Can an agreement that was void at any moment due to a violation of competition law be revived?

15 February 2018

by:

C.A.N.M.Y. Cauffman

in Law

When a court invalidates an agreement because the rules of contract law were violated, then that agreement is deemed to have never existed. It was never valid and never will be valid. Aside from a few exceptions, everything that has already been performed under the agreement must be undone.

If an agreement is invalidated for violation of competition law, the consequences are less clear.

Possibilities
It is possible that at the time of concluding a contract the agreement is already in violation of Belgian and/or European competition law because, for example, a producer imposes minimum selling prices on a distributor. In that case, it is also deemed that the agreement never existed.

However, it is also possible that at the time of its conclusion, an agreement benefits from a competition law block exemption, such as exists for distribution agreements, technology transfer agreements and so forth. The agreement is then deemed not to be in conflict with Belgian or European competition law.

It is inherent in competition law block exemptions that their applicability is linked to the condition that the market share of one or both parties remains below a certain threshold. If the market share of one of the parties exceeds the threshold during a period defined in the block exemption, the agreement will lose the benefit of the block exemption. It is not necessarily void, but the possibility that it is void exists. Whether the agreement is effectively void depends on whether it fulfills the conditions set by the Belgian and/or European competition laws.

The legal doctrine is divided on the answer
If the agreement is in violation of the competition laws due to an increase in the market share of one or both parties, it is void. The question arises, however, from what point in time? The legal doctrine is divided on the answer to this question. According to the first view, the agreement becomes void from its inception, and once again, aside from a few exceptions, all of its consequences have to be undone. In practice, this solution might lead to great chaos: all products and services already delivered (or the value of them) and all payments have to be reimbursed back and forth.

Fortunately, this view is not shared by the Court of Justice, nor by the Belgian Court of Cassation. Both of the highest courts are of the opinion that the competition law voidness only takes effect at the moment that the agreement can no longer benefit from the block exemption and the conditions for violation of the competition laws are fulfilled. The moment at which the voidness is pronounced by a court decision is not decisive.

So far, so good
It is less clear what happens if the agreement was at some point in violation of the competition laws and thus became void but has returned within the scope of a block exemption because, for example, the market share of one or both parties has decreased. Can the agreement become valid again; in other words, ‘revived’? From the English text of a number of judgments of the Court of Justice, it could be concluded that this is indeed possible. The Court repeatedly ruled “that principle of invalidity can be relied on by anyone, and the courts are bound by it once the conditions for the application of Article [101(1) TFEU] are met and so long as the agreement concerned does not justify the grant of an exemption under Article [101(1) TFEU]” (affairs Courage, Manfredi, Cepsa).

The possibility of reviving an agreement that was in violation of the competition laws for a certain period of time and was therefore void is supported by certain jurisprudence and legal doctrine from the United Kingdom. However, it seems to be difficult to defend this practice. It cannot be that after an agreement has become void, a contracting party suddenly finds that at a certain moment it meets the conditions of a block exemption again and requests the execution of an old contract from its counterparty, who may not even remember the contract in question.

What happens if...
What happens if the parties were unaware of the fact that their agreement had been in violation of the competition laws for a certain period of time and continued to implement the agreement and that after some time the agreement regains the benefits from the block exemption? Are the payments made after the contract ‘revived’ undue and can they be recovered? This also doesn’t seem to be the case. However, the reason for this must not be sought in the revival of the original agreement, but in the fact that once the agreement became valid again, the parties tacitly (by making deliveries and making payments) made a new agreement under the same conditions as the original agreement.

Uncertainties and discussions in this respect can be avoided, by including in a contract that benefits from a block exemption, especially if it is governed by English law, a clause providing a clear statement that if the contract would at a certain moment lose the benefit of the block exemption, it will lose any effect for the future, unless the parties resume their mutual performances as stipulated in the agreement immediately after the block exemption has become applicable again, in which case a new agreement with the same content as the original agreement is deemed to have been concluded at the time the block exemption became applicable again.

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