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The final revised VBER is planned to enter into force on 1 June 2022. Did you know that the Distribution Law Center is already counting down?


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Q&A on Distribution Agreements

Part 1: Legislative framework

Q1. Please specify the legislative framework generally applicable to the conclusion and execution of distribution agreements (a)? Please include a link to the official publication of the applicable rules (e.g., relevant link to the Official Gazette) (b) and, if available, to the English translation of the legislative framework (c).

a.  Legislative framework:

Act V of 2013 on the Civil Code (hereinafter: Hungarian Civil Code).

  • Book Six, Part One on the Common Provisions Relating to Obligations
  • Book Six, Part Two on the General Provisions on Contracts
  • Book Six, Chapter XIX on Distribution and Franchise Contracts

Act LVII of 1996 on the Prohibition of Unfair Trading Practices and Unfair Competition (hereinafter: Hungarian Competition Act).

  • Chapter III on the Prohibition of the Unfair Manipulation of Business Decisions 
  • Chapter IV on the Prohibition of Agreements Restricting Economic Competition
  • Chapter V on the Prohibition of Abuse of Dominant Position

Act CLXIV of 2005 on Trade (hereinafter: Trade Act).

Government Decree 205/2011. (X. 7.) on the block exemption of vertical agreements.

b. Link(s) to official publication:

The Hungarian version of the Hungarian Civil Code is accessible via this link.

The Hungarian version of the Hungarian Competition Act is accessible via this link.

The Hungarian version of the Trade Act is accessible via this link.

The Hungarian version of the Government Decree 205/2011 is accessible via this link.

c. Link(s) to English translation:

The English translation of the Trade Act is accessible via this link

Q2. Other than for agency agreements pursuant to Directive 86/653 (EEC) on the coordination of the laws of the Member States relating to self-employed commercial agents, are there specific rules depending on the distribution format (e.g. franchising, exclusive distribution)?

Yes. 

If yes, which specific rules apply (a)? Where available, please also include a link to the official publication of the applicable rules (b) and, if available, to the English translation of the legislative framework (c).

a. Specific rules depending on distribution format:

Hungarian Civil Code - Book Six, Part Three on Specific Contracts - Title XIX on

Distribution contract and franchise agreement

b. Link(s) to official publication:

The Hungarian version of the Hungarian Civil Code is accessible via this link

c. Link(s) to English translation:

Currently not available.

Q3. Other than general contract law and competition law, are there other rules which may generally restrict the parties when drafting and concluding distribution agreements (e.g., rules in relation to unfair contract terms in B2B contracts, specific requirements in the context of a prohibition of abuse of economic dependence)?

Yes.

If yes, which general rules apply (a)? Where available, please also include a link to the official publication of the applicable rules (b) and to the English translation of the regulatory framework (c).

a. General rules

Unfair standard contract terms in B2B contracts

Pursuant to Art. 6:102 Hungarian Civil Code:

(1) A standard contract term shall be considered unfair if, contrary to the requirement of good faith and fair dealing, it causes a significant and unjustified imbalance in contractual rights and obligations, to the detriment of the party entering into a contract with the person imposing such contract term.

(2) The unfair nature of a standard contract term shall be assessed, taking into account the nature of the services for which the contract was concluded and by referring, at the time of conclusion of the contract, to all the circumstances leading to the conclusion of the contract and to all the other terms of the contract or of another contract on which it is dependent.

(3) The provisions relating to unfair standard contract terms shall not apply to the definition of the main subject matter specified in the contract or to the ratio between the price determined, on the one hand, and the services provided in exchange, on the other, in so far as these terms are in plain intelligible language.

(4) The standard contract terms defined by legislation or established in accordance with the provisions of the relevant legislation shall not be deemed unfair.

(5) Any unfair contract term that has been incorporated into the contract as a standard contract term may be contested by the injured party.

In case of the use of unfair standard contract terms the aggrieved party may avoid the unfair provision.

b. Link(s) to official publication:

-

c. Link(s) to English translation:

-

Part 2: Pre-contractual phase

Q4. Are there mandatory provisions in relation to the disclosure of pre-contractual information prior to concluding and/or executing distribution agreements?

Yes.

