New reflexes will be necessary in B2B relations: abuse of economic dependence, unfair market practices and unfair contract terms are prohibited. The first part of rules enters into force on 1 September 2019.
Until today, Belgian and European law have focused on consumer protection in commercial relations. However, small and medium-sized enterprises (hereafter SMEs) are regularly imposed difficult partnership conditions by larger groups. On 4 April 2019, the Belgian Parliament introduced into the Code of Economic Law new rules on B2B relations, aimed mainly at protecting SMEs or the “weakest” party, not necessarily a SME. This regulation was published on 24 May 2019.
The law contains three kinds of provisions: (i) the prohibition of unfair market practices between undertakings (inserted in Book VI); (ii) the prohibition of unfair terms in contracts between undertakings (inserted in Book VI); ; (iii) the prohibition of abuse of an undertaking’s economic dependence (inserted in Book IV).
Unfair market practices
The Act of 4 April 2019 introduces into the Code of Economic Law the prohibition of unfair terms in contracts between companies and unfair market practices in their execution. A similar regime to the one existing for consumer protection is thereby adopted.
In this context, unfair market practices, or practices intended to mislead the other party to the contract or to exert inappropriate pressure on them to cooperate, will be prohibited.
This prohibition is the first part of the Regulation to enter into force as it will be applicable as from 1 September 2019.
Unfair contract terms
In addition to the prohibition of unfair market practices, the new rules introduce a prohibition of unfair terms in contracts between undertakings. An unfair term is any term that creates a manifest imbalance between the rights and obligations of the parties. The company that suffers from this imbalance can therefore have such a clause annulled.
However, the notion of manifest imbalance is very broad in scope and could therefore be the subject of many disputes.
For the sake of convenience, the legislator has provided for a list of terms that are considered unfair without further assessment (black list). These will be automatically annulled by the Court if present in a contract. The new Act also provides for a list of terms that are presumed to be unfair, unless proven otherwise (grey list). These will be prohibited unless the company can demonstrate that they are fair in a given context, e.g. if they are the result of negotiations.
The black list refers to terms that seek to :
- create an irrevocable obligation for the other party while the performance of the company’s obligations is subject to a condition depending for its realization solely on its will ;
- give the company the unilateral right to interpret any term in the contract;
- in the event of a dispute, oblige the other party to waive any remedy against the company;
- irrefutably establish the other party's knowledge or acceptance of terms that party had not been able to become acquainted with prior to the formation of the contract.
The grey list refers to terms that:
- give the company the right to unilaterally modify, without a valid reason, the price, characteristics or terms of the contract;
- tacitly extend or renew a fixed-term contract, without providing a reasonable notice period;
- place, without counter-performance, the economic risk on a party if that risk would normally be supported by the other company or by another party to the contract;
- inappropriately exclude or limit the legal rights of one party in the event of total or shared non-performance or defective performance by the other company of any of its contractual obligations;
- without prejudice to article 1184 of the Civil Code, bind the parties without providing a reasonable notice period;
- discharge the company from its liability for its willful misconduct, its gross negligence or that of its employees or, except in cases of force majeure, for the non-performance of essential obligations that are the subject matter of the contract;
- limit the means of evidence that the other party may rely on; or
- in the event of non-performance or delay in the performance of the other party's obligations, fix damages amounts that are manifestly disproportionate to the harm that may be suffered by the business.
In order to consider that a clear imbalance between the rights and obligations of the parties exists, it will be necessary to verify the concrete consequences of the clause on the parties and their relationship. This analysis must therefore be carried out taking into consideration the specific features of the contract, the nature of the products, the parties involved, commercial uses, and all the circumstances surrounding the conclusion of the contract.
It will be up to the case law to intervene to specify and circumscribe these criteria.
These new rules will be applicable to all companies, even though neither of the contracting parties could be considered as a "weak party" and would normally not need any particular protection.
Finally, it is important to note that these prohibitions will only apply to contracts concluded, renewed or modified after the entry into force of the law, which will occur for this part on 1 December 2020.
Moreover, they are not applicable to public procurement and contracts for financial services. However, the law provides that they could become so by royal decree.
Abuse of economic dependence
The health of many SMEs depends largely on one of their bigger partners, creating economic dependence on them. This dependence is characterized by "the absence of a reasonable and equivalent alternative available within a reasonable time frame, under reasonable conditions and costs".
It appeared that companies could and would take advantage of this situation of imbalance and abuse their partners' position of dependence by imposing on them conditions of collaboration that could not be obtained under normal market circumstances. It is precisely such situations of abuse that the new rules seek to avoid and to punish.
The Act of 4 April 2019 provides a non-exhaustive list of practices that may beconsidered as an abuse of economic dependence, such as:
- refusing a sale, a purchase or other transactions ; directly or indirectly imposing unfair purchase or sales prices or other unfair trading conditions;
- limiting production, markets or technical development to the detriment of users;
- applying uneven conditions to equivalent obligations towards economic partners, thereby putting them at a disadvantage in competition;
- making the conclusion of a contract dependent on the acceptance by the economic partners of additional obligations which have no connection with the subject matter of such contracts.
These types of practices will be prohibited “if competition is likely to be affected on the Belgian market concerned or on a substantial part of it”.The impact on competition may therefore be actual or potential.
A company that considers itself subject to unacceptable conditions by one of its partners may refer the matter to the Belgian Competition Authority, whose powers are strengthened. This Authority will also have the power to investigate and intervene on its own motion. It may impose fines of up to 2% of the turnover of the undertaking concerned, and penalty payments may also be imposed in the event of non-compliance with a prohibition.
Such complaints may also be brought before the common law courts, for example through the demand of a cessation order, or an action for damages.
As the line between arduous negotiations and abuse of economic dependence is not always clear, the task of these authorities will not be easy and an abundance of case law could therefore emerge in this area.
The new rules on abuse of economic dependence will enter into force on 1 June 2020.
KOAN's Commercial Team is at your disposal to evaluate the impact of these new rules on your existing or future commercial relations and to identify possible risks. Please do not hesitate to contact Ariane Destrycker ([email protected]) or Pauline Faucon ([email protected]) for any further questions.