SA had concluded an agency agreement with bank C to operate and expand a C-agency. The place of business would be the municipality of W. The agreement provided for a non competition clause covering a radius of 15 kms around the agency. SA terminated the agreement with a notice period of 10 days.
Bank C demanded an indemnity in lieu of a notice period of 5 months and 3 weeks, which was paid by SA. Immediately after the termination of the agreement, SA started a new agency with a competing bank A. Bank C demanded an indemnity for violation of the non competition clause of € 44,857.33. SA did not pay and bank C initiated a court procedure. The first judge convicted SA to payment of the amount plus interests. SA lodged an appeal.
2. The law
According to art. 24 of the Belgian Law on Agency Agreements of 13.04.1995, a non-competition clause will only be held valid under the following conditions:
- it has to be in writing,
- it has to concern similar activities,
- it has to be limited to the territory or to the group of persons and the territory that were entrusted to the agent,
- it has to be limited to six months following the termination of the agreement.
In addition, the law provides that the clause has no legal effect whenever the principal terminates the contract without referring to the cases provided for in art. 19, § 1 (termination without notice in case of serious breach of contract or when occurrence of exceptional circumstances make all professional cooperation between the parties definitely impossible) or when the agent terminates the contract referring to the cases provided for in art. 19, § 1, i.e. without prior notice. This means for instance that when agent terminates the agreement granting a notice period, the clause will apply.
3. Reasoning before the Court of Appeal of Antwerp
SA argued that the non competition clause would be null and void since it did not meet the requirements of art. 24, point 3. According to SA the non competition clause had to be limited to the territory that was entrusted to the agent, i.e. the municipality of W. In this territory SA would moreover not benefit from any exclusivity which would entail that SA would not have been entrusted with any other territory. The non competition clause would cover a territory of a radius of 15 kms around the agency. It would follow that the entrusted territory is surpassed. The clause would thus be null and void since the territorial specification in the clause was excessive.
The Court of Appeal however confirmed the reasoning of the first judge.
First of all, the Court of Appeal decided that the contractually entrusted territory was not limited to the municipality of W. The agreement mentions W only as a place of business and the agent is not prohibited to welcome clients from municipalities around W. According to the Court of Appeal this is confirmed by the fact that the agreement states that SA has to develop/expand the agency. The listing of clients confirms that SA acted for clients from far outside W; SA moreover had no exclusivity at all for the municipality of W and it follows that SA’s reasoning, that he would have limited his activities to the territory of W, cannot be followed.
After having decided that the entrusted territory was not limited to the municipality of W, the Court of Appeal examined which kind of territorial definition could be used in a non competition clause. According to doctrine, the definition of the territory cannot be too narrow. As a matter of fact, in that case it would be most difficult for the principal to hedge against the competition of his former agent. Like the first court, the Court of Appeal followed this interpretation and decided that the territorial definition covering W plus a radius of 15 kms. is not to be considered as being too broad. A certain perimeter around the place of business would indeed be acceptable and in this particular case a radius of 15 kms around W could not be considered as being exaggerated.
Ingrid Meeussen, Agency & distribution country expert for Belgium.
The text of the judgement, together with other interesting case-law on agency and distribution contracts, can be found in the Belgian page of the Reports Section of the website, while the relevant legislation concerning agency and distribution agreements in Belgium can be found in the Legislation Section of the Website.