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03 December 2020
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:
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.
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.
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 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.
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.
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 (email@example.com or firstname.lastname@example.org). The ALTIUS website can be accessed at www.altius.com.
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