The Distribution Contract in Hungary

Hungary, like many jurisdictions, until the recent reform of the civil code which came into force on March 15, 2014, did not know any law that specifically regulated the distribution contract; for this reason, for the regulation of the distribution contract it would have been necessary to refer to the contractual models adopted in international practice, to the rules on contracts in general already present in the Hungarian Civil Code and to the rules provided for by the law on agency as applicable.

Following the reform, the civil code has introduced a new section specifically dedicated to the distribution contract and precisely the foreign investor who wants to enter into a contract with a Hungarian distributor, will have to carefully evaluate whether it is convenient to choose to regulate his contract with the Hungarian law, which today provides for some mandatory rules that place specific obligations on the parties.

The new rules of the code define the distribution contract as a contract under which a supplier assumes the obligation to sell tangible movable goods to a distributor, who, in turn, undertakes to purchase the supplier's products and sell them in its own name and on its own account.

Against this, the law provides for specific duties on the part of the parties, including that placed on both sides of protecting the good name and image of the product. The supplier also has product disclosure obligations and the right to instruct the distributor on how to promote distribution. To this end, he may also, against payment, provide the distributor with the advertising material necessary to promote the sales of the product. The distributor must instead follow the supplier's instructions, even when they are unreasonable but the supplier insists on them (provided that if the distributor has warned the supplier in advance about the unreasonableness of the instructions, the supplier will be held liable for all damages. caused to third parties).

If the instructions are instead in contrast with the law or with administrative regulations, dangerous for safety or detrimental to the property rights of others, the distributor has a real duty to refuse to comply. The code also specifies that the provisions on distribution contracts apply, mutatis mutandis, also to contracts for the supply of services.

For the rest, the content of the distribution contract remains subject to the contractual freedom of the parties and no particular formalities are required for its conclusion: the written form is not a condition for the validity of the agreement. Whoever promotes the sale of a product in Hungary is also obliged to comply with the mandatory provisions of the law on advertising which prohibit certain forms of advertising including subliminal advertising.

Also in this case, it will finally be worthwhile to consider whether to insert in the distribution contract a clause that provides for the exclusive competence of an arbitration panel to decide any disputes, to avoid being settled before a Hungarian judge.