Distribution law in Belgium

Agency Agreement

Belgian Code of Economic Law, Book X, Title 1

Under Belgian law, an Agency Agreement can be executed both verbally or in writing. There are no special formalities to take into account. Oral agreements are deemed of indefinite term. Upon request of either party however, the other party has to cooperate in formalising the content of the agreement in writing.

Moreover, the Belgian Code of Economic Law (Book X, Title 2) imposes to disclose certain information regarding the contract and the contract parties, one month before the execution of a “commercial cooperation agreement”. This information must be disclosed together with a copy of the cooperation agreement.

Commercial cooperation agreements are all agreements where one party grants the other party the right to use its commercial formula when selling products or delivering services. A commercial formula can consist of either the use of a trade name or logo, a transfer of know-how or a technical or commercial assistance. An Agency Agreement can fall within the scope of this obligation if the Principal grants the agent the right to use its commercial formula when selling the products or delivering the services.

Contracts executed in disrespect of this obligation can be declared null and void upon request of the party that is granted the right to use the commercial formula.

Can the Commercial Agent bind the Principal?

The contract can grant the Agent the power to negotiate and conclude agreements in the name and for the account of the Principal.

What are the primary duties of the Commercial Agent?

Key examples of the duties of a commercial agent are:

  • negotiate and execute agreements on behalf of the Principal in good faith;
  • give the Principal all necessary information; and
  • follow reasonable instructions of the Principal.
What are the primary duties of the Principal?

The Principal has the following duties:

  • to give to the Commercial Agent the necessary documents and all necessary information relating to the goods concerned and information necessary for the performance of the agency contract;
  • to inform the Commercial Agent immediately when he anticipates the volume of transactions will be considerably lower than the Commercial Agent could have expected, especially regarding the previous business scale or according to the details given by the Principal; and
  • to notify the Commercial Agent without delay about the acceptance or rejection of a transaction intermediated or closed without authorization by the Commercial Agent, or the non-execution of a business intermediated or closed by him.
How is the Commercial Agent paid?

The remuneration of the Agent comprises either:

  • a fixed amount,
  • a variable commission, or
  • a combination of both systems.

The commission becomes due at the latest when the transaction is completed by the third party or should have been completed if the Principal would have executed its obligations under the transaction.

During Agency Agreement

Unless otherwise agreed, the Commercial Agent can claim a commission fee if:

  • the transaction has been concluded as a result of its action;
  • the transaction has been concluded with customers that where exclusively assigned to the Agent;
  • the transaction has been concluded within a territory that was exclusively assigned to the agent;
  • the transaction has been concluded with a third party whom he has previously acquired as a customer for transactions of the same kind.

After termination

Unless otherwise agreed, the Commercial Agent is entitled to a commission if:

  • the transaction is mainly attributable to the commercial agent's efforts during the period covered by the agency contract and if the transaction was entered into within six months after that contract terminated; or
  • the order of the third party reached the Principal or the commercial agent before the agency contract terminated.
Can a del credere clause be inserted into the Agency Agreement?

A del credere clause is valid but must be in writing.

Duration of the Agency Agreement

Parties are free to decide on the duration of the agreement. Agreements of definite duration are converted to agreements for indefinite duration if they continue to be performed after the fixed term.

Termination of the Agency Agreement

Where an agency contract is concluded for an indefinite period either party may terminate it by notice.

Notice period

Minimum notice periods must be respected. During the first year, one month’s notice must be given, during the second year two months’ notice must be given, three months’ notice must be given during the third year, four months' during the fourth year, five months' during the fifth year and during the sixth and any subsequent years a six months’ notice must be given.

Goodwill or other Compensation

A Commercial Agent is entitled to make an appropriate goodwill compensation claim after termination of the contractual relationship if and to the extent that:

  • the Commercial Agent has brought the Principal new customers or has significantly increased the volume of existing business; and
  • it is to be expected that the Principal or its legal successor will be able to derive considerable benefits from this volume of business even after termination of the Agency Agreement; and
  • the amount of the compensation may not exceed a figure equivalent to one year's average annual remuneration over the preceding five years and if the contract goes back less than five years the indemnity shall be calculated on the average for the period in question.

If the Commercial Agent can claim goodwill compensation and this compensation does not cover its actual damage, the Commercial Agent can also claim compensation for any actual damage above the amount of the compensation for goodwill.

In which cases compensation does not apply?

