Pay attention to exclusive distributions in Belgium
Belgian law provides for strict rules on the termination of certain distribution agreements, granting to distributors certain indemnities, which are pretty similar to the well-known agents’ indemnities in terms of assumptions, conditions and mechanisms.
In a nutshell, according to Articles X.35 and following of the “Code de droit économique du 28 février 2013” (“Résiliation unilatérale des concessions de vente exclusive à durée indéterminée”, but similar rules were already in force according to a Law of 1961), if a (substantially) exclusive distribution contract for an indefinite period is terminated by the supplier/grantor for reasons other than a gross negligence of the distributor, or if the contract is terminated due to the gross negligence of the supplier, the distributor is entitled to the abovementioned termination indemnities. Moreover, except if a serious breach was committed, the distribution agreement may only be terminated by giving reasonable notice, or by alternatively paying an indemnity in lieu of notice.
It is also to be noted that, also in case of distribution agreements entered into for a fixed term (Article X.38):
1. after two renewals, any further renewal will be deemed a renewal for an indefinite period of time (with the consequent application of the abovementioned rules of Law);
2. it is essential to serve the distributor with a notice of termination between 3 and 6 months prior to the expiration of the fixed term, because, failing such a notice, the agreement will be deemed renewed for an indefinite period of time, or for the period specified in the automatic renewal clause of the agreement, as the case may be.
According to Article X.37 the distributor’s termination indemnity is to be equitable and calculated taking into account the following three elements:
1. the increase in clientele brought by the distributor, that will remain with the supplier after termination of the agreement;
2. the costs incurred by the distributor to operate the distributorship, that will benefit the supplier after termination of the agreement;
3. the amounts payable to any employees the distributor must dismiss due to the termination of the agreement.
These rules are considered by the Belgian courts as mandatory rules of Law. Thus, their application could be claimed (i.e., in brief, the distributor, whose agreement had effect in all or part of the Belgian territory, could claim the aforementioned indemnities), even if the Law chosen by the parties under the agreement was another Country’s Law.
In a recent case before the Court of Brussels, CDT Legal assisted an Italian fashion brand against its Belgian distributor, in relation to the brand’s termination of the distribution contract in Belgium. We have been able to fully defend the Italian supplier against the distributor’s claim of the aforementioned indemnities for a significant amount, lodging pleas of (inter alia) inadmissibility, lack of jurisdiction and further substantial issues; nevertheless, we highly recommend the upstream careful evaluation of the Belgian legislation described above, which is essential for the proper drafting and negotiation of the relevant contracts in order to provide the appropriate protection tools, before the disputes arise.