Exclusivity can significantly strengthen a commercial collaboration. A producer or supplier chooses one partner to develop a given market, while the distributor obtains the certainty of not having to compete directly with other distributors of the same brand within its territory.
But it is precisely that exclusivity that makes the collaboration legally more sensitive. Anyone who invests in a market, builds a customer base and aligns their organisation with a single supplier wants to know how sustainable that position really is. For the supplier, the question then arises how much freedom is being given up and what happens if the distributor underperforms.
A sound distribution agreement must therefore go further than the arrangement that one party may sell “exclusively”.
Exclusivity is more than demarcating a territory
In exclusive distribution, a distributor typically receives the exclusive right to distribute certain products within a given area or vis-à-vis a given customer group. That may, for example, be Belgium, the Benelux or a specific sector. In practice, it is above all the precise scope of that exclusivity that matters.
May the supplier still sell directly to large customers? How are online sales treated? What happens when customers from outside the allocated area themselves contact the distributor? And do new products automatically fall under the same arrangements?
When the contract is silent on these points, discussion often only arises once the commercial interests become greater. Exclusivity therefore only works when its boundaries are also clear.
Exclusivity may be matched by performance
For a supplier, it is unattractive to reserve an entire market for a single distributor without guarantees that that market will actually be developed. Exclusivity is therefore often linked to concrete commitments, such as minimum purchase volumes, turnover targets, marketing investments, reporting obligations or a given commercial presence. Here too, wording is essential. A turnover target of which it is unclear whether it constitutes an obligation of means or a hard contractual condition offers little certainty when results fall short.
The contract can moreover determine what happens if the targets are not met. Does the distributor immediately lose exclusivity? Is a cure period granted first? Is the collaboration continued on a non-exclusive basis, or can the agreement be terminated in full? Determining those consequences in advance is at least as important as setting the targets themselves.
Dependence often grows faster than expected
An exclusive collaboration can be economically attractive, but it also creates dependence.
A distributor may invest considerable amounts in staff, marketing, stock, infrastructure and customer relationships around a single product or brand. A supplier may in turn become dependent on a single distributor for an entire region and thereby lose touch with the local market. That dependence becomes legally relevant when one party obtains a strong position vis-à-vis the other. Belgian law contains, among other things, rules against abuse of economic dependence and against unfair terms between undertakings. Not every unequal negotiating position constitutes a problem, but a strong contracting party likewise does not have unlimited freedom to impose conditions.
An exclusive relationship therefore deserves a regular critical evaluation: is the collaboration still mutually attractive, or has one party become so dependent that a termination would weigh particularly heavily?
Termination is not always a matter of reading the notice clause
One of the most important points of attention is situated at the end of the collaboration.
Under Belgian law, an exclusive distribution agreement may, under certain conditions, qualify as an exclusive sales concession within the meaning of Book X of the Code of Economic Law. A sales concession presupposes that a concessionaire sells, in its own name and for its own account, products that are manufactured or distributed by the grantor. For certain exclusive or comparable sales concessions, special statutory protection upon termination then applies.
For an open-ended agreement that falls under that regime, the collaboration cannot in principle simply be terminated from one day to the next. Except in the event of a serious breach, a reasonable notice period must be observed or fair compensation paid. If the parties cannot agree on this, the court may determine the compensation or period in equity. In addition, additional compensation may be due in certain cases. Account may among other things be taken of the customer value that remains with the supplier, investments from which the supplier continues to benefit after termination, and certain staff costs resulting from the discontinuation of the concession. The financial impact of a termination can therefore be considerably greater than the parties expect when concluding the agreement.
A fixed-term agreement also deserves attention
An end date seems simple at first sight: on that date the agreement ends. Caution is needed there as well.
For sales concessions that fall under the special Belgian regime, the Code of Economic Law contains rules on the termination and renewal of fixed-term agreements. Thus, the absence of timely notice may result in the agreement being renewed. After certain successive renewals, a further renewal may moreover be regarded as an open-ended agreement.
Keeping track of the calendar is therefore not an administrative detail.
Exclusivity stops where competition law begins
A supplier and a distributor may make commercial arrangements about the organisation of their distribution network, but their contractual freedom is not unlimited.
Both Belgian and European competition law prohibit agreements that restrict competition in an inadmissible manner. In distribution agreements, territorial restrictions, customer allocation and arrangements on resale prices are among the points of attention. Not every restriction is prohibited: for vertical agreements there is a European framework within which certain arrangements may be exempted. The legal assessment depends among other things on the nature of the restriction, the position of the undertakings on the market and the concrete organisation of the distribution system.
Allocating an exclusive territory therefore does not automatically mean that every sale outside that territory can be contractually prohibited.
Particularly in international distribution, a competition-law review is therefore by no means a luxury.
An international contract? Think beyond exclusivity
As soon as supplier and distributor are established in different countries, additional questions arise.
Which law applies to the agreement? Which court has jurisdiction in the event of a dispute? How are international online sales treated? Which local licences, product regulations or import rules apply? And what happens when mandatory Belgian rules collide with a foreign choice-of-law clause?
For sales concessions that relate wholly or partly to Belgium, the Belgian statutory protection regime may moreover play a particular role. Book X WER contains specific provisions on disputes arising from the termination of certain sales concessions with effect in Belgium.
A standard contract that is reused for different countries without looking at the local law can therefore create unexpected risks.
A good contract already looks at the exit before the collaboration begins
The best distribution agreement is not the one that only describes how the parties work together when everything is going well. It also determines what happens when the commercial reality changes. That means clear arrangements on the territory and the scope of exclusivity, minimum performance, direct and online sales, term and renewal, evaluation moments, shortcomings, termination and the consequences of ending the relationship. Think, for example, also of remaining stock, outstanding orders, use of trademarks, confidential information and customer contacts.
Exclusive distribution can be particularly valuable for both parties. But the greater the investments and the dependence become, the more important the legal ground rules.
