The facts: Retailer claims a refusal to supply by the supplier
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 Belgian Code of Economic Law (“CEL”) (prohibition on abuse of economic dependence) or Article VI.104 CEL (general prohibition on unfair market practices). The supplier argued that such a refusal was justified due to the retailer’s chronic delay in payments.
The law: the new prohibition on abuse of economic dependence
The new prohibition on abuse of economic dependence is subject to three cumulative conditions: (1) the existence of a position of economic dependence; (2) an abuse of that position; and (3) the possibility of that abuse resulting in competition on the Belgian market or a substantial part of it being affected.
Application of the law by the judge
1. Existence of a 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 seems 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, the retailer had at the end of September 2020 no alternative source for supplies of a winter season collection for 2020, in particular because the retailer had focused its business on the supplier’s clothes. Without those supplies, the continuation of its business therefore became almost impossible, the President reasoned.
When assessing the parties’ positions, the President unfortunately did not seize the opportunity to shed some light over 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 the President later on in the judgment found that the supplier refused supplies or “attached impossible conditions to such supply” – thus without discussing in any way why those conditions were impossible. Antitrust case law on excessive prices shows that concepts like 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 supplier acted in bad faith, as it would have given the impression that it would make the supplies by (a) providing to the retailer in July the promotional materials for the 2020 winter season collection and (b) waiting until a few days before the scheduled delivery to end the cooperation and to 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 invoked as the reason to terminate the cooperation.
- The supplier was well aware of the fact that the continuation of the retailer’s activities would become very difficult in the event of the termination of the distribution relationship, as the retailer had focused its business on the supplier’s clothes. It is interesting to note that the President seemed to use this element both when assessing the position of economic dependence and when assessing the abuse itself. This is rather remarkable as it is beyond discussion in Article 102 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 fraction of its payment plan just before the termination of the cooperation. Moreover, according to the President, the real reason for the termination was the alleged supplier’s strategy of pushing the retailer’s business out of the market without incurring damages itself but to even benefit from it as the supplier could now directly approach the retailer’s customers physically 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. That finding is, however, debatable at the least. The judgment has not stated whether the distribution contract prohibited the supplier from making direct sales, or that the retailer enjoyed any territorial exclusivity. If that was not the case, then 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 very lenient to presume the existence of a strategy to change its distribution policy if there was no further proof of such a strategy such as 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 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 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.
3. Effect on the Belgian market
The third condition for a behaviour to qualify as an infringement of the new prohibition on abuse of economic dependence is the possible effect on the Belgian market. There can only be an infringement if the abuse has the possibility of resulting in competition on the Belgian market or a substantial part of it is affected. It is important to note that 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 the case in fact involved only one small shop and one, relatively small, supplier. It is therefore 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.
Findings of the judge
The President concluded that there had been an infringement of Article IV.2/2 CEL (abuse of economic dependence) or at least uncareful conduct that violated the fair market practices (Article VI.104 CEL). The President did not give any support for this conclusion. As is clear from the above, a finding of an abuse of economic dependance is in fact not that evident. It is correct that if the conduct does not infringe the prohibition on abuse of economic dependence, then 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 solely focusing 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 in any case to cease the refusal to supply the products and imposed a periodic penalty payment if the supplier would not supply the products.
While competition law practitioners have been looking forward to the first judgment applying the new prohibition on abuse of economic dependence, it is doubtful that the judgment of the President of the Ghent Commercial Court of 28 October 2020 will have a strong precedential value. The President did not seize the opportunity to bring some clarification to the many questions that still arise when advising clients about the new prohibition. Furthermore, the President omitted to apply the third condition on the possible effect on the Belgian market. It therefore remains to be seen whether this judgment will be followed in future case law.