No compensation is due when:

  • the Principal has terminated the Agency Agreement because of default attributable to the Commercial Agent which would justify immediate termination of the Agency Agreement under national law;
  • the Commercial Agent has terminated the Agency Agreement, unless such termination is justified by circumstances attributable to the Principal or on grounds of age, infirmity or illness of the Commercial Agent in consequence of which he cannot reasonably be required to continue its activities;
  • the Commercial Agent assigns its rights and duties under the Agency Agreement to another person with the consent of the Principal.

The Commercial Agent loses the compensation claim if it has not notified to the Principal within one year after termination of the Agency Agreement that it wishes to claim its rights for compensation.

Is a post contractual non-compete obligation enforceable?

A post contractual non-compete obligation is valid when:

  • in writing;
  • limited to the type of transactions covered by the Agency Agreement;
  • limited to the territory or type of clientele attributed to the Commercial Agent;
  • limited to 6 months after termination of the Agency Agreement.

The post contractual non-competition clause will not be applied in case of a termination by the Principal without breach of the Commercial Agent, or by the Commercial Agent for breach of the Principal.

What is the statute of limitation?

All claims based on the Agency Agreement expire one year after termination or five years after the claim originates, whichever comes first.

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Distribution Agreements

Are there any formal requirements upon concluding Distribution Agreements? 

Under Belgian law, a Distribution Agreement can be executed both verbally or in writing. There are no special formalities to take into account. 

The Belgian Code of Economic Law (Book X, Title 2) imposes however to disclose certain information regarding the contract and the contract parties, one month before the execution of a “commercial cooperation agreement”. This information must be disclosed together with a copy of the cooperation agreement.

Commercial cooperation agreements are all agreements where one party grants the other party the right to use its commercial formula when selling products or delivering services. A commercial formula can consist of either the use of a trade name or logo, a transfer of know-how or a technical or commercial assistance. A Distribution Agreement can fall within the scope of this obligation if the Principal grants the agent the right to use its commercial formula when selling the products.

Contracts executed in disrespect of this obligation can be declared null and void upon request of the party that is granted the right to use the commercial formula.

Can exclusivities be granted?

Exclusivities can be granted, subject to the EU regulation on vertical restraints.

If a contractual exclusivity is granted to the Distributor and the contract is of indefinite duration, the mandatory provisions of Book X, Title 3 of the Belgian Code of Economic Law apply.

Is a contractual non-competition clause enforceable?

Non-compete clause are valid subject to EU Competition law. If the market shares of both parties are below 30 %, non-complete clauses are valid provided that they do not exceed 5 years and are geographically limited and proportional to the rights and interests of the Principal.

Post contractual non-compete clauses must be limited to one year.

Can Distribution Agreements include Minimum Sales Quota?

There are no mandatory rules under Belgian law relating to minimum sales quota.

Can the Principal influence resale price of the Distributor?

The Distribution Agreement can only impose maximum prices or suggest recommended resale prices.

Termination of the Distribution Agreement and indemnities

Is a notice period necessary?

Distribution Agreements in general

Distribution Agreements of fixed term without the possibility of an early termination end upon the expiry of their term, without prior notice, unless this leads to a result that is conflicting with the principle of reasonableness and fairness.

Distribution Agreements of indefinite term where no notice period was agreed upon, may only be terminated with a reasonable and timely notice period. A reasonable notice period takes into account all circumstances of the specific case such as:

  • investments made;
  • duration of the cooperation;
  • importance of the contract in the general business.

The provisions of Book X, Title 3 of the Belgian Code of Economic Law are applicable to some but not to all kinds of Distribution Agreements, that are executed in Belgium. The three main categories to which the act applies are:

  1. exclusive Distribution Agreements, i.e. agreements whereby the Distributor is the only seller of the supplier’s products in a defined territory. Shared exclusivity does not bar the courts from finding that there is exclusivity;
  2. quasi exclusive Distribution Agreements, i.e. agreements where, according to the case law, the Distributor sells 80 % or more of the supplier’s products in the territory;
  3. Distribution Agreements where important obligations are imposed on the Distributor, such as investments in stores, hiring qualified personnel, following marketing instructions, reach certain quota’s, etc.

Book X, Title 3 of the Belgian Code of Economic Law provides for a relatively long notice period upon termination of these three types of Distribution Agreements if they have an indefinite term. Contracts of fixed term are considered to become contracts of indefinite term after a third renewal.

In the event that an exclusive distribution of indefinite term is terminated by either party other than for reasons of serious breach of contract by the other party, the Distributor is entitled to a reasonable notice period (Article X.36 of the Belgian Code of Economic Law).

