Distribution agreements often include a non-compete clause. Such a clause is intended to protect the supplier (legally referred to as the grantor) against the loss of know-how, clientele and market position after the termination of the cooperation. But what if it is precisely the supplier who unlawfully terminates the agreement? In a noteworthy judgment of 22 January 2025, the Antwerp Court of Appeal made it clear that, in such circumstances, a non-compete clause may lose its effect. This judgment contains important lessons for both distributors and suppliers.
1. The facts in a nutshell
A Belgian supplier of verandas and pergolas had unilaterally and with immediate effect terminated the distribution agreement with its French distributor, invoking a serious breach.
Following a dispute concerning invoices and deliveries, the Belgian supplier accused its French distributor – for the first time after four years of cooperation – of failing to provide a showroom. The French distributor responded that the supplier had been aware from the outset of the absence of a showroom and that, moreover, a new distributor had recently been appointed in its territory.
The Court found that:
- the termination was unlawful;
- the distributor had not committed any contractual breach; and
- the termination was based on an unlawful motive, entirely attributable to the supplier.
Nevertheless, after the termination, the supplier sought to rely on the contractually agreed non-compete clause.
2. The Court’s ruling: unlawful termination, no non-compete obligation
The Court of Appeal held that, in these circumstances, the non-compete clause could not produce any legal effect.
Central to the Court’s reasoning is the idea that a non-compete clause does not constitute an autonomous sanction mechanism, independent of the manner in which the agreement is terminated.
Such a clause is ancillary to the distribution relationship and presupposes a proper and loyal termination of that relationship.
Where the supplier itself breaches the contractual rules by unlawfully terminating the agreement, it cannot expect to continue to benefit from the protection afforded by a non-compete obligation.
3. Good faith and contractual balance
The Court implicitly emphasises the principle of good faith in both the performance and termination of agreements. A party that terminates an agreement in a manner that is contrary to the law or contractual obligations acts incompatibly with this principle.
Enforcing a non-compete clause following such termination would further undermine the contractual balance and subject the distributor to a double disadvantage: first through the unlawful termination and secondly through a restriction of their economic freedom.
4. No one may benefit from their own wrongdoing
Moreover, the judgment aligns with a classic, yet still highly relevant, legal principle: no one may rely on their own wrongdoing in order to derive a benefit from it.
A supplier who unlawfully terminates an agreement cannot, at the same time, invoke a protective mechanism that is precisely intended to safeguard legitimate interests in the event of a proper termination of the cooperation.
5. What does this mean for your distribution agreements?
This judgment confirms that non-compete clauses in distribution agreements are not automatically enforceable. Their validity and applicability are closely linked to:
- the manner in which the agreement is terminated;
- the conduct of the parties prior to and at the time of termination; and
- the economic position of the parties, with the distributor often being regarded as the weaker economic party.
For suppliers, this means that an ill-considered or strategically poorly motivated termination may have far-reaching consequences, including for contractual clauses that are often perceived as a “safety net.” The way in which a distribution agreement is terminated is at least as decisive as the contractual provisions themselves. An ill-considered or strategically weak termination may not only give rise to claims for damages, but also result in the complete loss of a post-contractual protective mechanism such as a non-compete clause.
Do you have doubts about the enforceability of a non-compete clause? Are you facing the reorganisation or termination of a distribution network? As lawyers specialising in distribution law, we are happy to think strategically with you: from drafting contracts to ensuring a legally sound exit. Please feel free to contact us for a strategic analysis of your distribution model.
