The Arbitrability of Distributorship Law Disputes in Belgium: A New Development
In its recent judgment of 21 December 2016, the Tournai Commercial Court (‘Court’) declared it did not have jurisdiction to deal with a dispute concerning the termination of an exclusive distributorship that the parties had agreed to submit to arbitration. This judgment was based on the new definition of arbitrability in the Belgian Judicial Code, which entered into force in 2013, and marks a new era for the arbitrability of Belgian distributorship law disputes.
This article first gives an overview of the background to this legal issue (section 1), then summarises the facts of the dispute (section 2), followed by the Court’s reasoning (section 3), and then concludes with the author’s observations about this legal development (section 4).
1. 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 compensation from manufacturers. This additional compensation is to cover: (i) goodwill, (ii) the distributor’s costs and investments and (iii) the distributor’s staff redundancy costs. The compensation arising under this Act is often very substantial. These rules are mandatory (“d’application directe”), but not part of Belgian public policy.
The first time that the Belgian Supreme Court (‘Supreme Court’) considered the arbitrability of disputes governed by the Act was at the stage of the recognition and enforcement of a foreign arbitral award. In its judgment of 28 June 1979, the Supreme Court ruled that a dispute arising from a manufacturer’s termination of a distribution agreement covering (part of) Belgium could not be resolved through arbitration if the arbitration clause was agreed before the end of the contract and resulted in the application of foreign law. The Supreme Court expressly referred to a “fraude à la loi”.
In a judgment of 22 December 1988, the Supreme Court appeared to extend its 1979 ruling to the question of the arbitrability of a dispute at the stage of the exceptio arbitrandum raised before a Belgian court. In this instance, the Supreme Court confirmed a Court of Appeal judgment that the dispute in question could not be settled by arbitration, based on the evidence before it that the ICC arbitrators were not bound to apply Belgian law. In this ruling, the Supreme Court did not seem to require a “fraude à la loi” to adjudicate the exceptio arbitrandum.
Only in its judgment of 15 October 2004 did the Supreme Court, for the first time, consider the law governing arbitrability under the New York Convention.
The Supreme Court decided that Article II.3 of the New York Convention allowed the Belgian courts to apply the lex fori in this respect. The Supreme Court held that, if the parties involved have chosen to make the arbitration clause subject to foreign law, then the national court, confronted with the exceptio arbitrandum, can override this choice if the public policy in its legal system is affected.
The 2004 ruling was confirmed in a Supreme Court judgment of 16 November 2006. The Supreme Court found that, if the arbitration agreement is subject to foreign law, then a Belgian court confronted with an exceptio arbitrandum must exclude arbitration if, by virtue of the lex fori, the dispute cannot be withdrawn from the Belgian court’s jurisdiction.
In a ruling of 14 January 2010, the Supreme Court went a step further and held that the Belgian court, which had been asked to rule on an exceptio arbitrandum, must exclude arbitration when, by virtue of all relevant rules of the lex fori, the dispute cannot be withdrawn from the Belgian courts’ jurisdiction.
On the basis of these judgments, 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. 2. The facts of the dispute
The dispute concerned the termination of an exclusive distributorship agreement (for a territory including Belgium) between a Swedish manufacturer and a Belgian distributor. The agreement contained an arbitration clause (with arbitration under the Rules of the Stockholm Chamber of Commerce in Stockholm) and provided for the application of Swedish 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 the Supreme Court), the Belgian court had jurisdiction to decide this matter.
The manufacturer, represented by ALTIUS, raised the exceptio arbitrandum and requested that the court refer the dispute to arbitration.
3. 3. The Court’s reasoning
The Court referred to Article II.3 of the New York Convention under which a contracting state’s court, when seized of an action in a matter in which the parties have made an agreement within the meaning of Article II.3 must, at the request of one of the parties, refer the dispute to arbitration, unless the court finds that the agreement is null and void, inoperative or incapable of being performed.
The new Article 1676 of the Belgian Judicial Code provides that any dispute involving an ‘economic interest’ (a pecuniary claim) may be submitted to arbitration. As the dispute between the parties involved an ‘economic interest’ (i.e. pecuniary indemnity claims), the court accepted that it had jurisdiction.
The Court referred to the new law’s preparatory legislative work and noted that it was the legislator’s firm intention to once and for all end the controversy that had previously existed regarding the arbitrability of disputes in the presence of public order rules. The Court held that the distributor’s reference to the Supreme Court’s case law (set out in section 1) was irrelevant. The Court found equally irrelevant the distributor’s reference to the Act, providing that the Belgian courts are bound to apply Belgian law. The Court stated that it had to decide on the issue of jurisdiction first.
4. 4. Observations
The new criterion of arbitrability under Article 1676 of the Belgian Judicial Code offers a justifiable solution to the arbitrability discussion. Whereas in the past a dispute was capable of being settled through arbitration provided that it could be the object of a settlement (implying that disputes governed by mandatory or public policy rules could not be settled through arbitration), the new criterion refers to claims involving an ‘economic interest’.
This new criterion allows the Belgian courts to confirm the arbitrability of disputes governed by mandatory or public policy rules and sheds a completely different light on the arbitrability discussion regarding distributorship law disputes.