Budget Rent A Car Exposes Long-Term Breaches of Contract by Sixt
6 May 1999
Budget Rent A Car Exposes Long-Term Breaches of Contract by Sixt
Budget Highlights Key Excerpts From Court Judgment
LISLE, Ill., May 5 -- Following the Munich Regional Court of
Appeal ruling on April 15, 1999, Sixt has sought to underplay the damages it
is likely to pay Budget.
According to Budget's German lawyer, Uwe von Saalfeld of Norr,
Stiefenhofer & Lutz, "The reality is that Sixt GmbH & Co. Autovermietung KG
will have to pay the Budget Rent a Car Corporation substantial damages
resulting from Sixt breaches of contract. The detailed judgment of the Court
of Appeal shows how seriously the judges viewed the grave breaches of
contract. The Court of Appeal has confirmed the order of the previous court
that Sixt has to provide a statement to be used for assessing damages due to
Budget."
The Court held that Budget Rent a Car International, Inc. had validly
terminated its licence agreement with Sixt GmbH & Co. Autovermietung KG,
effective at the latest in May 1997. Budget's termination was based on Sixt's
violation of its obligations "through repeated, persistent conduct in breach
of contract the Appellant (Sixt) gave the Respondent (Budget) reason to
terminate the Franchise Agreement without prior notice in April 1997, for good
cause, after the relationship of mutual trust had broken down irretrievably in
the Spring of 1997 due to the number of grave breaches of contract."
As a result, Sixt has been operating its car rental business under the
Budget trademark without authority for the past two years and will be required
to pay damages to Budget for such illegal conduct. In addition, the Court of
Appeal ruled that "since the Appellant (Sixt) has used after 05/25/1997 and to
date still uses the Budget trademark, without the authorisation required under
Sec. 14 (2) (1) and (2) Trademark Act, the Respondent (Budget) is entitled to
the claim to injunctive relief as asserted, according to Sec.14 (5) of the
Trademark Act." The court also ruled that Sixt, in the years prior to the
determination, did not promote the Budget system in Germany in the proper
contractual way. Sixt also has to compensate Budget for this breach of
contract.
Additionally, Sixt will be responsible for Budget's legal costs and for
lost profit damages resulting from Sixt's re-direction of reservations
generated in Germany to non-Budget locations throughout Europe. The Court of
Appeal ruled that "It is undisputed that since the late Autumn of 1996 the
Appellant (Sixt) has transmitted outbound reservations solicited in Germany to
its own subsidiary companies in European foreign countries, via the
reservation centre."
The recent statement of Sixt that Budget has to compensate Sixt for prior
investments in the Budget brand in Germany has no legal basis at all. Sixt
has raised this topic in a hearing before the Munich Regional Court and was
told by the judge that even if the termination was not valid, he is not
entitled to ask for compensation.
Budget Rent a Car Corporation, a wholly owned subsidiary of Budget Group,
Inc. , is one of the world's top three car and truck rental systems.
The Budget system, which operates under the same name worldwide, has more than
3,200 airport and local market locations in over 120 countries and
territories. Budget has nearly 1,200 corporate-owned and franchised locations
throughout the Europe, Middle East and Africa region. Around the world,
Budget differentiates itself in the industry through its "out of the ordinary"
products and services.
Detailed extracts from the Munich Regional Court of Appeal Judgment
(All extracts appear in italics; words in brackets and underlining
highlighted by Budget)
The Court ruled that Sixt illegally transmitted outbound reservations to
non-Budget franchisees/corporate operations:
"By presenting corresponding supporting documents, the Respondent (Budget)
has proved that after September 1996, reservations which had been placed by
customers for foreign countries were not transmitted to the appropriate
foreign Budget licensee or Budget branch, contrary to the obligation anchored
in Clause 5.01 of the Agreement, but were continually transmitted to Sixt
subsidiary companies in Switzerland and Austria. In other countries such as
Portugal, Israel, Italy and Spain, outbound reservations were transmitted to
the local company 'EuroDollar Car Rental,' a direct competitor of the
Respondent (Budget) and of its Budget franchisees operating in these
countries."
The Court ruled that Sixt had exploited, contrary to good faith, all the
benefits of being a part of the Budget rental system, yet disregarded the
obligations he had to the system, by causing damage to the system through the
engagement of competing activities:
"In the present case the conduct of the Sixt companies, which has been
objected to, is directed towards establishing and expanding a competing
business by exploiting - contrary to good faith - the simultaneous
incorporation into the Respondent's (Budget's) rental system. The Appellant
(Sixt) has deployed all the advantages offered by the BRAC system, yet has
disregarded the obligation that this entails to refrain from damaging the
system through similar competing activities. It does not wish to accept the
disadvantages that unavoidably arise from the incorporation into a franchise
system such as the present one. There are no doubts that the Sixt companies
profit from this selfish conduct at the expense of the Respondent (Budget)."
The Court found that Budget was justified in its termination of the
franchise agreement with Sixt. The Court stated that Sixt's actions were in
severe breach of Budget's franchise agreement and, by ignoring Budget's
objections and warnings, Budget could no longer be expected to uphold the
franchise agreement with Sixt:
"As a result of the conduct of the Sixt companies, which was in severe
breach of the Agreement and contrary to good faith, and due to its reaction to
the objections and warning notices issued by the Respondent (Budget), the
basis of trust of the franchise relationship was destroyed so severely at the
latest in mid-April 1997 that the Respondent (Budget) could no longer
reasonably be expected to uphold the contract."
Sixt deliberately continued and intensified its conduct, in breach of the
contract:
"In the present case one has to proceed on the assumption of infringement
through gross negligence. At the latest when it started to transmit
reservations placed in Germany to foreign subsidiaries or affiliated companies
the Appellant (Sixt) was aware that it was breaching an essential point of the
Budget Franchise Agreement and thus gave the Respondent (Budget) good cause to
issue a notice of extraordinary termination. Despite numerous objections
raised, setting of deadlines and issuance of notices of failure, the Appellant
(Sixt) did not desist from such conduct, rather, it even intensified its
conduct in breach of contract."
The Court found that Sixt's refusal to allow inspection of accounting
documents by Budget amounted to a breach of contract:
"The Appellant's (Sixt) refusal to enable the Respondent (Budget) to
inspect the accounting documents, as had been agreed, at least amounts to a
breach of contract which undermines trust. The Respondent (Budget) has stated
that there are reasonable doubts as to the correctness of the turnover figures
communicated."
The Court required that Sixt provide a statement in order to calculate
damages due to Budget:
"The claim to provision of information asserted by the Respondent (Budget)
was correctly granted by the Landgericht (Regional Court). The claim to
provision of information is necessary in order to prepare and enforce the
Respondent's (Budget's) damage claim, since it is unable to obtain the
information in a reasonable manner, as the Appellant (Sixt) may freely admit."
Due to what it deemed illegal use of the Budget trademark, the Court
required Sixt to cease and desist its use of the Budget trademark and would
not grant Sixt an extended period of time to remove the trademark:
"The court will not grant the Appellant (Sixt) its wish to allow extensive
periods for conversion and using up, in the case of an order to cease and
desist. In accordance with established case law, on principle this Court
deems it intolerable to sanction an illegal situation to the detriment of the
injured party, even on a temporary basis." The judgment continued, "Yet the
exceptional grant of periods for using up, conversion or removal, does not
come into question where the infringing party has acted with intent or with
gross negligence. In this case the infringing party (Sixt) is not worthy of
respite;"