- How will the B2B Law affect distribution and services agreements?
How will the B2B Law affect distribution and services agreements?
With the Law of 4 April 2019 concerning the abuse of economic dependence, unfair clauses and unfair market practices in B2B relations (the “B2B Law”), the Belgian legislator has introduced a prohibition on 'unfair clauses' in agreements between enterprises. In short, the B2B Law prohibits each clause which, individually or taken together with other clauses, creates a significant imbalance between parties’ rights and obligations. Only the 'core clauses' of an agreement escape the new rules, provided that they are intelligible and clear/transparent.
The B2B Law furthermore includes a ‘black list’ (4 clauses which are in all cases deemed to be unfair and therefore prohibited) and a ‘grey list’ (8 clauses which are presumed to be unfair but the presumption can be rebutted). We refer to the webpage New rules in B2B relationships for further general information on the B2B Law.
The legal uncertainty created by this new B2B legislation can have an important impact on your commercial agreements. Below, we will discuss its impact on distribution agreements (concession-, franchise-, or commercial agency agreements) and services agreements (e.g. consultancy agreements).
Distribution agreements will very likely be impacted by the B2B Law. They are often concluded between a ‘weaker’ and a ‘stronger’ party. Most of the time, the ‘weaker’ contract partner is the distributor (concessionaire, franchisee or commercial agent), but in some cases also the principal or supplier may be in this ‘weaker’ position. Therefore, distribution agreements may contain clauses which are can be found abusive within the meaning of the B2B Law.
Also services agreements can be impacted by the B2B Law. A service provider and its principal sometimes have a relationship of dependency in which one of the parties has more leverage than the other.
According to the ‘general norm’ introduced by the B2B Law, each clause (except for ‘core clauses’ that include the object of the contract and pricing) that, individually or taken together with other clauses, creates a significant imbalance between the rights and obligations of the contracting parties, is prohibited. The criteria that are of particular importance to make this assessment are discussed in our article about the impact of the B2B Law on general terms and conditions.
When making this assessment for clauses in distribution agreements, criteria that will be of particular importance are the specific (economic and legal) characteristics of a distribution agreement, and the rules of Book X of the Belgian Code of Economic Law (“CEL”) that apply to some distribution agreements (i.e. precontractual information obligations, commercial agency agreements and (quasi-) exclusive concession agreements), for example:
- if the parties to a distribution agreement have complied with the rules regarding precontractual information obligations set forth in article X.26 CEL, this will in our view be a strong indication that the parties did ‘truly’ want the arrangement and have been duly informed of the main contractual risks and nature of their obligations; and
- if the principal imposes important (investment) obligations on the concessionaire, these obligations may trigger the applicability of specific laws that imply additional protection for the concessionaire in the event of termination of the agreement. This counterbalance may reduce the risk that such obligations will be considered unlawful.
For an overview of clauses that may fall under the scope of the general prohibition of unfair clauses, please refer to our article about the impact of the B2B Law on general terms and conditions. For example, a typical clause that may be abusive is a clause to the effect that the principal has no obligations whatsoever vis-à-vis the stock upon termination of the agreement, whatever the reason may be. Also, if the investments that the distributor must make are manifestly not justifiable in the light of the specific characteristics of the distribution relationship and other rights and obligations of the parties, such clause may be unlawful. Certain clauses that are often present in services agreements may also be questioned, such as exclusivity undertakings that are imposed on the service provider or clauses implying an overly burdensome investment for the principal.
Some of these clauses are explicitly envisaged by the legislator in the ‘black list’ and ‘grey list’, which will be discussed below.
It must however be stressed that courts must act with caution when assessing the abusive character of contractual clauses and the parties’ contractual relationship. Only if a clause, or combination of clauses, creates a significant imbalance based on a case-by-case assessment, a court may find a clause to be abusive based on the ‘general norm’.
Clauses on the ‘black list’ are considered to be unfair in any event. They are therefore strictly forbidden.
1° Clauses that aim to create an irrevocable obligation for one party while the performance of the other party’s obligations is subject to a condition of which the achievement depends solely on the will of that party
Concession agreements sometimes include clauses that may fall under the ambit of this provision, e.g. a discretionary power of the principal (not based on any objective criteria) to refuse an order, while the concessionaire is already irrevocably bound.
In the framework of a services agreement, a clause providing for the discretionary power of the principal to unilaterally suspend the contract at any time, without paying any fee and without giving reasons for the suspension can also be disputed. To avoid any issues, the parties may agree on reasonable grounds on which their contract can be suspended.
2° Clauses that aim to confer on a party the right to unilaterally interpret a contractual provision
Only clauses conferring on a party the right to unilaterally interpret a contractual provision will be unlawful. Other clauses on interpretation (e.g. interpretation of a clause in favor of a certain party) remain valid. Nor does this prohibition render the determination of the subject-matter of the agreement by one party unlawful.
