FAQ on the Belgian Pre-Contractual Information in the Framework of Commercial Co-operation Agreements Act of 19 December 2005.Belgium has a specific legal regime protecting the economically weaker party in certain commercial partnership agreements (i.e. the Pre-Contractual Information in the Framework of Commercial Co-operation Agreements Act of 19 December 2005 – “the Act”).  Even though this piece of legislation is not unique, it often gives rise to surprise, disbelief and specific questions.  Some of the frequent questions are listed below with general, summarised answers. 


I.  General

Q1.      Why was the Act passed?

Given the economic importance of the franchise sector and the abuses that had taken place, the Belgian Parliament set up a new legal framework for franchise agreements which protected the franchisee, as the weaker party. 

Q2.      What are the Act’s main provisions?

The Act establishes a specific and formal information obligation and a
“stand-still” period before the co-operation agreement is signed (see Section III below).

If the requirements of the Act are not complied with, the agreement can be annuled
(see Section IV below).

Q3.      How is the Act perceived?

Even though there is still little case law, the Act has given rise to a lot of discussion,   particularly in respect of its scope and the extent of the obligations and sanctions prescribed by it.  It has been heavily criticised and is in general, not perceived as an example of good legislation.
Several amendments to the Act are currently being considered.

II.    Scope of the Act

Q4.      Is the scope of the Act limited to franchise agreements?

Definitely not. It applies to any commercial co-operation agreement between two persons who both work in
their own name and for their own account, whereby one person grants to the other the right to use a commercial formula when selling products or performing services in one or several of the following forms: a common sign board, a common trade name, transfer of know-how or commercial or technical assistance and the other person pays compensation of any kind, either directly or indirectly,
for this right.

Even though at first sight this definition seems aimed at franchise agreements, the actual scope of the text is much wider and can also encompass distribution agreements, agency agreements, licence agreements and general partnership agreements.  The application of the Act depends on the nature of the agreement and is determined on a case-by-case basis.

Q5.      Does the Act apply to the contractual relationship? 

The Act merely governs the pre-contractual phase of the relationship,it does not regulate the performance and the termination of commercial co-operation agreements (as defined under Q4).  The performance and termination of such agreements (e.g. franchise agreements) is governed by the general principles of Belgian contract law. However, in certain cases, other mandatory legislation might apply (such as the legislation covering agency contracts or the unilateral termination of exclusive distribution agreements of indefinite duration).

Q6.      Can the parties contract out?

No, in principle, the parties cannot contract out of the application of the Law, though there are ways to avoid its application (see Q13).

III.   Obligations and information

Q7.      What information must be provided?

The granting party must provide the other party with (i) a draft agreement and (ii)  separate document containing certain information specified by the Act, divided into two categories:

a) Important contractual provisions insofar as they are provided in the agreement (e.g. clauses covering the  method used to calculate compensation; clauses covering the sanctions for failing to fulfil obligations;     non-compete clauses, etc.);

b) Information to allow the other party to correctly assess the co-operation agreement (e.g. the identity of the  grantor; the nature of the activities of the grantor; the history, state and perspective of the market, etc.). 

Q8. Can the agreement be signed as soon as the information is provided?

The granting party must provide the information to the grantee at least one month before the contract
is signed.  During this “stand-still” period,  no obligations can be entered into and no remuneration or guarantee can be requested or paid.

IV.   
Sanctions

Q9.      What happens if the grantor fails to fulfil the information obligation?

If the draft agreement and the separate information document are not provided or if the
stand-still period is not respected, the grantee may invoke the nullity of the
agreement up to two years after the signature date.

If the grantor fails to include any of the required information in the separate information document, the grantee may invoke the nullity of the relevant provision, up to ten years after the signature date.

Q10.    Is a vitiated consent required for nullity?

The nullity prescribed by the Act is relative (i.e. to be relied on by the protected party only), but
is automatic.  Apart from a breach of the Act, there are no other conditions to be met to claim nullity.  However, certain case law has mitigated this harsh sanction on the basis of the principle of good faith (abuse of right).

V.    
Other
issues

Q11.    Can the party receiving the information use it freely?

No, the Act requires the recipient to treat the information as confidential and not to use it except in the framework of the commercial co-operation agreement to which it refers.

Q12.    How is the co-operation agreement to be interpreted?

The draft agreement and the separate information document need to be clear and comprehensible. In case of doubt, the interpretation which favours the grantee will receive priority.

VI.    Issues to be taken into account when negotiating a commercial co-operation agreement

Q13.    Is it possible to avoid the Act?

The most effective way to avoid the application of the Act is to change the nature of the co-operation, so as to fall outside the scope of the Act, but this is not always easy or possible in practice.

Another way to avoid the application of the Act would be for the parties to agree to submit disputes to non-Belgian courts, and to agree that foreign law applies to (both the contractual and the pre-contractual phases of ) the relationship. However, it should be noted that such provisions are not necessarily watertight in the light of the provisions of private international law which, in certain
circumstances, allow for the application of foreign mandatory legislation.

Note:

This memorandum is merely intended to comment on the relevant issues of Belgian law and is not legal advice. 
Before taking action or relying on the comments and the information given, readers should seek specific advice on the matters which concern them.

For any further information please contact Alexander Hansebout.

[email protected]