Pre-contractual information Update

The obligations concerning pre-contractual information of commercial collaboration agreements, as introduced by the law of 2005, have been changed on some essential points with the codification of the Code Economic Law.

As of 31 May 2014, book X of the Code Economic Law, entered into force.

This particular book of the Code of Economic Law joins the laws, which regulate the different aspects of commercial distributions, such as the law on exclusive concession agreements, commercial agencies and the law on pre-contractual information.

However, it goes further than a simple codification, since some essential points of the pre-contractual information obligations have been changed.

The law of 2005 concerning pre-contractual information of commercial collaboration agreements used to manage the pre-contractual relation between parties, who intended to sign a commercial collaboration agreement, such as a franchising agreement.

According to this law, the party who grants the right to use a certain commercial formula or a common trade name in the context of a commercial cooperation, is obligated to transmit certain documents before the conclusion of the agreement.

If this obligation has not been met, the other party has the right to demand the nullity of the agreement within two years after the closing of the agreement. The same sanction is applied to the violation of the standstill period of one month, after the date on which documents have been transferred.

This severe sanction could lead to unfair situations. It could happen that a party invoked the nullity of the agreement, only to escape its own obligations.

The codification of the law was the perfect opportunity of the legislator to implement certain changes. The pre-contractual information obligations can be found in book X, title 2, articles X.26 to X.36 of the Code Economic Law and mitigate the strict dispositions of the law of 2005.

Firstly, the definition “commercial collaboration agreement” has been changed. The law of 2005 referred to an agreement between two persons, who each acted in their own name and for their own account.

As a result, commercial agencies were excluded from the application of the law, given that they do not operate in their own name. In the definition of article I.11, 2° of the Code Economic Law, the words “in own name and account” have been deleted. Hence, when entering into a commercial agency, the pre-contractual information obligations cannot be ignored.

However, insurance agency agreements and bank agency agreements are explicitly excluded from the application of the law.

Furthermore, the nullity sanction for non-compliance with the transfer of the pre-contractual documents has been toned down.

The pre-contractual information obligation implies that the party who grants the right has to transfer two documents to the party who receives the right.

  • The first document contains an overview of the contractual obligations of the commercial agreement, while the
  • second document concerns a general explanation of the market, the financial situation and the distribution network.

The nullity can still be invoked if the first document has not been transmitted.

However, if the second document has not been transferred, is not complete or not correct, an application will have to be made of the vices of consent theory. In other words, the party who receives the right will have to prove an error in consent, which will not be easy.

More important is that article X.30, 4° of the Code of Economic Law foresees in the possibility to waive the nullity. This can only occur after the expiration of one month after the signing of the agreement. In order to be valid, the party who waives the nullity sanction has to explicitly state its motivation.

A last point of change concerns the compensation prohibition. The law of 2005 contained the prohibition to ask any compensation, before the expiration of the standstill period of one month after the signing of the contract. The current regulation allows compensations, but only in the context of confidentiality agreements.