Nevertheless, the precise scope of this prohibition is highly uncertain. All clauses with ambiguous or unclear wording that grant certain rights to a party without reference to objective criteria may fall under the ambit of this prohibition, e.g. a service provider that has the right to ask a deposit in the event of an ‘abnormal’ high consumption. This implies that also unilateral termination rights, e.g. in the event of a ‘material’ breach, may in some cases fall within the scope of this ‘black clause’.
It is therefore strongly recommended to use clear/unambiguous wording where possible, to avoid broad and general wording when granting unilateral rights to a party, and to make these rights subject to objective criteria.
3° Clauses that aim, in the event of a dispute, to have a party renounce any means of recourse against the other party
This clause should be interpreted strictly and only targets contractual provisions excluding all means of recourse and/or excluding all access to justice. As a consequence, this clause has no additional value compared to the general principles that are already applicable today. The impact of this clause is therefore limited.
Note that, while the parliamentary discussions also refer to arbitration clauses as possibly being caught by this provision, it is generally accepted that arbitration is a “means of recourse” equivalent to court proceedings and does not exclude all access to justice. These clauses, which are often found in distribution agreements, remain thus valid. However, please do note that some Belgian courts do not accept that disputes regarding the termination of (quasi-) exclusive concession agreements that are executed on the territory of Belgium are submitted to an arbitral tribunal if the arbitral tribunal will not apply the laws of Belgium.
4° Clauses that aim to irrefutably establish a party’s knowledge or acceptance of terms of which that party did not have actual knowledge before the conclusion of the contract
This prohibition envisages clauses that sometimes appear in distribution and services agreements according to which the distributor/service provider (irrefutably) acknowledges knowledge and/or acceptance of general terms and conditions or of certain policies, annexes, etc. that contain additional obligations. Such clauses only have any value if the counterparty reasonably had the opportunity to have actual knowledge of such documents.
The eight clauses on the ‘grey list’ are presumed to be unfair. This presumption can be rebutted if it is proven that, taking into account the circumstances and characteristics of the agreement, the clause does not create a significant imbalance between the rights and obligations of the parties, or if it is demonstrated that both parties ‘truly’ wanted the arrangement.
In this respect, it has to be noted that, as far as the parties to a distribution agreement have complied with the rules regarding precontractual information obligations set forth in articles X.26 CEL, this will in our view be a strong indication that the parties did ‘truly’ wanted the arrangement. Also, the specific (legal and economic) characteristics of a distribution relationship may be an important factor to justify the rebuttal of the presumption of unlawfulness.
1° Clauses that aim to give a party the right to unilaterally modify, without a valid reason, the price, characteristics or terms of the contract
This presumption of unfairness will only apply to clauses allowing a party to unilaterally modify the contract without a valid reason.
Distribution agreements often contain a right for the principal to unilaterally change the conditions of the agreement, e.g. price of the products, quantity of the products that can be purchased and/or sold, characteristics of the products, changes to the ‘franchise manual’, etc.
Also services agreements sometimes provides for the unilateral and unconditional right for the principal to change the place of performance of services, the availability level and mission of the service provider.
To avoid that a clause is presumed to be unlawful, the following measures could be envisaged:
- mention, by way of example, objective criteria or ‘valid’ reasons that give a party the right to change certain conditions of the agreement, e.g. the right to change the price of the goods or services in the event that the price of the raw materials, taxes, prices of suppliers, etc. has increased;
- add a general phrase stating that a party is allowed to change the agreement ‘for valid reasons’ only;
- provide a reasonable term for the changes to apply;
- adding a right for the counterparty to terminate the agreement after the unilateral can also be envisaged. However, whether such addition suffices as a “balancing measure” is not clear as the Dutch and French text of the parliamentary discussions contradict each other on this point. This option may also be less effective for some distribution agreements, as their termination rights are governed by mandatory laws.
Clauses regarding indexation are as such not envisaged by this presumption but are (still) subject to the conditions set forth in article 58 of the law of 30 March 1976 on economic revitalization measures (establishing the 80% rule). Finally, please do note that unilateral changes to the agent’s commission during the term of the agreement implies the termination thereof according to article X.13 CEL.
2° Clauses that aim to tacitly extend or renew an agreement of definite term without providing a reasonable notice period
Tacit renewal or extension clauses that do not provide a notice period or reasonable notice period to the counterparty, are presumed to be abusive.
It is common practice in Belgium that, if a distribution or services agreement is concluded for a definite term and includes a tacit renewal or extension of the agreement, such renewal or extension only take place unless a party has (timely) opposed to such renewal or extension. For (quasi-)exclusive concession agreements, according to article X.38 CEL, such opposition must be done by registered mail, at least three months and maximum six months prior to the termination. This period can provide guidance to assess the reasonableness of the notice period for other distribution agreements.
