensation for incurred damage. Additionally, the economic inspection service and the minister of economy are granted the right to initiate a cease and desist order.
If you have questions or if you would like to have your situation evaluated, we are happy to help you further.