The new Act of 4 April 2019 relating to abuses of economic dependence, unlawful clauses and unfair market practices between companies: severe limitations to the freedom of contracting in a B2B context.
On 4 April 2019, the Act amending the Code of Economic Law with regard to abuses of economic dependence, unlawful clauses and unfair market practices between companies was adopted. The rationale is to increase protection for smaller companies contracting with bigger, more dominant companies. Similar protective rules have been in place in B2C relationships for decades and are now also introduced in a B2B context, thereby imposing far-reaching constraints on contracting between companies.
The upcoming changes can be divided in three sections:
- Unlawful clauses in contracts between companies;
- Unfair market practices between companies; and
- Abuse of economic dependence.
Unlawful clauses in contracts between companies
– effective as of 1 December 2020
The new legislation prohibits the use of contractual clauses that create an imbalance between the rights and obligations of the different contract parties. In certain specific situations, such as contracts regarding financial services and public procurement, these rules do not apply.
The unlawful clauses have been divided in a “gray list” and a “black list”. Black-listed clauses are forbidden and considered null and void. The black list includes following contractual clauses:
- One party commits itself irrevocably while the performance of the other party is subject to a condition of which the realization depends exclusively on its own willingness;
- Only one of the contracting parties receives the unilateral right to interpret a clause of the agreement;
- All means of redress for one party are excluded against the other party in case of a dispute;
- A party irrefutably acknowledges or accepts stipulations which it could nothave known before concluding the agreement.
Gray-listed clauses are presumed to be unlawful, and therefore null and void, but this presumption is rebuttable. The gray list includes clauses stipulating the following:
- Giving the company the right to unilaterally and without valid reason amend the agreed price, characteristics or conditions of the agreement;
- Tacitly extending or renewing an agreement with a fixed term, without reasonable notice period;
- Exposing one party to an economic risk which is normally carried by the other party, without any compensation;
- Excluding or limiting the legal rights of one party in an inappropriate way in case of breach of contract by the other party;
- Binding the parties by contract without foreseeing a reasonable notice period;
- Discharging a party of its liability for gross negligence or willful misconduct for not performing the essential obligations included in the agreement;
- Limiting the means of evidence that the other party can use;
- In case of contractual breach or delay in execution by one party, including amounts for compensation that are clearly not proportionate to the damages that the other party can suffer.
These lists of unacceptable clauses entail a big shift in contracting in a B2B context. The contractual freedom of parties, who were previously deemed to have enough professional knowledge to decide which clauses they could accept, is severely reduced by the introduction of the “black” and “gray” list.
Unfair market practices between companies
– effective as of 1 September 2019
A second legal initiative creates a similar protection relating to misleading and aggressive market practices for companies, as is already present in a B2C context.
A company is “affected” when it concluded a transaction that it otherwise would not have entered into following:
- receipt of untrue or incorrect information or the omission of information (misleading market practices), or
- the limitation of a party’s freedom of choice following intimidation, coercion, (physical) harassment or the exploitation of the other party’s dominant position (aggressive market practices).
The “affected company” can claim a “cease and desist” order regarding the misleading and/or aggressive market practices. Once a final judgment is rendered on the cease and desist claim, the “affected company” can file a criminal complaint against the breaching party.
The Act provides for guidelines on which aspects should be taken into account to qualify practices as aggressive.
Abuse of economic dependence
– effective as of 1 June 2020
Lastly, the new legislation sanctions abuse of a position of economic dependence of a contracting party.
Such economic dependence is present if a party does not have a reasonable equivalent contractual alternative within a reasonable period of time, as a result of which the other party can impose obligations or conditions that could not be obtained in normal market conditions.
The legislator provided for a list of situations that qualify as abuse of an economic dependent contract party, for example the refusal of a sale or purchase by the dominant party, the imposition of unfair prices or conditions, …
If a company’s economic dependence has been abused, the affected party can file a claim with the Belgian competition authority, which can impose a fine of maximum 2% of the average yearly turnover of the breaching company or the group of companies.
These new rules will cause significant changes in B2B contracting. Whereas before contractual freedom was key, companies will have to take into account these different rules when negotiating agreements, as imbalances between the rights and duties of the parties can be sanctioned.
We estimate that especially small and medium companies will benefit from the limitation of contractual freedom aiming at protecting the economic weaker party.
The Act can be consulted at http://www.ejustice.just.fgov.be/eli/wet/2019/04/04/2019011404/staatsblad