The starting point of the term of 7 working days for terminating a commercial agency agreement due to an exceptional circumstance or serious deficiency.
Much has been written in the past few years about the starting point of the term of 7 working days for terminating a commercial agency agreement due to an exceptional circumstance or serious deficiency. This e-zine clarifies, in the light of the most recent case law of the Belgian Supreme Court, how this rule should be applied.
1. Why does a party opt to terminate a commercial agency on the grounds of an exceptional circumstance or serious deficiency?
A commercial agency agreement concluded for an indefinite period may be terminated at any time by either party, subject to observance of a notice period, or subject to payment of a substitute compensation in lieu of notice.
Moreover, after termination of the commercial agency, a commercial agent is entitled to a goodwill indemnity if the agent has brought in new clients to the principal or if the agent has substantially expanded the business with the existing clients, in so far as this is likely to still bring substantial benefits to the principal.
If the commercial agency is terminated due to an exceptional circumstance or serious deficiency, no notice period must be observed and no substitute compensation in lieu of notice must be paid. Nor shall the principal in that case be required to pay any goodwill indemnity to the terminated agent.
Whether or not the rules on termination due to an exceptional circumstance or serious deficiency (pursuant to article X.17 of the Code of Economic Law) can be successfully invoked, may therefore have a significant financial impact.
2. The required period of 7 working days
In order for a party to be able to successfully invoke these rules, there must be a deficiency that is so serious that it makes any further professional cooperation between the principal and the commercial agent permanently impossible. More specifically, this deficiency must result in a permanent and irreparable breach of trust between both parties.
The terminating party must take into account a statutory period of 7 working days in which to invoke the fact justifying the termination.
Article X.17 of the Code of Economic Law stipulates that "The agreement can no longer be terminated without notice or before the expiry of the period, if the fact justifying it has been known to the party invoking it for at least seven working days".
In addition, the second paragraph of Article X.17 of the Code of Economic Law stipulates as an additional condition that the aforementioned exceptional circumstance or serious deficiency must be notified within seven working days after termination by a bailiff’s writ or by registered letter, so that it can be invoked to justify the termination without notice. These formal requirements are often applied more flexibly in practice.
Non-compliance with the term will result in the termination being null and void and therefore, in principle, a compensation will be due.
3. When does the term of 7 working days start?
The term of 7 working days is an expiration period. If a party terminates the commercial agency agreement too late, this party risks having failed to apply the aforementioned term, as a result of which its claim for termination on the basis of these rules will be declared invalid.
If, on the other hand, a party terminates the contract prematurely, that party runs the risk that the facts at the moment of termination may not yet be considered sufficiently exceptional or serious.
The burden of proof for the fulfilment of the term condition lies with the terminating party. The latter shall be required to provide evidence of the moment at which it had sufficient certainty as to the facts which, in its opinion, constitute an exceptional circumstance or serious deficiency, in order to be able to take an informed decision to terminate the agreement.
b. Decisions of the Belgian Supreme Court
There are two specific questions regarding the start of the term of 7 working days:
- Which party must be informed of the facts, who should be understood to be "the party invoking it"?
- When is there actual knowledge of the fact that constitutes an exceptional circumstance or serious deficiency, when is this fact known and when is there sufficient certainty about it?
The Supreme Court ruled on the first question in a judgment of 30 January 2015. The person or, in the case of a legal entity, the body that must have knowledge of the facts justifying the termination of the commercial agency agreement for an urgent cause, is the entity authorized to terminate the commercial agency agreement.
Recently, the Supreme Court ruled on the second question in a judgment of 14 November 2019. The actual knowledge of the facts takes place at the moment that the terminating party has sufficient certainty as to the existence of the facts and the circumstances that may constitute grounds for termination without notice, in order to be able to make a decision in full knowledge of the facts, particularly regarding his own conviction and also vis-à-vis the other parties and the court. Only the moment at which the existence and the seriousness of the facts are known to the party invoking them shall be decisive, not the moment at which the same party could have taken them into account.
This case law therefore provides a degree of 'reasonableness' in assessing the starting point of the term of 7 working days. Nevertheless, it remains a point for attention for the terminating party to take the various steps at the right time, with due observance of the correct formalities.