It is however not clear whether the reasonable notice period should be provided before or after the tacit extension or renewal of the agreement, i.e. must a party have had the opportunity to oppose before a tacit extension or renewal, or must a party have the opportunity to terminate the extended or renewed agreement afterwards? To our knowledge, all legal scholars have rejected the second interpretation. However, the parliamentary discussions are more ambiguous on this point.
Whether a notice period is ‘reasonable’ depends on the circumstances of the specific case, e.g. nature of the goods and services, sector, etc. Both notice periods that are too long and those that are too short are presumed to be unfair.
3° Clauses that aim to place, without compensation, the economic risk on one party, where that risk is normally borne by the other party or by another party to the contract
This presumption raises a lot of questions, e.g. how to distinguish between an economic/commercial risk and legal risks, how to determine which party should normally bear a certain risk, does any compensation suffice to justify a shift of risk, or only a reasonable compensation? All these questions are left to legal scholars, practitioners and case law as neither the B2B Law nor its parliamentary discussions offer any useful guidance.
Examples of typical clauses that may fall under the scope of this presumption are e.g.:
- In distribution agreements:
- stock protection clauses;
- clauses that fix the price of goods and services depending on the future results of a party;
- minimum purchase obligations;
- a delcredere clause in an agency agreement, which must be in any event compliant with article X.23 CEL.
- In services agreements:
- clauses allowing the principal to modify or reduce the service provider’s fees on the basis of the company's future results;
- clauses allowing the principal to unilaterally modify or reduce the workload of the service provider on the basis of the company's results.
To minimize the risk, one may consider including a clause that stipulates that the parties acknowledge that the allocation of the (economic and legal) risks in their agreement is not done without consideration. One can also explicitly stipulate that a certain clause, e.g. a delcredere clause in an agency agreement, resulted in a higher commission for the commercial agent.
4° Clauses that aim to inappropriately exclude or limit the legal rights of a party in the event of total or partial non-performance or faulty performance of the other company’s contractual obligations
Besides the ‘general norm’, this is the second ‘catch all’ provision in the B2B Law, and may thus apply to a wide variety of clauses that exclude or limit the rights of a party in the event of non-performance (whether faulty or not) of the agreement by the other party, e.g. the right to claim:
- the (forced) execution of the agreement;
- reduction (e.g. of the price);
- termination of the agreement;
- hold harmless obligations or limitations of the rights against third parties;
- suspension of the execution of the agreement; or
- a right of retention.
Distribution and services agreements often also contain clauses that limit or exclude the exposure of (one of) the parties – compared to what this party would have been entitled to according to the applicable law – in the event of a non-performance of the agreement, e.g.:
- exoneration clauses;
- clauses regarding the limitation period;
- performance clauses;
- force-majeure/hardship clauses;
- clauses regarding the risk of loss of the goods; or
- clauses that reverse or increase the burden of proof or that limit the means of proof.
It is however uncertain when such clause(s) will be considered ‘inappropriate’, as this belongs to the discretionary power of the courts to make this assessment. In any event, as already mentioned, courts must act with caution when assessing the abusive character of contractual clauses, taking into account the specific circumstances of each case, e.g. the nature and importance of the non-performed obligation, the importance of the non-performance itself, the faulty character of the non-performance, etc.
In general, it can be expected that, the more the rights of a party are limited by one or more clauses, the more likely it will be that this/these clause(s) will be presumed to be abusive.
5° Clauses that aim, without prejudice to Article 1184 of the Belgian Civil Code, to bind the parties without providing a reasonable notice period
If this clause is interpreted literally, each agreement that does not provide for a ‘reasonable’ notice period, will be presumed to be unfair, without distinction between agreements concluded for an indefinite term and agreements of a definite term.
While, as a general principle of Belgian law, agreements concluded for an indefinite term can always be terminated by giving a reasonable notice period, the obligation to provide such notice period in an agreement concluded for a definite term, would imply a (heavily criticized) change to a well-established principle of Belgian contract law. Such obligation would render it impossible to conclude agreements for a fixed (minimum) term.
Therefore, two alternative interpretations are suggested:
- Most scholars suggest that this clause only applies to agreements of an indefinite term;
- Other scholars suggest that this clause applies to both contracts of indefinite and definite term, but that only if the parties stipulate a notice period, this period must be reasonable.
All in all, even if the presumption must be interpreted in the broadest sense, in many cases there will be good arguments of a commercial and economic nature that justify that the parties need certainty about the (definite) term of their agreement, which allow the presumption of unfairness to be rebutted.
Whether a notice period is ‘reasonable’ depends on the circumstances of the specific case, e.g. nature of the goods and services, sector, etc. Both notice periods that are too long and those that are too short are presumed to be unfair.
