Time to reflect on the general terms and conditions of your new B2B contracts

The Belgian Act of 4 April 2019 (B2B Act) has taken a new direction and adopted a more protective approach with regard to B2B contracts. The new B2B Act introduced new provisions on three major topics, namely (1) unlawful clauses in B2B contracts, (2) the abuse of economic dependency and  (3) unfair market practices between enterprises. These new provisions are now part of the Belgian Code of Economic Law (hereafter: BCEL). More precisely, the following B2B practices are prohibited in the BCEL: 

Article VI.91/2-91/10 BCEL prohibits clauses in B2B contracts which contribute to a manifest imbalance between the rights and duties of the parties. These clauses are deemed “unlawful” and consequently null and void. The Act distinguishes between a “black list” of clauses and a “grey list” of unlawful clauses in B2B contracts. 

Clauses that fall within the scope of the “black list” are in any case unlawful. By contrast, clauses that fall within the scope of the “grey list” are unlawful in principle, except when an enterprise can prove the opposite. The importance of a DIP and an explaining document of the clauses will increase in future B2B contracts. The new rules regarding unlawful clauses are applicable on new, renewed and modified B2B contracts from the 1^st of December 2020 on. 

Article VI.2/1 BCEL prohibits the abuse of a position of economic dependency and can be seen as a “catch all provision” in cases where a position of economic dependency is abused. This prohibition is already in force since the 1^st of June 2020. 

Articles VI.103/1-103/109/2 BCEL focuses on the prohibition of unfair market practices which are misleading and aggressive. This prohibition is already in place since the 1^st of September 2019. 

The spirit of the new “B2B Act” is clearly based on the rule of transparency between enterprises.  Contractual terms must be worded in a sufficiently clear and comprehensible manner so that the other (more vulnerable) party gives its consent in full knowledge of the facts. 

——————————————————————————————————————–

The goal of this contribution is to give an overview of the three targeted categories of the B2B Act, illustrated with relevant examples. 

1. Unfair terms and conditions in B2B contracts

In light of the legislation regarding unlawful contract clauses in B2C contracts, the new B2B Act introduces the term “unlawful clause” in B2B contracts. In the same spirit of the unlawful clauses in B2C contracts, article VI.91/3 §1 BCEL imposes a general prohibition to include clauses which create a manifest imbalance between the rights and obligations of the parties. 

Furthermore, similar to article VI.82 BCEL in B2C contracts, article VI.91/3§2 BCEL clarifies that all the circumstances around the conclusion of the contract, general market practices in that specific branch and all other contract clauses or related contracts need to be taken into account in the assessment of “unlawful clauses” in B2B contracts. 

In addition to this, insofar as the transparency rule is taken into account and the clauses are stipulated in a clear and understandable wording, the assessment of the unlawful character of the clauses does not relate to the actual object of the contract or the equivalence between the price and compensation of the products. 

Art. VI.91/4 BCEL contains four categories of terms that are in principle, i.e. subject to abuse of rights, unlawful and prohibited if they are included in contracts between enterprises. These four categories form a “black list” of clauses. The blacklist targets clauses that aim to: 

• inflict an irrevocable commitment on the part of one enterprise, while the performance of obligations depends solely on its will (“potestative” clauses);

For example:  “Party A undertakes to develop the new product in accordance with Party B’s specification. Without prejudice to the foregoing, Party B shall pay the agreed fee to Party A solely in the event that Party B submits an application for patent with respect to the new product by 1.12.2020.”

• offer the right to unilaterally interpret a clause to a contract party;

For example: “Any contractual clause shall always be construed while taking the interest of Party B into consideration.”

• To deny to the other party the right of access to justice in the event of a dispute.

For example: “In the event of contractual breach by Party B, Party A cannot make any claim for compensation.”

• to irrefutably establish the other party’s knowledge or acceptance of a clause when  the other party was not actually able to take knowledge prior to the conclusion of the contract.

For example: “By filling in an order form, Party A agrees to the general terms and conditions set by Party B.”

In addition to the “black list”, article VI.91/5 introduces a so called “grey list” of clauses that are presumed to be unlawful, but for which the proof to the contrary may be provided by an enterprise. 

Under the scope of the “grey list” fall clauses that intend to: 

• confer to a party the right to unilaterally and without reason modify the price, characteristics or terms of a contract; 

Example: “The enterprise can modify the price and conditions at any time, even retroactively.”

• tacitly extend the renewal of a contract without a reasonable notice period; 

Example:  “The agreement is entered into for a period of 10 years, tacitly renewed for an additional period of five years.”

• to place the economic risk upon one party without compensation, given that the risk is normally borne by the other party or by another party to the contract;

Example:  “In the event of negligence by any of the parties, the risk and costs to end the deficiency will be borne by Party A.”

exclude the legal recourse of a party in case of malperformance or non-performance. 

For example: “Party A cannot claim any compensation of Party B, even if Party B does not comply with the contractual conditions”. 

• To bind the parties without giving reasonable notice (without prejudice to article 1184 of the Belgian Civil Code);

For example: “In the context of the fixed-term distribution contract, no notice period shall be provided”. 

