Today's automotive sector is a market with many players. At different levels, networks are built, sales are concluded and trade relationships are maintained.
In this respect , it is not inconceivable that a d grantor
refuses to accept an individual garage owner into his
network, or that a distributor of vehicles or parts does not wish
to take the plunge with a particular buyer. The motivation for this
refusal to sell can be based on various reasons. So the
question arises to what extent the refusal to sell is
legitimate or not.
1. Contractual Relationship Between
Parties
If there is a contractual relationship between, say, a concession
grantor and concessionaire, on the basis of which successive
purchase agreements are concluded and the concession grantor
has to deliver cars, a refusal to sell will in principle
constitute a contractual default. A concession grantor is not
allowed to unilaterally decide just like that to stop his supplies.
The same is true for any kind of contract that regulates the
relationship between parties. In such cases, normally speaking
the refusal to sell will compromise the refuser's
contractual liability.
2. No Contractual Relationship – Refusal
to sell is Permitted
If on the other hand there is no contractual relationship between
the parties, the refusal to sell will in principle be
accepted. After all, in our legal system the freedom of
entering into a contract and running a business is guaranteed.
The D'Allarde Decree, in force since 1791, allows any
enterprise to enter into a contract with anyone of its choice. The
refusal to sell is regarded as the consequence of the
autonomy of will , and is therefore lawful in itself.
However, like other rights and freedoms, the right of refusal to
sell is not absolute either. The freedom of entering into a
contract is delineated, on the one hand, by the
Economic Competition Protection Act (ECPA) and, on the other hand,
by the abuse of right doctrine.
In the pre-contractual sphere as well some caution is required. In
spite of the fact that the parties have actually not come to
a contract yet, the abrupt termination of their negotiations may
lead to pre-contractual liability.
3. Refusal to Sell – Free
Competition
Articles 101 and 102 of the Treaty on the Functioning of the
European Union (TFEU) are the basis for free and fair competition.
Their Belgian implementation can be found in sections 2 and 3
of the Economic Competition Protection Act (ECPA). If the refusal
to sell constitutes a violation of these provisions, it
will invariably be sanctioned.
In order to be able to conclude that the said provisions are
violated, several conditions must have been met. After all,
the mere fact that a refusal to sell may limit competition on
the market in itself, is not enough. A violation requires that the
refusal to sell is the consequence of an unlawful cartel or
dominant position abuse.
In other words, if two car manufacturers agree not to supply
certain dealers, there might be a violation of free competition if
the agreement between the companies limits or disturbs
free competition. In this context there are, however, exceptions
whereby certain agreements are not deemed to infringe free
competition. Pursuant to article 101, paragraph 3 TFEU,
the European Commission has the power to grant block exemptions
with the result that the cartel prohibition will not apply in such
circumstances.
In addition, a violation of the cartel prohibition can also have
serious consequences. The national courts can nullify the
agreement preceding the refusal to sell, while the European
Commission has the power to severely fine cartel
infringements.
As long as an enterprise refuses on an independent basis to
sell to a particular buyer, it cannot be sanctioned on the basis of
article 101, paragraph 3 TFEU. If on the other hand, it can be
established that such enterprise would make abuse of its dominant
position in case of a refusal, it runs the risk of being
sanctioned pursuant to article 102 TFEU or section 4 ECPA. This
implies that a dominant enterprise cannot refuse just like that to
provide its products or services to anyone requesting them.
A dominant enterprise may refuse to sell only if its refusal is
objectively justified. This results from the special responsibility
borne by a dominant enterprise. An important factor to judge
whether the refusal is lawful or not, is the presence of
alternatives on the market for the buyer. If the national
competition authority, court or European Commission do not find
an objective economic justification for the refusal,
they have the power to also impose an obligation to supply in
addition to a fine or penalty.
4. Selective Distribution Networks
Meanwhile, it has become common that some car makes supply their
dealers through selective distribution networks. This system is set
up by a manufacturer who selects some distributors before
selling, who in turn are the only ones allowed to sell
the manufacturer's products. The purpose of these
systems is to keep up a certain standard, which is associated with
that product.
In that case the question is when a manufacturer, who refuses to
accept a specific car dealer into his network, acts contrary
to free and fair competition. In order to answer this
question, first it must be examined whether a qualitative or
a quantitative distribution network has been set up. A
quantitative network means that the number of buyers is limited and
is in principle forbidden. On the other hand, a qualitative
distribution network ensures that a manufacturer may impose certain
requirements on its distributors to form part of its network. This
kind of network is accepted, provided that the requirements or
criteria are laid down uniformly and
non-discriminatorily for all distributors. Think for instance
of the colours and the design of the showroom, the surface
area of the garage. etc. These criteria must therefore
be required to guarantee the quality of the product
concerned. In this context, the refusal to sell is permitted
if a buyer does not meet such criteria.
5. Refusal to Sell – Abuse of
Right
Finally, it is still be possible to sanction a refusal to sell on
the basis of abuse of right. However, this is not an unqualified
success.
After all, there will be an abuse of right only when it can be
proved that the refusing company has no interest in
refusing and that the refusal is inspired by the intention to
harm the other party. The injured enterprise will have to show
within this framework that the refusal is purely discriminatory, or
that it causes a manifest imbalance between the parties. In
this regard the court has only a marginal control
– it may only act in a moderating way in the
event of a manifest or obvious crossing of the limits
of reasonableness - and it must not be forgotten that a
company is of course allowed to outline its commercial
strategy itself. For instance, it is in principle permitted
that an enterprise refuses to supply a particular company when its
competitor places a bigger order.
This will be judged by the court on a case-by-case
basis and is mostly an issue of fact.
6. Conclusion
A general prohibition of a refusal to sell is not provided for in
our Belgian legal system. A refusal to sell will be sanctioned if
the act is contrary to competition legislation or if it is regarded
as an abuse of right. Within the framework of a selective
distribution network, it is important that transparent and uniform
standards are used, and, if the enterprise is in a dominant
position, it must show some caution. If these rules are
observed, a company will, in principle, not have to account
for its actions when it refuses to enter into a contract.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
