Business-to-business (“B2B”) agreements are often characterized by an economic imbalance between the parties, especially in the franchise area, where the franchisor imposes contractual clauses that run counter to normal market practices. The Belgian legislature recently passed and implemented a law to combat the abuse of economic dependency, unfair contractual terms and unfair practices in B2B relationships (the “B2B Law”).
In addition, in its enforcement priorities for 2021, the Belgian competition authority listed the abuse of economic dependencies as one of its four “strategic priorities”. More caution than ever is required when drafting B2B agreements.
This article is divided into two parts: (1) a brief overview of the B2B law and its scope; and (2) the impact of B2B law on franchise agreements, specifics and best practices.
I. The B2B Law
Scope and applicability. The B2B Act introduces three sets of rules in Books IV and VI of the Belgian Economic Code that deal with the economic imbalance between the parties:
- a ban on unfair market practices, i.e. misleading and / or aggressive practices (entered into force on September 1, 2019);
- a prohibition on the abuse of economic dependency when competition in the Belgian market concerned or a substantial part of it is likely to be impaired, e.g. B. the application of unequal conditions to services of equal value for business partners (entered into force on June 1, 2020); and
- a ban on unfair clauses, see below (entered into force on December 1, 2020).
These rules are considered mandatory law in Belgium. This means that the B2B law applies to all agreements made in Belgium, regardless of the location of the contracting parties or any applicable legal clause in favor of the laws of any other jurisdiction.
Unfair clauses. With regard to rules on unfair terms, B2B Law (i) introduces a general principle of transparency; (ii) a prohibition on any material imbalance between the rights and obligations of the parties; (iii) a black list; and (iv) a gray list of unfair contract terms.
General transparency. The contracting parties must comply with the general principle of transparency, which provides that all written contractual clauses are drafted in a clear and understandable manner. The transparency of a clause must be taken into account when assessing its injustice.
Significant imbalance. Any contractual term, individually or in combination with other clauses, that creates a significant imbalance between the rights and obligations of the contracting parties is considered to be unfair. The imbalance is assessed by taking into account the nature of the services or products that are the subject of the agreement and by referring to any circumstances related to the conclusion of the agreement, its general scheme or business practices.
Blacklist. The B2B law establishes a “black list” of clauses that are per se considered unfair and prohibited without the need for further evaluation, e.g. B. Clauses that give a party the right to unilaterally interpret clauses of the agreement. or to have the other party waive all recourse in the event of a dispute.
Gray list. B2B law also introduces a “gray list” of clauses that are considered unfair unless otherwise proven. This presumption can be rebutted if the clause, taking into account the circumstances and characteristics of the agreement, does not create a material imbalance between the rights and obligations of the parties that could cause the parties to explicitly refer to the circumstances and characteristics of the agreement.
For example, gray list clauses could be those that give a party the unilateral right to change the price, features, or terms of the agreement for no valid / objective reason. those who transfer the economic risk to one party without compensation when that risk is normally borne by the other party; or that restricts the evidence a party can rely on.
Sanctions. Unfair and unfair terms are void. The agreement itself remains binding on the parties if it can continue to exist without the unfair clauses. In addition, interested parties can initiate injunction proceedings or bring actions for damages. Criminal sanctions may also be imposed under certain conditions (e.g. one of the parties acting in bad faith).
II. Effects of the B2B Act on Franchise Agreements
Definition of a franchise agreement
Franchise agreements involve the collaboration between two independent professionals, the franchisor and the franchisee, whereby the franchisor grants the franchisee the right to exploit a brand for the production and / or marketing of products, services or technologies in return for payment. to guarantee the uniformity of the exploitation methods of this brand through a network ”.
The franchise relationship enables the franchisor to expand its network territorially, using the local expertise and the franchisee to benefit from the expertise and awareness of a tested concept.
The special relationship between the franchisor and the franchisee typically brings together a stronger and a weaker party. During the parliamentary debates on the adoption of the B2B law, franchise agreements were at the center of the discussions, as franchise agreements are seen as unbalanced and restrict the economic freedom of the franchisee.
Risk clauses in a franchise agreement
Franchise agreements are often viewed as containing clauses that may create an imbalance between the rights and obligations of the contracting parties. This is the general criterion for assessing the injustice of a clause. In particular, the following clauses apply in franchise agreements:
- Clauses that authorize the franchisor to unilaterally change the price, features or terms of the franchise agreement at its own discretion without providing objective justification;
- Clauses that enable the franchisor to set a maximum resale price or to recommend that the franchisee use predetermined resale prices;
- Clauses obliging the franchisee to purchase products from suppliers selected by the franchisor or from wholesalers previously approved by the franchisor; or
- Clauses that oblige the franchisee to comply with the franchise standards and manuals issued by the franchisor at all times.
These clauses are often included in franchise agreements and need to be examined on a case-by-case basis to avoid being classified as an unfair contractual clause that invalidates them.
Best practices for creating a franchise agreement
The injustice of a clause must be assessed on a case-by-case basis, taking into account a number of factors, in particular:
Pre-contractual information. The franchisor is obliged to provide the franchisee with a pre-contractual information document (including the rights and obligations under the contract, the history, status and prospects of the franchise market, etc.) at least one month prior to the conclusion of the franchise agreement. ). The franchisee therefore knows all the legal and economic conditions of the franchise network before making an informed decision.
The purpose of this mandatory pre-contractual information document is precisely to restore a certain balance between the contracting parties. It is therefore recommended to list all information and documents provided prior to entering into the agreement.
Circumstances related to entering into the agreement. The context of the conclusion of the contract plays a role in assessing the will and motives of the parties. The parties should explicitly explain the circumstances before and around the conclusion of the agreement and their intent and will to cooperate. Such motifs can for example be contained in a section of the agreement, in the main part of the franchise agreement or even in a separate document / annex.
Use of the trading formula chosen. It is well known that a franchisee’s economic freedom can be somewhat limited in return for the franchisor’s long-term efforts to maintain a successful brand. Clauses for the selection of certain suppliers, clauses to guarantee a level of quality equivalent to the customers or clauses to comply with the franchise network could be seen and justified as indispensable elements for the success of a franchise network in order to maintain a uniform image.
Justification of certain clauses. Certain “problematic” clauses will not be considered unfair unless they can be justified on a “valid reason”, e.g. B. Clauses that allow unilateral changes to the price, features or terms of the agreement. In the context of franchising, a “valid reason” could be the franchisor’s mission to develop their network to meet the ever-changing expectations of their customers. consumer expectation of a homogeneous network; the favorable economic terms negotiated in the specific interest of all franchisees, etc.
It is therefore recommended that the specific reason for these clauses be explained in detail and that the clauses be formulated transparently and precisely in order to avoid being characterized as unfair clauses.