If yes, which mandatory provisions apply (a) and which information must be disclosed (b)? Where available, please also include a link to the official publication of the applicable rules (c) and, if available, to the English translation of the regulatory framework (d).

a. Mandatory provisions:

Art. 1:3 and 6:62 Hungarian Civil Code

b. Information to be disclosed:

Art. 1:3 Hungarian Civil Code requires the principle of good faith and fair dealing. When applying this general provision to pre-contractual obligations, a requirement of the parties on the disclosure of all pre-contractual information when entering into contractual relationships can be assessed.

Art. 6:62 Hungarian Civil Code provides a specific requirement in respect of the duty to cooperate and communicate information during pre-contractual negotiations:

The parties shall be required to cooperate during preliminary negotiations, at the time of the conclusion and termination, and during the life of the contract, and shall be duty bound to communicate information to each other on circumstances relevant to the contract.

If the contract is concluded, the party who breaches the obligation of cooperation and proper disclosure of information shall be subject to liability for damages for loss caused by non-performance of an obligation to the other party. If the contract is not concluded, the general provisions of non-contractual liability will prevail.

The law itself does not provide specific examples of the information that shall be disclosed to the other party during pre-contractual negotiations, it is examined by courts in each individual case.

Nevertheless, parties are likewise obliged to gather all relevant information to the best of their abilities before entering into a contract and may not allege the infringement of the duty to provide information with respect to rights, facts and circumstances of which they were aware, or should have known from a public register or any other source.

c. Link(s) to official publication:

The Hungarian version of the Hungarian Civil Code is accessible via this link

d. Link(s) to English translation:

Currently not available

Q5. Is there a standstill obligation linked to the requirements imposed for the pre-contractual phase?

No.

Q6. Does the relevant regulatory framework impose sanctions if the pre-contractual obligations are not (fully) respected?

Yes. 

If yes, which sanctions apply (e.g., nullity of contract, penalty payment)?

Culpa in contrahendo: in case of violation of the duty to cooperate and communicate information, the party who breaches the obligation shall be subject to liability for damages for loss caused by non-performance of an obligation to the other party.

Pursuant to Art. 6:62 (1), (3) and (5) Hungarian Civil Code

(1) The parties shall be required to cooperate during preliminary negotiations, at the time of the conclusion and termination, and during the life of the contract, and shall be duty bound to communicate information to each other on circumstances relevant to the contract.

(3) If the contract is concluded, the party who breaches the obligations referred to in Subsection (1) shall be subject to liability for damages for loss caused by non-performance of an obligation to the other party.

(5) If the contract is not concluded, the party who breaches the obligation referred to in Subsection (1) during preliminary negotiations shall be subject to liability for damages in accordance with the general provisions of non-contractual liability.

Q7. Can a party be held liable if it terminates the pre-contractual negotiations?

Yes.

If yes, on what grounds (a); under what conditions (b); and what consequences are generally linked to such liability (c)?

a. Grounds for pre-contractual liability:

If the contract is not concluded, the party who breaches the obligation to cooperate and to communicate information to the other party on circumstances relevant to the contract during preliminary negotiations can be held liable. (Art. 6:62 (5) Hungarian Civil Code)

b. Conditions for pre-contractual liability:

See point a)

c. Consequences of pre-contractual liability:

Liability for damages in accordance with the general provisions of non-contractual liability. (Art. 6:62 (5) Hungarian Civil Code)

Q8. Are there other relevant rules and/or restrictions that apply during pre-contractual negotiations between supplier and distributor?  

No. 

Part 3: Contractual phase

A. Form of distribution agreements

Q9. Must a distribution agreement be executed in writing to be valid and enforceable?

Only in certain instances.

If only in certain instances, please explain when a written agreement is required.

According to the Hungarian Civil Code, a written form is not a substantive legal requirement for validity, but for evidential purposes it is strongly recommended.

Q10. Are there any (other) requirements as to the form of the distribution agreement for it to be valid and enforceable?

No.

B. Content of distribution agreements

Q.11 Other than restrictions imposed by EU competition law (including Regulation (EU) 330/2010), do specific rules and/or restrictions apply in distribution agreements with respect to

  • the territory in which or the customers to whom the goods/services will be sold;
  • an exclusivity granted to the distributor;
  • (exclusive) sourcing/purchasing obligations;
  • resale prices;
  • non-compete clauses

No.

Q12. Do specific rules and/or restrictions apply in distribution agreements with respect to

  • obligations of the supplier vis-à-vis the distributor, including in relation to the remuneration of the distributor;
  • obligations of the distributor vis-à-vis the supplier or vice versa;
  • a non-solicitation clause during and/or after the term of the distribution agreement;
  • minimum sales quota imposed on the distributor;
  • specific sector rules?

