According to the franchise agreement, the defendant shall not continue any activities similar to the plaintiff’s activities, nor directly or indirectly for a period of one year from the termination of the agreement. In the case of breach of this obligation, the defendant is subject to pay HUF 5 000 000 penalty to the plaintiff. Also, according to the franchise agreement, the defendant was prohibited from establishing employment or any other legal relationship with any real estate agency franchise chain or other similar entities, and was also prohibited from establishing such entity or chain for a period of three years from the termination of the agreement. In the case of breach of this obligation, the defendant is subject to pay HUF 10 000 000 penalty to the plaintiff.
At the time of the signing the franchise agreement, the defendant acknowledged that he understood the content of the agreement and declared that the scope of the non-compete clauses extends to him.
The franchise agreement was terminated by the plaintiff. Already before the termination of the agreement, despite the non-compete clauses, the defendant had participated in and had a substantial role in an other company that operated similarly as the plaintiff’s franchise chain. This company concluded trade mark licence agreements but their content in merit were similar to franchise agreement conclude between the plaintiff and the defendant.
The plaintiff initiated action to court to enforce payment of the penalties prescribed in the agreement. Both the first and second instances ordered the defendant to pay the penalties, since a contractual relationship was established between the two parties and – opposing the allegations of the defendant – the defendant did not make only a unilateral statement, he undertook himself a non-compete agreement by signing the franchise agreement.
The Curia reviewed the case and did not change the previous decisions. The Curia agreed that the two parties had a bilateral contractual relationship, since both parties had rights and obligations in this legal relationship: the plaintiff as the franchisor provided the use, utilization or exploitation of the object of the franchise agreement in exchange of the payment of fee and other undertakings such as non-compete clause by the franchisee. Also, the formal requirements were fulfilled of the non-compete clause (i.e. written form) and the penalty was appropriate, and the court did not find legal ground for reduction of the amount of the penalties.
This judgement was published under number BH 2017.366. (Court Judgements).
Agnes Szent-Ivany, IDI country expert for Hungary