The prohibition on abuse of economic dependency entered into force in Belgium on 22 August 2020. It aims at targeting a situation where a company abuses the relative economic dependence of another company (e.g. supplier or customer) where one is an indispensable economic partner for the former. Now that the first judgments have been rendered, it is possible to assess in more detail to what extent the new infringement may impact commercial relationships.
Since 22 August 2020, the abuse of economic dependency by an undertaking – without being entrenched in a dominant position – has been prohibited.
For the provision to come into play, three cumulative conditions must be fulfilled:
- the existence of a position of economic dependence,
- an abuse of that position, and
- the possibility of that abuse affecting competition on the Belgian market or a substantial part of it.
Such prohibition is not provided for under European law but concurrently exists in other jurisdictions such as in France and Germany.
As appears from the legislative act, the conditions are worded broadly, leaving the judge with a wide margin of interpretation. However, businesses and lawyers are not left with complete textual vagueness by the Belgian legislator, as guidance is provided in the preparatory works where it is stipulated that economic dependency is to be assessed on a case-by-case basis.
Factors relevant in determining the existence of a superior position towards an economically dependent undertaking include notably (i) market power, (ii) the significant share in the turnover of the dependent undertaking, (iii) the technology or know-how of the undertaking, (iv) brand reputation and consumer loyalty to its products (v) product scarcity and the perishable nature of the product, (vi) access to essential resources or facilities, (vii) the threat of serious economic harm, retaliation or the termination of business relationships, (viii) applying atypical commercial conditions and (ix) whether or not the economic dependence stems from the deliberate choice of the dependent undertaking are all of significant importance.
In terms of abuse, the preparatory works specify that the term captures “any conduct which an undertaking may engage in thanks to the fact that it maintains its partner’s economic dependency”. Such behaviour may in particular result from the (i) refusal to deal, (ii) imposition of unfair contract prices or other trading conditions, (iii) limitation of production, distribution or technical development, (iv) application of dissimilar conditions to equivalent transactions, or (v) tying or bundling of contractual conditions which do not relate to the nature of the agreement at hand.
Although the provision is still surrounded by a sphere of uncertainty as the indications provided above are non-exhaustive, additional clarifications can be drawn from two recent cases. By enabling a holistic understanding, the courts may indeed have to fulfil their interpretative role by ruling on practical cases.
In its judgment of 16 March 2021, the Brussels Commercial Court held that a financial institution had violated the abuse of economic dependency provision by ceasing to execute payment orders linked to an SME active in the Belgian diamond sector. The judgment ordered the halting of the restriction under a penalty payment of EUR 5,000 per day with a maximum of EUR 1 million.
In determining whether the SME was in a situation of economic dependence, the Court stated that it is common for Belgian banks to refuse their services to companies active in the diamond sector, thus leaving no reasonable alternative for the SME which is under a legal obligation to have an account to be able to carry out its activity. The institution seemed aware of this fact as it predominantly targeted these types of clients in the first place.
By not prohibiting incoming funds but freezing outgoing payment orders, the institution imposed restrictions on the SME that can be considered atypical under normal market conditions. The financial institution thus abused its economic dependency as it suspended its financial services for no apparent reason whilst being aware of the precarious situation of the SME. Obviously, these sorts of restrictions have a direct impact on diamond dealers’ competitiveness.
With this judgment, it becomes clear that justifications such as the freedom of contract and the right to unilaterally terminate indefinite contracts with reasonable notice may not be able to prevent judicial scrutiny when the provision on abuse of economic dependency comes into play.
In a judgment of the Antwerp Commercial Court of 16 April 2021, the Court concluded to a violation of abuse of economic dependence or, at the very least, reckless conduct contrary to fair market practices. After reorganising its distribution network, a manufacturer of hunting weapons suddenly refused to deliver its orders to a sister company of a distributor that had been selling its products since 1985.
In listing some of the relevant criteria, the Court indicated that the retailer is in a situation of economic dependence towards the manufacturer as the products it purchases represent 90% of its turnover, the retailer can only obtain supplies from the manufacturer and the fact that the brand enjoys client loyalty as there is no reasonable alternative for the clients’ regular purchase of spare parts and accessories.
As the manufacturer justified its refusal by an ongoing dispute with a former distributor, the refusal to supply was expressly motivated by it and its conduct was therefore intended to put pressure on the former distributor by holding the retailer hostage.
In some way, the provision on abuse of economic dependency thus seems to be an equivalent of the abuse of dominance provision, able to grasp small scale abuses without requiring the need to prove any dominant position in the traditional sense of the word. Nevertheless, an important distinction is yet to be made between the two. Economic dependency relates to a contractual relationship between businesses in a vertical agreement. Conversely, a dominant position entails that an undertaking can behave on the market independently from the commercial conduct of its buyers, suppliers and competitors.
Furthermore, the judgments mentioned above reveal the variety of factual backgrounds that can be caught by the provision. Although various implications may be drawn implicitly from them, a number of questions remain unanswered as yet and the courts will have to clarify for instance what exactly “a reasonable alternative” or “effects on the Belgian market” may consist of. Without a doubt, commercial relationships will increasingly feel the provision’s impact both when conducting day-to-day business and in resolving any disputes with commercial partners that may arise.
Finally, it should be recalled that companies may lodge a complaint for an abuse of economic dependency before the Belgian Competition Authority (“BCA”). Such complaints may be anonymous, do not entail procedure costs and may benefit from the powers of the BCA such as requests of information and dawn raids. At the end of the procedure, the BCA may impose a fine up to 2% of the consolidated annual Belgian turnover of the company concerned but may not however compel the company to indemnify the victim of such abuse as damages actions fall exclusively under the competence of the courts.