• exonerate the enterprise from its liability for willful misconduct, its gross negligence or that of its employees or, except in cases of force majeure, for the non-execution of the essential obligations that are the subject of the agreement;

For example: “The distributor cannot be held liable for any willful misconduct or fraud by one of his employees or appointees with regard to the execution of the contract.” 

• limit the means of proof that the other party can rely on; 

For example: “Unless proven by written documents, no damage claimed by Party A shall be compensated by Party B.”

• stipulate damages which are manifestly disproportionate to the damage which a party may suffer in the event of non-performance of the other’s party obligations (excessive damage clauses). 

For example: “Party A shall pay an interest rate of 20% in case of late payment towards Party B.”

2. Catch-all provision: the prohibition of the abuse of economic dependence

Following the example of new regulation in France and the Netherlands, the new B2B Act included a general rule for assessment of B2B contracts in article VI.2/1 BCEL: a contractual term is unlawful and prohibited if, whether or not in conjunction with other terms, it creates an apparent imbalance between the rights and obligations of the parties, which could affect the competition on the relevant Belgian market. 

This new prohibition was inspired by articles 101 and 102 of the Treaty on the Functioning of the European Union. This observation and the parliamentary works explain the main objective of the provision, namely protecting the competition on the market. Before the new B2B Act, article VI.2 BCEL already prohibited the abuse of a dominant market position on a substantial part of the Belgian market (a market share of at least 40%). 

Article VI.2/1 BCEL now lowers the threshold by including a prohibition of economic dependence without the existence of a dominant market position by a contract party. 

A position of economic dependence is defined in article I.6 BCEL as a position of subordination of an enterprise towards one or more other enterprises: (1) characterized by the absence of a reasonable alternative, available within a reasonable period of time, under reasonable conditions and at a reasonable cost and (2): allowing the other enterprises to impose obligations or conditions that cannot be obtained under normal market conditions.

More concretely, how can a position of “economic dependency” be determined in B2B contracts? 

Important factors are the following:

• important know-how held by the other enterprise; 
• relative market power of one enterprise towards another one; 
• the involvement of a known brand by customers; 
• the regular granting of special terms to certain enterprises such as discounts;
• access to indispensable resources and infrastructure;
• a remarkable share of an enterprise in another enterprises revenue. 

Above this, it is important to emphasize that a position of economic dependence as such is not prohibited. An element of economic dependence is often built into distribution contracts, franchising contracts and subcontractor-contracts. These categories of contracts were also mentioned in the preparatory work of the B2B law. However, the targeted behavior is the abuse of such a position of economic dependence by for example distributors or franchisors. 

In case of conflict, as was already mentioned, elements such as the applicable commercial practices and applicable supplementary law and special legislation need to be taken into account by the courts and the Belgian Competition Authority in their assessment. 

Article IV.2/1 BCEL gives an indication of practices that could lead to abuse of economic dependence: 

• the refusal of a sale, a purchase of other transaction conditions;
• directly or indirectly imposing unfair purchase or selling prices or imposing other unfair trading conditions;
• restricting the production, sales or technical development to the prejudice of consumers; 
• applying different conditions to equivalent services with respect to economic partners, thereby placing that at a disadvantage in competition;
• subjecting the conclusion of the contract to the acceptance by the other parties to supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject matter of such agreements.

From the 1^st  of June 2020 on, the Belgian Competition Authority can impose fines up to 2% of the turnover of an enterprise concerned if there is an abuse of economic dependence found. Next to this possibility, the affected enterprise can both claim damages under private law before a competent court and claim that the abuse constituted an unfair market practice. The latter option can lead to a cease and desist order based on article VI.104 BCEL. 

As a consequence, enterprises such as franchisors and distributors should pay extra attention to avoid including unfair trading conditions, or obligations that they would not have been able to impose in “normal market conditions” (if the trading partner had reasonably equivalent alternatives, available to them within a reasonable period of time and under reasonable conditions and costs). 

3. Unfair market practices between enterprises

The new B2B Act included provisions regarding unfair market practices, which enter into force on the 1^st of September. First of all, the Act targets two categories of unfair market practices: both misleading market practices and aggressive market practices are prohibited. These two practices are prohibited during the negotiations of a contract, during the execution of the contract and the termination of the contract. 

Articles VI.105-VI.105/1 BCEL introduce misleading market practices. A market practice is misleading when a provision withholds (1) incorrect information in a way that a contract party is deceived and (2) causes an enterprise to take a decision in the context of the contract that it normally would not have taken. A misleading market practice can also constitute both the omission of information or the hiding of information by for example implementing very unclear and ambiguous wordings in the contractual terms. 

Additionally, aggressive market practices are defined by the following behavior: (1) harassment, (2) coercion, (3) impair or limit the freedom of enterprise in the context of a contract. The aggressive market practice also causes an enterprise to take a decision that it normally would not have taken. 

Finally, complementary to provisions concerning misleading and market practices, another “catch-all” provision is included. Namely, all the acts that encourage a breach of the BCEL are prohibited. 

4. Conclusion

To the extent that the new B2B Act has adopted a very protective approach in terms of both protecting the market competition and protecting the weaker parties, many enterprises will have to adapt to it when negotiating new B2B contracts. The key to success for these contracts is clear communication and transparency about mutual rights and obligations. In this respect, well-drafted DIP and interpretative document of the different clauses can make a great difference.