Obligations of the distributor vis-à-vis the supplier or vice versa.

If yes, what do these specific rules and/or restrictions entail?

According to Art. 6:373 and 6:374 Hungarian Civil Code:

Art. 6:373

[Protection of reputation]

(1) The parties shall protect the reputation of the product.

(2) The supplier shall inform the distributor of advertisements on the product and shall - for a fee - make available to the distributor promotional material for marketing the product.

Art. 6:374

[Instructions and checking]

(1) The supplier shall have the right to give instructions as to the proper distribution of the product.

(2) If the supplier gives unreasonable or unsuitable instructions, the distributor shall be obliged to warn him thereof. If the supplier insists on his instruction in spite of the warning, the distributor shall carry out the instruction; any damage resulting therefrom shall be the liability of the supplier. The distributor shall refuse to comply with such instructions if compliance would constitute an infringement of the law or any administrative decision, or it would jeopardize the safety or property of others.

(3) The supplier shall be entitled to check fulfilment of the contract and his instructions.

C. Term and termination

Q13. Are there particular rules and/or restrictions in relation to the term (incl. renewal) of distribution agreements?

No.

Q14. Are there any specific rules and/or restrictions with respect to the termination of distribution agreements (e.g. minimum notice period, statutory right to compensation (goodwill or other))?

Yes.

If yes, what do these specific rules and/or restrictions entail (a)? Please include whether these specific rules and/or restrictions differ depending on whether the distribution agreement is of definite or indefinite duration (b) or whether the distribution agreement is terminated by one party for convenience or for breach by the other party (c).

a. What do these specific rules and/or restrictions entail:

There are no specific rules applicable to distribution agreements, however, there are general rules which prevail in case of contracts with indefinite duration in the Hungarian Civil Code:

Art. 6:213

(3) Unless otherwise provided for in this Act, a contract entered into for an unfixed duration, setting up a long-term relationship may be terminated by either party giving a reasonable period of notice. Any exclusion of the right to terminate shall be null and void.

b. If applicable, differences dependent on whether the distribution agreement is of definite or indefinite duration:

In case of definite duration, the right to terminate can be excluded.

c. If applicable, differences dependent on whether the distribution agreement is terminated by one party for convenience or for breach by the other party:

Q15. Is it possible to terminate the distribution agreement based on certain grounds for termination (breach or other) included in the distribution agreement?

Yes.

If yes, is prior judicial intervention required in order for the termination of the agreement to take effect?

No.

Part 4: Post-contractual phase

Q16. Is the supplier required to repurchase the stock that is still at the distributor’s disposal when the distribution agreement ends?

No.

Q17. Are there other post-contractual obligations that generally apply to either of the parties in the context of the termination of the distribution agreement?

Yes.

If yes, which obligations apply?

Pursuant to Art. 6:212 Hungarian Civil Code: In the case of termination of a contract, the parties shall not owe further services and they shall settle accounts with respect to services performed before the time of termination.

Part 5: Dispute resolution

Q18. Do specific rules and/or restrictions apply as regards the choice of forum and/or jurisdiction?

Yes.

If yes, what do these specific rules and/or restrictions entail?

According to Art. 20 (3) of Act CXXX of 2016 on the Code of Civil Procedure, regional courts shall have competence of all actions where the amount in dispute exceeds thirty million forints.

Moreover, the following restriction shall prevail pursuant to Art. 27 (6), in case the parties agree on the territorial jurisdiction of a court:

(6) In property disputes, the parties, for their legal dispute or a future legal dispute that may arise from a specified legal relationship, shall not agree to the territorial jurisdiction of a) the Budapest-Capital Regional Court or the Budapest Environs Regional Court in matters that fall within the material jurisdiction of regional courts, b) the Pest Central District Court in matters that fall within the material jurisdiction of district courts.

Q19. Can the parties opt for arbitration?

Yes.

If yes, are there any rules and/or restrictions as regards the enforceability of arbitration clauses in distribution agreements?

No. 

Q20. What is the statute of limitations applicable to claims regarding the performance of a distribution agreement?

Any claim for damages for breach of contract is limited to 5 years from the date of breach of contract according to the general provision on statute of limitations (Art. 6:22 Hungarian Civil Code).

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