First Belgian ruling on abuse of economic dependence

Introduction
Existence of position of economic dependence
Abuse
Effect on the Belgian market
Comment

Introduction

On 22 August 2020 a new act introducing a prohibition on the abuse of economic dependence entered into force in Belgium. On 28 October 2020 the president of the Ghent Commercial Court issued a judgment in the first abuse of economic dependence case in Belgium.

The case concerned a request for a cease-and-desist order against a designer, manufacturer and supplier of, among other things, children's clothing. A retailer claimed that the supplier had abruptly refused to supply the retailer's orders for the new 2020 winter collection and argued that that refusal constituted an infringement of Article IV.2/1 of the Code of Economic Law (CEL) (prohibition on abuse of economic dependence) and Article VI.104 of the CEL (general prohibition on unfair market practices). The supplier argued that such a refusal was justified due to the retailer's chronic delay in making payments.

The new prohibition on abuse of economic dependence is subject to three cumulative conditions:

• the existence of a position of economic dependence;
• an abuse of that position; and
• the possibility of that abuse resulting in competition on the Belgian market or a substantial part of it being affected.

As there is no equivalent prohibition in EU competition law, practitioners have been waiting for case law guidance on how to apply these conditions. However, it is questionable whether this first case provides such valuable guidance.

Existence of position of economic dependence

The act defines 'economic dependence' as:

an undertaking's position of submissiveness towards one or more other undertakings that is characterised by the absence of a reasonably equivalent alternative, available within a reasonable period of time, on reasonable conditions and at reasonable cost, allowing this or each of these undertakings to impose obligations or conditions that could not be obtained under normal market circumstances.

For the court's president, it seemed clear that the retailer was in such a position of economic dependence. The president noted that the retailer's supplies depended completely on the supplier, as orders for a seasonal clothes collection should be made significantly in advance. Consequently, at the end of September 2020 the retailer had no alternative source for supplies of a winter 2020 season collection, particularly because the retailer had focused its business on the supplier's clothes. The president reasoned that without those supplies, the continuation of its business therefore became almost impossible.

When assessing the parties' positions, the president unfortunately did not seize the opportunity to shed some light on the uncertainties created by the abstract terms in the act's definition of 'economic dependence'. The president did not discuss what could be considered as a 'reasonable alternative', let alone assess the costs that would be involved in obtaining such a reasonable alternative. Similarly, the president did not investigate whether such an alternative would be available on reasonable conditions or whether the supplier was able to "impose obligations or conditions that could not be obtained under normal market circumstances". This is all the more surprising since, later on in the judgment, the president found that the supplier refused supplies or "attached impossible conditions to such supply" without discussing why those conditions were impossible. Antitrust case law on excessive prices shows that concepts such as reasonable costs or reasonable conditions are in most cases complex to assess and the president clearly steered away from such discussion.

Abuse

The act explicitly gives "the refusal of a sale, a purchase or other transaction terms" as an example of an abuse of economic dependence. The court's president found that the supplier unilaterally and without notice refused supplies or attached impossible conditions to such supply. The president further noted the following:

• The supplier had acted in bad faith, as it had given the impression that it would provide the supplies by:
  • providing to the retailer in July 2020 the promotional materials for the 2020 winter season collection; and
  • waiting until a few days before the scheduled delivery to end the cooperation and notify the cancellation of the last orders even though the supplier had already been aware for a long time of the retailer's questionable solvency which it invoked as the reason to terminate the cooperation.
• The supplier was aware of the fact that the continuation of the retailer's activities would become difficult in the event of the termination of the distribution relationship, as the retailer had focused its business on the supplier's clothes. The president seemed to use this element both when assessing the position of economic dependence and the abuse itself. This is rather remarkable as it is beyond discussion in Article 102 of the Treaty on the Functioning of the European Union (TFEU) cases that having a position of dominance itself does not constitute an abuse.
• The supplier invoked the retailer's questionable solvency as the reason for the cooperation's termination. However, the president noted that the supplier did not deny that the retailer had paid the last instalment of its payment plan just before the termination of the cooperation. Moreover, according to the president, the real reason for the termination was the supplier's strategy of pushing the retailer's business out of the market without incurring damages itself but to benefit from it, as the supplier could now directly sell to the retailer's customers in store or online. The judgment indicates that a marginal assessment made it plausible to conclude that such a strategic object was the real reason for the termination. However, that finding is debatable at the least. The judgment did not state whether the distribution contract prohibited the supplier from making direct sales or the retailer enjoyed any territorial exclusivity. If that was not the case, the supplier could have approached the retailer's customers without having to "push the retailer's business out of the market". In that situation, it seems lenient to presume the existence of a strategy to change its distribution policy if there was no further proof of such a strategy (eg, similar terminations of other retailers' contracts).

The concept of 'refusal to supply' is not new to competition law as there is ample case law on this infringement under Article 102 of the TFEU. Unfortunately, the court's president did not seize the opportunity to clarify to what extent the concepts of 'refusal to supply as an abuse of dominance' and 'refusal to supply as an abuse of economic dependence' differ from each other. It remains unclear whether the conditions set by the case law under Article 102 of the TFEU for qualifying a refusal to supply as an abuse of dominance could also apply to finding an abuse of economic dependence. Without applying those conditions, the president in this case simply concluded that the supplier's behaviour was arbitrary and therefore amounted to an abuse of economic dependence.

Effect on the Belgian market

The third condition for a behaviour to qualify as an infringement under the new prohibition on abuse of economic dependence is its possible effect on the Belgian market. An infringement is deemed to exist only if the abuse has the possibility of resulting in competition on the Belgian market or a substantial part of it is affected. The new act does not require an actual effect on competition, but provides that a potential effect on competition is sufficient. Even so, the court's president completely ignored this condition. This omission could have had an important impact on the outcome of this case, as it involved only one small shop and one relatively small supplier. Therefore, it is highly questionable whether the conduct even had a potential effect on the Belgian market. Without such an effect, the president could never have found an infringement of the prohibition on abuse of economic dependence.

The president concluded that there had been an infringement of Article IV.2/2 of the CEL (abuse of economic dependence) or at least uncareful conduct that had violated fair market practice (Article VI.104 of the CEL). The president gave no support for this conclusion. As is clear from the above, a finding of an abuse of economic dependence is in fact not that evident. If the conduct does not infringe the prohibition on abuse of economic dependence, it could still amount to an unfair market practice. However, in that case, the president should explain why the conduct violated fair market practices. After a whole judgment focusing solely on abuse of economic dependence, the president could not, without any further reasoning or explanation, find that the conduct in any case amounted to an unfair market practice. Nevertheless, the president ordered the supplier to supply the products and imposed a periodic penalty payment if it failed to do so.

Comment

While competition law practitioners have been waiting for the first judgment applying the new prohibition on abuse of economic dependence, it is doubtful that this judgment will have a strong precedential value. The president did not seize the opportunity to clarify the many questions that still arise when advising clients about the new prohibition. Further, the president omitted to apply the third condition on the possible effect on the Belgian market. Therefore, it remains to be seen whether this judgment will be followed in future case law.

For further information on this topic please contact Beatrijs Gielen or Carmen Verdonck at ALTIUS by telephone (+32 2 426 1414) or email (beatrijs.gielen@altius.com or carmen.verdonck@altius.com). The ALTIUS website can be accessed at www.altius.com.