In a recent decision the Supreme Court ruled that an arbitration clause contained in an expired distribution agreement that is deemed to be renewed under the mandatory legislation governing exclusive distribution agreements does not need to be expressed again in writing.
Belgium's law governing the renewal and termination of exclusive distribution agreements (enacted in 1961) is well known. It provides an unusually long notice period to be observed by the party wishing to terminate the agreement, as well as compensation to be paid to the distributor when the grantor unilaterally terminates an agreement with indefinite duration.
It has long been debated in Belgium whether disputes relating to the termination of exclusive distribution agreements can be settled by arbitration. In a 1979 landmark case the Supreme Court ruled that such disputes are arbitrable only if arbitrators are obliged to apply the 1961 law to the substance of the dispute. If another substantive law applies to the dispute, it is not arbitrable.
Uncertainty arose as to the weight to be given to that decision, as it was issued in proceedings concerning the enforcement of a foreign award. Prominent authors and some lower courts defend the view that, because of the different wording in Articles 2(3) and 5(2) of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, when ruling on an exception to jurisdiction, courts should assess the arbitrability of the dispute not according to the law of the place where the court is located, but rather under the law applicable to the agreement.
The recent Supreme Court decision does not address this issue, but resolves another matter affecting the arbitration of disputes relating to distribution agreements under the 1961 law.
According to the 1961 law, when a fixed-term distribution agreement expires, the agreement is deemed to be renewed for an indefinite duration or for a period agreed upon by the parties, unless the party wishing to terminate the agreement notifies the other party in writing (by registered letter). This must occur between six and three months before the expiry date. Thus, the mere expiry of the agreed term is not sufficient to terminate the agreement.
An exclusive distribution agreement was concluded between an Italian manufacturer and a Belgian distributor. The agreement contained an arbitration clause and provided for the application of Italian substantive law. The agreement expired but the Italian manufacturer did not give written confirmation of its decision to terminate the agreement. On the contrary, the parties started to negotiate a new written contract, but failed to reach an agreement. In the meantime, the parties nevertheless continued their commercial relationship.
A dispute arose following the manufacturer's termination of the oral agreement, and the Belgian distributor brought an action in the Belgian courts. The Italian manufacturer raised an exception to jurisdiction based on the arbitration provision contained in the initial written agreement. The court of first instance upheld the exception, but its judgment was overruled by the court of appeal.
The court of appeal found that because the parties had failed to agree on the renewed terms of their collaboration, the initial written agreement was terminated and thus was not binding on the parties. Further, the court of appeal decided that the distribution agreement was deemed to be renewed in accordance with the 1961 law but, since it was not reduced to writing, there was no longer a valid arbitration agreement (as required by Article 1677 of Belgium's Code of Civil Procedure and Article 2(1) of the 1958 New York Convention).
Belgium's Supreme Court overruled the judgment of the court of appeal and upheld the exception of jurisdiction raised by the Italian manufacturer.
According to the Supreme Court, the renewal of a distribution agreement in accordance with the 1961 law is an extension of the initial agreement, rather than a new agreement. Consequently, despite the expiration of the agreed term, all provisions contained in the initial agreement continued to apply, including the arbitration clause.
It is uncertain whether the ruling of the Supreme Court, under which an agreement that continues to be performed - despite its expiry and a contractual provision excluding silent renewal - is to be considered as extended rather than renewed, applies to all kinds of contract. If this is the case, the consequence is that the writing requirement for the validity of an arbitration clause has now been substantially relaxed by the Supreme Court. Indeed, any oral agreement following a written agreement containing an arbitration clause would then be governed by the initial written arbitration clause.
However, this general conclusion must be treated cautiously, as the decision concerned distribution agreements that are subject to the specific regulations described above.
On the other hand, it would be daring to conclude that the Supreme Court considers that disputes relating to the termination of distribution agreements may be submitted to arbitration even if the applicable substantive law is not Belgian law. That issue was not put forward before the Supreme Court. The issue of the arbitrability of such disputes will have to wait for the Supreme Court's consideration.
For further information on this topic please contact Pascal Hollander at Hanotiau & Van Den Berg by telephone (+32 2 290 39 00) or by fax (+32 2 290 3939) or by email ([email protected]).