Abuse of economic dependence and unfair contracts and practices prohibited in a B2B context

The new legislation was originally intended to protect companies that are in a situation of economic dependence on large companies or groups of companies and / or even are victims of abuse of this dominant position. This mainly concerned small and medium-sized companies that often do not have the necessary resources to take action against these practices and sometimes even fear retaliatory measures from the company on which they depend.

Particularly in the agri-food supply chain, where companies as suppliers depend on their clients (eg. supermarket chains), such practices are apparently countless.

But the adopted text applies to all companies, wether large or small.

Similar legislation is already in place in various other EU Member States, as well as in Switzerland, Japan and South Korea. Also at European level, a directive was recently adopted in the context of unfair commercial practices in the relationships between companies in the food supply chain.

The new Belgian law, however, goes far beyond the European directive and combines various techniques of controlling and combating abuse between companies. As a result, this not only gives competition law a broader application, but also the techniques used in consumer law are now allowed in a B2B context.

Please find below a summary of the three techniques introduced to prevent B2B abuse.

1. Prohibition on abuse of economic dependence

In addition to the already existing prohibition of abuse of a dominant position, it is now forbidden for companies to abuse a position of economic dependence in which another company is located, which may affect competition on the relevant Belgian market or a substantial part of it.

There is economic dependence when:

• there is a position of dependence of an enterprise on one or more other enterprises;
• characterized by the absence of a reasonably equivalent alternative available within a reasonable period, and under reasonable conditions and costs;
• allowing this or each of these companies to impose performance or conditions that cannot be obtained under normal market conditions.

The reputation of the company, its market share, the share of the other party in its turnover and, finally, the possibility for the non-dominant company to change its trading partners under the same conditions may be elements to determine whether or not there is an economic dependence.

Attention! Economic dependency in itself is not prohibited.

It must in fact be an abuse of economic dependence which may affect competition on the relevant Belgian market or a substantial part of it. The intention is therefore not at all to protect non-performing companies against their dependency situation, nor to penalize companies that have acquired a dominant position on the market due to more efficient choices. After all, this would go against the spirit of competition law.

The law provides examples of cases of abuse of economic dependency, namely:

• in the event of refusal of a sale, purchase or other transaction conditions;
• when unfair purchase or sale prices or other trading conditions are imposed directly or indirectly (eg. unlivable non-compete clauses);
• when production, markets or technical development are limited to the detriment of consumers;
• when unequal conditions are applied to equivalent benefits to economic partners (discrimination), thereby placing them at a competitive disadvantage;
• the fact of 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, are not related to the subject-matter of these contracts.

It is the competition authority that checks compliance with these new provisions. Fines can not exceed 2% of the turnover of the company or association of companies concerned. A penalty payment can be imposed if the decision of the competition authority is not complied with.

In addition, in the event of abuse of economic dependence, it is always possible to initiate proceeding claiming damages, a strike of practices or simply to annull all or part of the contract.

The new rules on abuse of economic dependence enter into force on the first day of the 13th month following the month of publication of the law in the Belgian Official Gazette. As a result, companies have a reasonable time to review their contracts.

2. Prohibition on unfair terms in B2B contracts

Where until now unfair terms have only been subject to control in business-to-consumer (B2C) agreements, this is now also possible in business-to-business (B2B) contracts.

Contracts in the context of financial services and public procurement and the agreements resulting therefrom fall outside the scope of this prohibition.

In general, any contractual term concluded between companies is unfair when it creates, alone or in combination with one or more other terms, a manifest imbalance between the rights and obligations of the parties.

This rule applies to all companies, wether large or small.

The assessment of the unfairness of the terms does not concern the subject-matter of the contract nor the equivalance between the price and the products to be supplied in return, in so far as these terms are clear and comprehensible.

The law contains a "black list" of 4 clauses that are in any event unfair and a "gray list" of 8 clauses that are presumed to be unfair unless proved otherwise. These latter terms can still be proven to be not unfair, for example when it appears that the parties were really willing to agree on the clauses in question.

Any unfair term is prohibited and therefore null and void. The contract remains binding on the parties if it can continue to exist without the unfair clauses.

The black list contains terms intended to:

• bind the other party irrevocably, while the performance of the company's own obligations is subject to a condition of which the fullfilment depends exclusively on its will;
• to give the enterprise the unilateral right to interpret any clause of the contract;
• in the event of conflict, relinquish the other party's right of recourse against the enterprise;
• irrefutably establish the other party's knowledge or acceptance of terms that he was not actually able to read prior to the conclusion of the contract.

The gray list contains clauses intended to:

• authorize the company to unilaterally change the price, characteristics or conditions of the contract without valid reason;
• extend or tacitly renew a fixed-term contract without specifying a reasonable period of termination;
• impose, without consideration, the economic risk on one party while this risk is normally the responsibility of the other company or party to the contract;
• to inappropriately exclude or limit 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;
• without prejudice to article 1184 of the Civil Code, bind the parties without specifying a reasonable period of termination;
• release the company from its liability for its wilfull misconduct, its serious fault or that of its employees or, except in case of force majeure, for the non-performance of the essential engagements which are the subject of the contract;
• limit the means of proof that the other party can rely on;
• to determine compensation amounts claimed in the event of non-performance or delay in the performance of the obligations of the other party, which manifestly exceed the extent of the loss that may be suffered by the company.

This gray list will certainly give rise to many disputes between parties. The following elements are taken into account when assessing the unfairness of a contractual clause:

• the nature of the products to which the agreement relates;
• at the time of conclusion of the contract:
  • all circumstances surrounding its conclusion;
  • the overall economy of the contract;
  • the applicable commercial customs;
  • all other clauses of the contract, or of another contract on which it depends.

The new provisions concerning unfair terms will come into force on 1 December 2020. This only applies to agreements concluded, renewed or modified after that date. Agreements prior to that date are therefore not covered by the new legislation, except when they are renewed or amended.

3. Prohibition on unfair B2B market practices

The regulation of Unfair Market Practices in Consumer Law (B2C) is extended to B2B relations. In addition to the general prohibition of unfair B2B market practices, a misleading and aggressive market practice regulation is now also provided.

These new rules come into force on the first day of the 4th month following the month of publication of the law in the Belgian Official Gazette.

They will be treated in another contribution.

4. Conclusion

This law was rushed through Parliament without hesitation, despite the fact that it introduces important changes to contract law and company law and also allows for a thorough control of practices and contracts between companies.

The law adopted applies without distinction to all companies, while its initial intention was to improve the bargaining position of small and medium-sized enterprises with regard to  large enterprises.

Everyone knows that, in practice, often unbalanced contracts are concluded in a professional relationship between small and large market players, comparable to a so-called "David-Goliath" situation. In this context, small companies may benefit from this legislation.

Nevertheless, it remains unfortunate that in this way the contractual freedom between companies is affected. In some cases, companies are willing to make certain concessions - entirely of their own free will - and it is possible that the new law will play a negative role and goes against legal certainty if one of the parties changes his mind and tries to make use of the law to not to have to comply with his contract.

In any case, entrepreneurs are advised to review in detail their contracts and practices with other companies and, where appropriate, to adapt them to this new legislation. In the future, it is also important to properly inform the marketing and sales teams of what is allowed or not when negotiating an agreement.

It goes without saying that we are happy to advice you on this matter. Do not hesitate to contact us via info@seeds.law or by phone at +32 (0) 2 747 40 07.