Refusal to sell
in the automotive sector
Todays automotive sector is a market with many players. At different levels, networks are built, sales are concluded and trade relationships are maintained.
In this respect , it is not inconceivable that a d grantor refuses to accept an individual garage owner into his network, or that a distributor of vehicles or parts does not wish to take the plunge with a particular buyer. The motivation for this refusal to sell can be based on various reasons. So the question arises to what extent the refusal to sell is legitimate or not.
1. Contractual Relationship Between Parties
If there is a contractual relationship between, say, a concession grantor and concessionaire, on the basis of which successive purchase agreements are concluded and the concession grantor has to deliver cars, a refusal to sell will in principle constitute a contractual default. A concession grantor is not allowed to unilaterally decide just like that to stop his supplies. The same is true for any kind of contract that regulates the relationship between parties. In such cases, normally speaking the refusal to sell will compromise the refusers contractual liability.
2. No Contractual Relationship Refusal to sell is Permitted
If on the other hand there is no contractual relationship between the parties, the refusal to sell will in principle be accepted. After all, in our legal system the freedom of entering into a contract and running a business is guaranteed. The D'Allarde Decree, in force since 1791, allows any enterprise to enter into a contract with anyone of its choice. The refusal to sell is regarded as the consequence of the autonomy of will , and is therefore lawful in itself.
However, like other rights and
freedoms, the right of refusal to sell is not absolute either. The
freedom of entering into a contract is delineated, on the one hand, by
the Economic Competition Protection Act (ECPA) and, on the other hand,
by the abuse of right doctrine.
In the pre-contractual sphere as well
some caution is required. In spite of the fact that the parties have
actually not come to a contract yet, the abrupt termination of their
negotiations may lead to pre-contractual liability.
3. Refusal to Sell Free Competition
101 and 102 of the Treaty on the Functioning of the European Union
(TFEU) are the basis for free and fair competition. Their Belgian
implementation can be found in sections 2 and 3 of the Economic
Competition Protection Act (ECPA). If the refusal to sell constitutes a
violation of these provisions, it will invariably be sanctioned.
order to be able to conclude that the said provisions are violated,
several conditions must have been met. After all, the mere fact that a
refusal to sell may limit competition on the market in itself, is not
enough. A violation requires that the refusal to sell is the consequence
of an unlawful cartel or dominant position abuse.
In other words,
if two car manufacturers agree not to supply certain dealers, there
might be a violation of free competition if the agreement between the
companies limits or disturbs free competition. In this context there
are, however, exceptions whereby certain agreements are not deemed to
infringe free competition. Pursuant to article 101, paragraph 3 TFEU,
the European Commission has the power to grant block exemptions with the
result that the cartel prohibition will not apply in such
In addition, a violation of the cartel prohibition can
also have serious consequences. The national courts can nullify the
agreement preceding the refusal to sell, while the European Commission
has the power to severely fine cartel infringements.
As long as an
enterprise refuses on an independent basis to sell to a particular
buyer, it cannot be sanctioned on the basis of article 101, paragraph 3
TFEU. If on the other hand, it can be established that such enterprise
would make abuse of its dominant position in case of a refusal, it runs
the risk of being sanctioned pursuant to article 102 TFEU or section 4
ECPA. This implies that a dominant enterprise cannot refuse just like
that to provide its products or services to anyone requesting them.
dominant enterprise may refuse to sell only if its refusal is
objectively justified. This results from the special responsibility
borne by a dominant enterprise. An important factor to judge whether the
refusal is lawful or not, is the presence of alternatives on the market
for the buyer. If the national competition authority, court or European
Commission do not find an objective economic justification for the
refusal, they have the power to also impose an obligation to supply in
addition to a fine or penalty.
4. Selective Distribution Networks
it has become common that some car makes supply their dealers through
selective distribution networks. This system is set up by a
manufacturer who selects some distributors before selling, who in turn
are the only ones allowed to sell the manufacturers products. The
purpose of these systems is to keep up a certain standard, which is
associated with that product.
In that case the question is when a
manufacturer, who refuses to accept a specific car dealer into his
network, acts contrary to free and fair competition. In order to answer
this question, first it must be examined whether a qualitative or a
quantitative distribution network has been set up. A quantitative
network means that the number of buyers is limited and is in principle
forbidden. On the other hand, a qualitative distribution network
ensures that a manufacturer may impose certain requirements on its
distributors to form part of its network. This kind of network is
accepted, provided that the requirements or criteria are laid down
uniformly and non-discriminatorily for all distributors. Think for
instance of the colours and the design of the showroom, the surface
area of the garage. etc. These criteria must therefore be required to
guarantee the quality of the product concerned. In this context, the
refusal to sell is permitted if a buyer does not meet such criteria.
5. Refusal to Sell Abuse of Right
it is still be possible to sanction a refusal to sell on the basis of
abuse of right. However, this is not an unqualified success.
all, there will be an abuse of right only when it can be proved that
the refusing company has no interest in refusing and that the refusal
is inspired by the intention to harm the other party. The injured
enterprise will have to show within this framework that the refusal is
purely discriminatory, or that it causes a manifest imbalance between
the parties. In this regard the court has only a marginal control
it may only act in a moderating way in the event of a manifest or
obvious crossing of the limits of reasonableness - and it must not be
forgotten that a company is of course allowed to outline its commercial
strategy itself. For instance, it is in principle permitted that an
enterprise refuses to supply a particular company when its competitor
places a bigger order.
This will be judged by the court on a case-by-case basis and is mostly an issue of fact.
general prohibition of a refusal to sell is not provided for in our
Belgian legal system. A refusal to sell will be sanctioned if the act is
contrary to competition legislation or if it is regarded as an abuse of
right. Within the framework of a selective distribution network, it is
important that transparent and uniform standards are used, and, if the
enterprise is in a dominant position, it must show some caution. If
these rules are observed, a company will, in principle, not have to
account for its actions when it refuses to enter into a contract.
05 February 2013
Griet Verfaillie - firstname.lastname@example.org
Lynn Pype - email@example.com
Learn more about this topic: subscribe to our newsletter!