Belgian landmark decision on the arbitrability of disputes regarding the termination of exclusive distributorship agreements

Mathias Morissens

ALTIUS, Brussels

mathias.morissens@altius.com

Alexander Hansebout

ALTIUS, Brussels

alexander.hansebout@altius.com

The Belgian Distributorship Law

The Belgian law of 27 July 1961 concerning the unilateral termination of exclusive distribution agreements of indefinite duration, incorporated into the Belgian Code of Economic Law (CEL) (Articles X.35–X.40, the ‘Belgian Distributorship Law;), grants protection to Belgian distributors against the unwarranted termination of (quasi-)exclusive distributorships. It provides for a reasonable notice period and for additional (goodwill) compensation upon termination.

Article X.39 of the CEL stipulates that ‘in cases of termination of a distribution agreement affecting the entire Belgian territory or part thereof, the aggrieved distributor may, in any event, summon the principal in Belgium, either before the judge of its own domicile or the judge of the domicile or registered office of the distributor. If the dispute is brought before a Belgian court, that court shall apply only Belgian law.’

The Belgian Distributorship Law’s objective was generally interpreted as preventing Belgian law from being set aside in favour of a foreign law that would afford less protection to the distributor; the jurisdiction of the Belgian court being the technical means of achieving this objective. The Belgian Distributorship Law may not be derogated from by agreement and is (at least from an internal Belgian law perspective) mandatory.

The arbitrability discussion

In its (in)famous Audi–NSU decision of 28 June 1979,[1] the Belgian Supreme Court ruled that a dispute arising from the manufacturer's termination of a distribution agreement covering (part of) Belgium could not be resolved through arbitration if the arbitration clause was agreed before the end of the contract and resulted in the application of foreign law. The Supreme Court stuck to this view in its decisions of 1988, 2004, 2006 and 2010.[2]

However, scholars and certain lower courts continued criticising this case law and defended the arbitrability of disputes governed by the Belgian Distributorship Law, mainly on the basis of the following elements:

• Given the primacy of international law and European law over Belgian law, European rules of private international law take precedence over Article X.39 of the CEL. As a result, it has long been accepted that the Belgian courts must decline jurisdiction in favour of the courts of another EU Member State designated by a forum clause by virtue of the Brussels I recast Regulation.[3]
• Until 2013, claims could be arbitrated provided that they were amenable to settlement (the old Article 1676 of the Belgian Judicial Code). However, under the new Arbitration Law (2013), any claim involving an economic interest may be submitted to arbitration (the new Article 1676 of the Judicial Code). The preparatory works to the 2013 Arbitration Law clearly indicated that public policy is no (longer) ‘a brake on’ the arbitrability of pecuniary disputes (provided that the exequatur judge has the power to annul an arbitral award violating public policy).
• In Unamar, the Court of Justice of the European Union (CJEU) defined the concept of overriding mandatory provision and the scope of Article 9 of the Rome I Regulation allowing the court of a Member State before which the case has been brought to reject the application of the law of another EU Member State in favour of the overriding mandatory law of the forum. According to the CJEU, this is possible only if the court before which the case has been brought finds, on the basis of a detailed assessment, that the legislature of the State of the forum held it to be crucial, in the legal order concerned, taking account of the nature and of the objective of such overriding mandatory provisions. In this context, the overriding mandatory character of the Belgian Distributorship Law was disputed.

On 7 April 2023, the controversy came to an end.

The Supreme Court’s decision

The central dispute leading up to the Belgian Supreme Court’s decision revolves around the termination of an exclusive distributorship agreement between a Belgian distributor and an Austrian manufacturer. The parties had agreed that any disputes would be subject to arbitration in Vienna, governed by Austrian law. Nevertheless, the Belgian distributor chose to initiate legal proceedings in Belgium, claiming that it was entitled to the protection of the Belgian Distributorship Law. Conversely, the manufacturer argued that the arbitration clause remained in effect and should be upheld.

The lower court ruled in favour of the distributor, asserting its jurisdiction over the case.[4]  However, upon appeal, the Appeal Court affirmed the validity of the arbitration clause.[5] Consequently, the distributor filed an appeal with the Supreme Court to challenge the Appeal Court’s decision. 

The Supreme Court held that in accordance with Article 1676, section 1 of the Belgian Judicial Code, any claim involving an economic interest can be subject to arbitration. Disputes regarding the termination of an exclusive distributorship are inherently pecuniary, making them, in principle, eligible for arbitration.

The Supreme Court continued its reasoning by stating that by virtue of Article 3.1 of the Rome I Regulation, an agreement is governed by the law chosen by the parties. This choice can be set aside in accordance with Article 9.1 of the Rome I Regulation to the extent that the Belgian Distributorship Law contains overriding mandatory provisions important for the preservation of any public interest such as political, social or economic organisation. Without much reasoning, the Supreme Court has concluded that the Belgian Distributorship Law primarily protects private interests and does not qualify as overriding mandatory rules. Consequently, a Belgian court dealing with a distribution-related dispute may not set aside an arbitration clause for the reason that the parties opted to subject their contract to foreign law.

The Belgian Supreme Court’s ruling in respect of overriding mandatory provisions is not surprising or new within the European Union. On several occasions, the Paris Court of Appeal has ruled that the French provisions governing the abrupt termination of an established commercial relationship (Article L.442-6, I, 5° of the French Commercial Code) does not constitute an overriding mandatory provision as it primarily serves to safeguard private interests.[6]

Consequences of the Supreme Court’s decision

The Belgian Supreme Court’s decision has far-reaching implications:

• Disputes governed by the Belgian Distributorship Law are arbitrable. The arbitrators appointed to settle such a dispute are not necessarily bound to apply the Belgian Distributorship Law or similarly protective rules.
• Under the Rome I Regulation, the Belgian courts may no longer set aside a (foreign) choice of law in favour of the Belgian Distributorship law.
• Foreign courts also should (in the context of the Rome I Regulation) not consider the Belgian Distributorship Law as an overriding mandatory provision.

The question arises whether this judgment sets a precedent for the arbitrability of disputes governed by other Belgian ‘mandatory’ provisions in cross-border situations. For example, reference can be made to the Belgian Agency Law (Articles X.1–X.25 of the CEL), which is the Belgian implementation of the EU Agency Directive in which the CJEU has declared certain provisions to be overriding mandatory provisions,[7] and the Belgian Law on pre-contractual information regarding commercial cooperation agreements (Articles X.26–X.34) establishing a specific and formal information obligation and a ‘stand-still’ period between the moment when the information obligation is fulfilled, and a commercial cooperation is signed.

The Belgian Supreme Court has not expressly decided on the arbitrability of disputes falling within the scope of these laws. However, based on an analogous reasoning with the Supreme Court’s ruling, one can reasonably argue that disputes governed by these laws in principle concern an economic interest and are therefore arbitrable as well.

Moreover, one could reasonably argue that both the Belgian Agency law, to the extent that it goes beyond the harmonised protection of the EU Agency Directive and provides for additional protection, and the Precontractual Information Law, merely protect private interests and are therefore not overriding mandatory provisions either. This would be a blow to the international application of these laws. In this context, it is notable that the Hague Court of Appeal (in the Netherlands) recently confirmed the arbitrability of a dispute of which a Belgian franchisee/claimant argued that it fell within the scope of the Belgian Precontractual Information Law. The Dutch court ruled in alignment with the Belgian Supreme Court by asserting that the Belgian Precontractual Information Law does not qualify as an overriding mandatory provision in the sense of the Rome I Regulation as it protects private interests.[8]