What exactly is considered to be a reasonable notice period is not specified in the Belgian Code of Economic Law but is to be determined on a case by case basis by the parties and, in the event of disagreement, by the Courts. Elements that are taken into account by the Courts in determining the reasonable notice period include:

  • duration of the Distribution Agreement;
  • extent of the territory;
  • importance of the distributed products in the Distributor's entire business;
  • opportunities on the market; 
  • awareness of the products;
  • turnover and profits generated by the Distributor, etc…

The notice periods awarded by the Belgian Courts range from 3 months to 42 months. Distributorships that have lasted 10 years will on the average require a notice period of 12 to 18 months.

In the event that a party terminates the Distribution Agreement without any notice period or with an insufficient notice period, the terminating party shall have to pay to the other party a compensation which corresponds to the average semi-gross margin that the terminated party would have realised during the reasonable notice period. The semi-gross margin is calculated on the basis of the net profits before taxes, increased with the irreducible overhead costs which the terminated party cannot eliminate upon termination of the Distribution Agreement.

Are there any formalities to be completed?

There are no specific formalities.

Is there any kind of compensation or goodwill indemnity to be paid?

Distribution Agreements in general

Except for agreements falling within the scope of the Belgian Code of Economic Law, there is no statutory right to compensation. Parties are free to provide remedies.

Book X, Title 3 of the Belgian Code of Economic Law

In case of the termination of the agreement by the supplier, except if this termination is based on a material breach of the Distributor, the Distributor will also be entitled to an additional indemnity pursuant to article X.37 of the Belgian Code of Economic Law.

This additional indemnity consists of the three following elements: goodwill, expenses and the severance pay.

a. Goodwill

The goodwill created by the Distributor will give rise to compensation if it will benefit to the supplier after the termination of the agreement.

In order to be entitled to a goodwill indemnity, the Distributor will have to demonstrate that its customers are attached to the brand name of supplier’s products and not to the business of the Distributor as such. As a result, after termination of the Distribution Agreement, the customers will continue to purchase supplier’s products either directly from supplier or from other or new Distributors.

The indemnity is intended to be a consideration for the goodwill created by the Distributor. No such indemnity should be awarded if the Distributor has taken over existing customers and if its sales have not significantly increased.

The goodwill indemnity is determined on the basis of equity, which makes it difficult to assess. It is often expressed as the equivalent of the net profits before taxes (sometimes increased with overhead costs) or the equivalent of one or two years of gross profits.

b. Expenses

The terminated Distributor is entitled to obtain compensation for the expenses incurred through the exploitation of the Distributorship that could benefit to the supplier after the termination of the agreement.

In most cases, it will be impossible for the Distributor to prove that the expenses he has incurred in connection with the exploitation of its Distributorship will benefit to the supplier after the termination of the Distribution Agreement. Therefore, the courts often refuse to grand this part of the additional indemnity.

Even publicity expenses relating to the supplier’s products are usually not taken into account by the Courts when determining the additional indemnity. Up till now only the Distributor’s expenses of important publicity campaigns just before the termination of the Distribution Agreement have been taken into account by some Courts.

c. Severance pay

The severance pay that the Distributor is required to pay to employees who are dismissed as a consequence of the termination of the Distribution Agreement may be recouped from the supplier.

If the Distributor is required to dismiss employees as a direct result of the termination of the Distribution Agreement, the Distributor can request compensation amounting to the severance pay due to its employees. The burden of proof rests upon the Distributor to demonstrate that the severance pay was due as a result of the termination of the Distribution Agreement.

The severance pay for dismissing personnel in Belgium is relatively high, ranging from minimum three months for lower employees to several years for managers.

Is Bankruptcy a reason for termination?

There is no automatic termination in case of Bankruptcy.

A contractual provision allowing terminating in case of bankruptcy is valid. A contractual provision allowing terminating in case of a judicial reorganisation in the framework of Book XX, Title V of the Belgian Code of Economic Law is not valid.

What is the statute of limitations?

A statute of limitation of 10 years applies to all claims regarding the performance of a (distribution) agreement. 

May parties choose jurisdiction arbitration?

Parties can choose jurisdiction or opt for arbitration. Belgian Courts can refuse to apply an arbitration clause if during the arbitration, the provisions of Book X, Title 3 of the Belgian Code of Economic Law would not apply to a Distribution Agreement falling within the scope of that law that is executed in Belgium.

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Portrait ofRenaud Dupont
Renaud Dupont
Managing Partner
Brussels