Please do note however that the impact of this presumption on distribution agreements will be rather limited:
- For (quasi-) exclusive concession agreements with an indefinite term it is not possible to determine the notice period (article X.36 CEL);
- According to article X.38 CEL, (quasi-) exclusive concession agreements with a definite term are automatically renewed, unless a party has opposed against such renewal by registered mail at least three months and maximum six months prior to the termination of the agreement; and
- For commercial agency agreements, article X.16 CEL provides that the notice period is at least equal to one month per year, with a maximum of 6 months, and that parties are only allowed to agree upon a longer notice period if the notice period of the principal is not shorter than the notice period of the commercial agent.
6° Clauses that aim to discharge a party from its liability for its willful misconduct, its gross negligence or that of its representatives (“aangestelden” / “préposés”) or, except in case of force majeure, for the non-performance of essential obligations that are the subject matter of the contract
First of all, this presumption only envisages exclusions of liability, and not mere limitations. The prohibition of exoneration of liability for willful misconduct is already known under Belgian civil law. The ‘grey clause’ adds gross negligence to this prohibition.
Contrary to the general rules of Belgian civil law, the presumption also envisages clauses that exclude a party’s liability for willful misconduct/gross negligence of its representatives. A representative is every person that executes its activities under the (factual) authority of another party. Proxies or independent contractors are thus not envisaged. Finally, like in civil law, the prohibition also envisages exoneration for non-performance of essential contractual obligations.
As distribution agreements (almost) always contain exoneration clauses, this ‘grey clause’ is an important one to note. However, as the impact of the clause – compared to civil law – is rather limited, it might also be difficult to refute the presumption.
7° Clauses that aim to limit the means of proof the other party may rely upon
As any clause limiting the means of proof available to a party will be presumed unfair and unlawful. Neither the B2B Law itself, nor the parliamentary discussions, provide further clarifications on the rationale behind this ‘grey clause’.
Only clauses limiting the means of proof will be presumed to be unfair and unlawful. Are, according to legal scholars, not envisaged by this presumption, clauses that:
- reverse or increase the burden of proof;
- rank the means of proof; or
- determine the formalities for a valid legal act (not to prove the act as such) e.g. the requirement to send a notice per registered mail to (validly) terminate an agreement.
If a clause limits the means of proof, the parties can still reverse the presumption of unfairness, e.g. by showing that the limitation is not unilateral and applies to all parties to the agreement. However, the assessment will always depend on the specific circumstances of each case.
8° Clauses that aim, in the event of non-performance of a party’s obligations, to fix damages which are manifestly disproportionate to the damage that may be suffered by the other party
This final ‘grey clause’ concerns clauses providing for excessive liquidated damages, i.e. liquidated damages manifestly exceeding the amount of damages a party could reasonably be expected to suffer as a result of the breach.
Many scholars doubt the added value of this presumption, in particular as civil law already contains a similar prohibition in article 1231 of the Civil Code. The main difference between the ‘grey clause' clause and article 1231 CC lies in their sanction. While the latter leads to an adjustment of the amount of the damages, which may be not lower than the actual damage suffered, the sanction in the B2B Law is the (partial) nullity of the clause. However, in any event, the nullity of the penalty clause is without prejudice of a party’s right to prove the damage it has suffered and to receive compensation for such actual damage.
lt is expected that companies will add additional boilerplate clauses in their distribution and services agreements e.g. the (absence) of manifest imbalance of the rights and obligations of the parties or the fair distribution of (economic/legal) risks between the parties. They may be useful in some cases, but their added value will in our opinion largely depend on their credibility, i.e. only if the parties have really negotiated on the terms and conditions of their agreements. It is therefore recommended that the parties properly document their negotiations in writing, e.g. through mark-ups to the draft agreements.
A severability clause governing the consequences of an abusive, and thus void clause, is in any case strongly recommended. Such clause could for example oblige the parties to re-negotiate a clause or instruct the court to replace the abusive clause by a valid clause.
Don’t hesitate to reach out if we can be of any assistance to you in this respect.
Wannes BuelensAssociate Attorney at Law
Wannes Buelens is a member of the Litigation & Risk Management practice group in our Brussels office. He specializes in health law, liability law and insurance law. He is also a member of the firmwide Healthcare & Life Sciences Team.T: +32 2 773 23 72 M: +32 4 94 43 31 04 E: firstname.lastname@example.org
Stéphanie De SmedtCounsel Attorney at Law
Stéphanie De Smedt, attorney-at-law, is a member of the Litigation & Risk Management practice group in our Brussels office. She is head for Belgium of the IP/IT Team, the Data Protection Team and the Life Sciences Team.T: +32 2 773 23 77 E: email@example.com