Implementation of the Commercial Agents Directive (1986) across Europe in 2008 - Belgium

10 January 2008

International Dispute Resolution Group

The Directive was implemented into Belgian law by an Act on 13 April 1995.

An agent is protected where he negotiates and / or concludes contracts on behalf of the principal in return for remuneration. The agent must act for the principal on a permanent basis, without being subordinated to the authority of the principal.

An Act on 19 December 2005 on pre-contractual information introduced onerous obligations (compulsory information, waiting periods etc) on principals who want to enter into distribution-type relationships. Although the law is primarily aimed at franchises, its wording is so wide and vague that it may also apply to agency agreements.

As there is very little case law regarding this new law and as a failure to comply with its provisions renders the agreement void, businesses are well advised to adhere strictly to the new law.

Exclusions

Contracts concluded between insurance companies, banks or stockbrokers and their agents were initially excluded by the 1995 Act, as well as contracts relating to specific products (such as financial instruments). Since June 1999, only one exclusion remains: an agent does not benefit from the protection of the Act if he does not regularly carry out the activity of an agent.

Forum shopping

Parties may not normally choose the applicable law. Subject to applicable EU Regulations, any activity of a commercial agent having its principal place of business in Belgium is subject to Belgian law and jurisdiction. However, a Belgian court would normally decline jurisdiction if the parties agreed upon an exclusive jurisdiction clause in favour of the courts of another EU state.

Remuneration

The provisions laid down in the law regarding the agent’s remuneration, as a general rule, cannot be altered to the detriment of the agent.

Termination

Commercial agency agreements can be terminated subject to a notice period equal to one month for each year the agreement has been in effect (with a maximum period of six months). The agent is entitled to an indemnity if the principal terminates the contract without giving sufficient notice. The amount of the indemnity is equal to the current remuneration for the duration of the notice period / the remaining part of the full notice period. This entitlement applies to contracts entered into for an indefinite period but also to fixed term contracts containing a clause allowing early termination. Parties cannot validly agree upon a shorter notice period before the termination of the agreement.

Indemnity

In addition to the indemnity in lieu of notice, the agent also has the right to receive a “client” or “goodwill” indemnity where he has:

  • introduced new clients to the principal; or

  • noticeably increased the principal’s business with existing clients, to the extent that the principal continues to derive substantial benefits from the business with such clients.

Whilst the amount of compensation is at the Court’s discretion – on the basis of the development of the business and the contribution of goodwill, the maximum amount permissible is one year’s remuneration (calculated from the agent’s average annual remuneration over the preceding five years, or – if the agreement is shorter than five years – the average for that period).

In addition to the indemnity in lieu of notice and, to the extent it does not cover the actual damage suffered by the agent, the agent is entitled to an amount of additional damages equal to:

  • the difference between the actual damage shown by the agent to have been suffered by him (e.g. terminating sub-agents, recovering certain investments); and

  • the amount of the indemnity.

With regard to the Lonsdale case, Belgium has opted for the “German approach” (i.e. the indemnity provided for in article 17.2 of the Directive) but has tempered its effects by preserving the possibility for the agent to obtain additional damages.

There is no mathematical rule for the amount of the indemnity; the Court decides in equity. Practitioners typically refer to tables of cases which detail the amounts granted, and the reasons cited, by the Courts. It should be noted that the Belgian Courts have often decided not to grant any indemnity on the basis that, when an agency agreement is terminated, the principal ceases his activity in the territory (as was the case in Lonsdale).

No notice period or indemnity

The parties cannot exclude the right to a notice period or indemnity on termination except where:

  • the contract is terminated by the principal because of a serious breach of the agent;

  • the agent terminates the contract (except if termination is due to a serious breach by the principal); or

  • the agent transfers its contractual rights and obligations to a third party.

Compensation is only due if the agent makes a claim within one year of the date of termination of the contract.

Since March 2005, the ability to terminate an agency without a notice period or indemnity in case of a serious breach has been suspended unless the principal proves that the termination is based on objective economic criteria applied uniformly to all agents. The penalty for wrongful termination is payment of an mount equal to 18 months’ remuneration.

Alternatives

Any contract stating that the agent has no power to negotiate or to bind the principal will not be a commercial agency agreement. If in practice, however, the agent is authorised to negotiate on behalf of the principal and / or bind him, Belgian courts will consider such contract to be an agency agreement. Alternatively, the contract may be redefined as an employment contract if the agent has a subordinate relationship with the principal.

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