The issue is very important since in Belgium the unilateral termination of an exclusive distribution agreement concluded for an indefinite period of time that covers part or all of the Belgian territory, is governed by a very unique Act of 27th July 1961 (modified on 13th April 1971). This Act is outmost protective towards the distributor. It consists not only in mandatory rules but is also considered to be a so-called ‘loi d’application immédiate‘, i.e. an Act that is applicable without having regard to the ordinary conflict of laws rules. It follows that the Act will be applicable even if the parties would have chosen a foreign law to rule their relationship. According to article 4 of the Belgian Act, the Belgian courts have jurisdiction to hear disputes relating to the termination of exclusive distribution agreements covering part or all of the Belgian territory. The Belgian courts are obliged to apply the Belgian law. According to article 6 of the same Act, the provisions of the Act are binding notwithstanding any agreements to the contrary made before the end of the contract. It follows that an arbitral clause which has been agreed upon before the termination of a distributorship agreement would as such be invalid.
The question is according to which law the Belgian court that has been seized will have to evaluate whether the dispute is arbitrable or not. If the court should be entitled to do so according to its own law, i.e. according to the lex fori, i.e. according to the Act of 1961, most probably the court will consider the dispute as not being arbitrable (at least if the arbitrators are not obliged to apply the 1961 Act – see infra).
In this respect two international conventions need to be mentioned:
- the European Convention of Geneva of 21 April 1961 on the international commercial arbitrage: according to art. 6.2. in fine the courts may refuse recognition of the arbitration agreement if under the law of their country the dispute is not capable of settlement by arbitration.
- the New York Convention of 10 June 1958 on the recognition and enforcement of foreign arbitral awards.
A the stage of recognition and enforcement of awards, articleV(2)(a) of the Convention states that the judge can refuse to recognise and to execute an arbitral sentence in case the dispute was not arbitrable according to his proper law. This means that the judge may apply his own lex fori.
At the stage of denial of jurisdiction raised before an ordinary court, article II(3) of the Convention does not clearly state according to which law the judge can determine whether a case can be submitted to arbitration.
II. Overview of case-law
* In a case regarding the recognition and enforcement of a foreign award, the Supreme Court (Cour de Cassation) decided that an arbitral clause which had been agreed upon before the termination of the agreement and which aimed at excluding the applicability of Belgian law was invalid. (Cass., Audi/NSU, 28th June 1979, Pas., I, 1260). In deciding whether the case was arbitrable or not, the Court applied the lex fori according to article V(2)(a) of the New York Convention. It followed that the arbitration of disputes covered by the 1961 Act was considered to be possible, as long as the arbitrators would be bound to apply the 1961 Act.
* In a case regarding the denial of jurisdiction, the Court reinterpreted its view by stating that the clause would be invalid if the arbitrators would not need to apply the Belgian law. (Cass., 22nd December 1988, J.T. 1989, 458). The ratio legis of the 1961 Act is to grant sufficient protection to the distributor and not to give sole jurisdiction to the ordinary courts. The competence of the arbitrators needs to be seen in that light. The relevant question therefore is whether or not Belgian law will be applied. It followed that whenever a foreign law was chosen to be applicable to the contract, the arbitration clause was considered to be invalid.
* More recently, the Belgian Supreme Court again had the opportunity to rule in a case concerning an arbitration clause (Cass., Colvi/Interdica, 15th October 2004, R.D.C., 2005, 488). Again the question concerned a dispute at the stage of a denial of jurisdiction and a declinatory plea was advanced on the basis of an arbitration clause (according to article II(3) of the New York Convention). The case concerned the termination of an exclusive distributorship agreement between a Swiss company and a Belgian distributor. The contract contained an arbitration clause according to which any dispute was of the exclusive jurisdiction of an arbitral court in the canton Vaud in Switzerland and that Swiss law was applicable. The distributor brought the case before a Belgian judge and the supplier advanced the declinatory plea. The Antwerp Court of Appeal, in its decision of December 17, 2001 decided that the arbitration clause was valid under Swiss law. The Court considered that article II(3) of the New York Convention as far as it concerns the control of the arbitrability of the case at the moment of the evaluation of its jurisdiction, has priority over the articles 4 and 6 of the law of July 22, 1961, which regards the unilateral determination of exclusive distribution contracts. The Antwerp Court of Appeal concluded that it had no jurisdiction.
This case was then submitted to the Belgian Supreme Court (Cour de cassation / Hof van cassatie). This Court first of all recognized the supremacy of the Convention of New York. The Court then decided that article II(3) of the Convention does not clearly state which law is applicable in order to determine whether a case can be submitted to arbitration. The Court decided that this article permits the judge to whom the question is raised, to answer this question according to his own lex fori. In conclusion, the exclusion ex ante of the determination of the arbitrability according to the lex fori has not been accepted by the Court. The Court also decided, although only in an obiter dictum, that the judge can exclude the arbitration when it affects the public policy of his legal regime. However, the law of July 22, 1961 is not of public policy. It is only a loi d’application immediate.
The question thus remained on which role the lex contractus and the lex fori had to play when determining if a case can be arbitrated.
III. Decision of 16th November 2006
On 16.11.2006, again at the stage of a denial of jurisdiction, the Supreme Court of Belgium has finally clarified its point of view in a matter concerning the arbitrability of a dispute regarding the unilateral termination of a distribution contract covering (part of) the Belgian territory. According to the Supreme Court, a court may apply his own lex fori when deciding whether a dispute that has been brought before him and in respect of which the parties entered into an arbitration agreement is arbitrable.
The case concerned the unilateral termination by a Californian company of the distributorship agreement that it had with a Belgian distributor. The distributor brought the case before a Belgian court where he claimed for damages according to the 1961 Act. The supplier advanced the declinatory plea. The Brussels Court of Appeal declined jurisdiction because the parties had agreed to arbitration to be held in California and to the applicability of Californian law. According to the court under Article II(3) of the New York Convention, the assessment of arbitrability at the stage of a denial of jurisdiction, was to be carried out with reference to the lex contractus, not the lex fori. According to Californian the arbitration was perfectly possible and thus the Brussels Court of Appeal declined jurisdiction.
This decision was submitted to the Belgian Supreme Court.
The court ruled that that at the stage of a denial of jurisdiction a state court may apply its own law (i.e. the lex fori) in deciding whether a dispute is arbitrable and may be referred to arbitrators. According to the court, article II of the New York Convention does not specify according to which law a court must decide whether a dispute is arbitrable. It follows that the application of the lex fori is thus permitted. The court also decided that it is up to the state court whose jurisdiction is disputed to rule out the arbitrability if, by virtue of the lex fori, the dispute may not be taken away from the jurisdiction of state courts.
It follows that disputes relating to the termination of exclusive distribution agreements covering whole or part of Belgium may be arbitrated, provided that the arbitrators apply the 1961 Act.
Ingrid Meeussen, IDI Country Expert for Belgium