Member Article

1. The legal background

The Belgian Economic Code (previously known as the 1961 Distributorship Act – the “Act”) provides special protection against the unwarranted termination of an exclusive distribution agreement. It provides that, in the absence of a serious breach, a distribution agreement may only be terminated by giving reasonable notice or by paying compensation in lieu of notice. It also states that, under certain conditions, distributors are entitled to claim additional (goodwill) compensation from manufacturers. The compensation arising under this Act is often very substantial.

Moreover, the Act declares it is mandatory (“d’application directe”). It expressly provides (i) that the aggrieved distributor may, in any case, sue the principal in Belgium and (ii) that in the event that the dispute is brought before the Belgian courts, the latter will exclusively apply Belgian law.

In several rulings from 1979, 1988, 2004, 2006 and 2010, the BelgianCour de Cassationconsidered the arbitrability of disputes governed by the Act. In those decisions, the Supreme Court (in a nutshell) held that, if the parties involved had chosen to make their relationship subject to foreign law, then the national court could override this choice if the legal system’s mandatory rules would be affected. It found that the Belgian courts, which had been asked to rule on anexceptio arbitrandum, must exclude arbitration when, by virtue of all relevant rules of thelex fori(including the Act), the dispute may not be withdrawn from the Belgian courts’ jurisdiction.

On the basis of these rulings, it appeared that disputes governed by the Act could only be settled by arbitration if Belgian law applied. Yet, in spite of this more-or-less standing case law, the issue has remained controversial amongst Belgian legal scholars.

2. The facts of the dispute

The dispute concerned the termination of an exclusive distributorship agreement (for a territory including Belgium) between an Austrian manufacturer and a Belgian distributor. The agreement contained an arbitration clause (the place of arbitration, Vienna) and provided for the application of Austrian law.

In spite of this arbitration clause, the Belgian distributor brought a claim against the manufacturer before the Belgian courts, claiming indemnities under the Act. The distributor claimed that, by virtue of the Act (as interpreted by theCour de Cassation), the Belgian court had jurisdiction to decide this matter.

The manufacturer raised theexceptio arbitrandumand requested that the court refer the dispute to arbitration. The Commercial Court (Antwerp, Turnhout division) decided it had jurisdiction. This decision was overturned by the Antwerp Court of Appeal. The distributor appealed to theCour de Cassation.

3. The Cour de Cassation's reasoning

First, the Court held that by virtue of Article 6.2 of the 1961 European Convention on International Commercial Arbitration, the national court has to consider all relevant rules of thelex foriwhen deciding on arbitrability.

Second, the Court referred to Article 1676, paragraph 1 of the Belgian Judicial Code in which any dispute involving an ‘economic interest’ (a pecuniary claim) may be submitted to arbitration. The Court accepted that a dispute regarding the termination of a distribution agreement is pecuniary.

Third, referring to the Court of Justice of the European Union’s decision in Unamar, the Court decided that the Act mainly protects private interests and is therefore no overriding mandatory provision in the sense of the Rome I Regulation.

The Court then concluded that the arbitrability of a dispute relating to the termination of a distributorship falling within the scope of the Rome I Regulation cannot depend on the condition that the arbitrators have to apply the Act or foreign law offering equivalent protection.

So from now on, disputes relating to the termination of a distributorship are suitable to be settled through arbitration.

4. Observations

Even though the ruling ‘holds water’, one could deplore the lack of elaborated reasoning where the Court has decided that the Act mainly protects private interests.

This decision brings legal certainty and solves a long debated and thorny issue. However, it might now raise a number of other questions, including:

• Does the reference to “a distributorship falling within the scope of the Rome I Regulation” imply that that similar disputes between purely Belgian parties are still not arbitrable?
• Would the Court’s reasoning apply to disputes under other self-declaredlois de police,such as the Law on Commercial Agency Contracts, the Law governing Precontracual Information in Commercial Cooperation Agreements and the B2B Law (all incorporated in the Economic Code)?

For further questions, contact ALTIUS' Dispute Resolution team.