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GREECE: Greek jurisprudence 2018 on franchising agreements.

Injuction 2916/2018 of Court of First Instance of Athens on non-competition clause and Decision 14509/2018 of Court of First Instance of Salonica on termination of the contract for due cause.

Polyxeni TSITSONI - 15.04.19
Country expert

NON-COMPETITION CLAUSE

Injuction 2916/2018 Court of First Instance of Athens

The applicant (franchisor) had created a business organizational system for the trading, commercial representation and manufacturing of electronic cigarettes and technical expertise for the provision of relevant and related services, and it had developed a network of shops via the franchising method. The defendant (franchisee) concluded with the applicant a franchising contract which later on it denounced. Nevertheless, it continued to operate its shop, notwithstanding the fact that it no longer belongs to the official applicant’s network, thus violating the terms of the contract between them, namely that the franchisee was not entitled to operate a business similar to the franchisor’s for one year after termination of the contract. The applicant, following the above, sought a temporary settlement of the situation and, in particular, the temporary prohibition of the operation of the defendant’s shop, under the terms of non-competition of the franchising agreement concluded between the two here-above parties.

The Court ruled that the term for post- contractual non-competition obligation was invalid, according to articles 178-179 of the Greek Civil Code. Due to the fact that the franchising agreement concluded between the applicant and the defendant, is considered to constitute an accession agreement written in pre-determined terms by the applicant, the obligation of non- competition restricts too much the financial freedom of the defendant, in view of the fact that no compensation has been provided for by the agreement as compensation for the non-compete obligation. Furthermore, the unfavorable consequences of such an obligation on the defendant and his family should be taken into account. Thereafter, the request was rejected because, given the nullity of the non-competition agreement, there was no likelihood of the existence of a right to be safeguarded against the interim measure of the temporary settlement of the situation.

This case-law follows earlier decisions (Supreme Court 1285/1984, Court of First Instance of Salonica 1963/2004, both published in the legal database NOMOS), according to which the non-competition agreement is unlawful and considered null and void under article 179 of the Greek Civil Code, if, in concreto, the restriction appears to be unreasonable. The restriction is deemed unreasonable in view of the purpose of the agreement to which the non-compete agreement relates, the duration of the restriction, the geographical extent of the restriction, the extent of the economic opportunities remaining to the person restricted by the non-compete obligation and, finally, of the degree to which the interest of the person benefiting from the restriction is legally protected.

On the other hand, an earlier interim injunction (Court of First Instance of Athens 3174/2001, published in the legal database NOMOS), accepted the application for a temporary settlement of the situation and, more specifically, temporarily prohibited to the defendant (franchisee) from carrying on its premises activity similar to that of the franchisor, following specific ways of conduct of the defendant which constituted acts of unfair competition. 

 

TERMINATION OF THE CONTRACT FOR DUE CAUSE

Decision 14509/2018 Court of First Instance of Salonica

The court was called upon to decide on a franchising contract that concerned a snack bar company. The Court ruled that the abnormal development of the franchising contract constitutes a right to terminate the contact for due cause. Due causes, in this case, are the failure of the franchisee to comply with the terms of the contract with respect to: (a) compliance with the conditions of hygiene and proper cleaning of the shop; (b) proper maintenance of the products and equipment and c) the prohibition of the sale of products that are not included in the franchisor's pricelist, behaviors that make it impossible for the commercial cooperation of the parties to continue (in this regard, Supreme Court, decision 1043/2015, published in the legal database NOMOS) and justify the termination of the contract for due cause and the forfeiture of the penalties laid down by the franchising contract.

Moreover, the fact that the franchisee continued to use the trademark, the distinctive title, other distinctive features, business and commercial knowledge and the know-how of the franchisor in general, even after the termination of the contract, on the one hand undermined the distinctive and advertising power of the franchisor's trademark and distinctive features, on the other hand, confused and mislead the consumers as to the origin of the services of that undertaking.

Consequently, the Court decided that this behavior constitutes a tort, as it is in breach of the provisions of Law 146/1914 on unfair competition (in this regard, Court of Appeal of Salonica, decision 1261/2016 published in the legal database NOMOS) and the franchisor was entitled to compensation under Article 914 of the Civil Code due to the moral damage suffered by the illicit use of the trademark and other distinctive, aesthetic and decorative elements.

 

Polyxeni Tsitsoni, IDI Country Expert for franchising in Greece

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