Author: dr. Erika Tomori, dr. Péter Gárdos, dr. András Nagy
What is the current state of litigation in Hungary? At the request of Global Legal Insights, dr. Erika Tomori, dr. Péter Gárdos and dr. András Nagy analyze the situation in a study.
If one looks at the numbers, the efficacy of the courts in Hungary has improved significantly over the last few years. At the level of district courts, over 90% of civil matters are decided within one year, and it is in less than 3% of cases where the dispute takes over three years to close. Regional courts are also very quick. Although there are differences between the courts, on average, over 75% of first-instance matters and over 90% of second-instance matters are closed within one year. Courts of appeal typically decide on the case within one year, and decisions by the Supreme Court rarely take more than a year.
Some reasons for the efficacy of the process are listed below:
Hungary has a civil law legal system, but in 2020 the so-called “limited precedent system” was introduced in the court jurisdiction.
The new Civil Procedure Act entered into force on 1 January 2018 and has been amended by the legislator several times. Most of the amendments were necessary due to the fact that the interpretation of certain provisions was not clear in practice and different courts have therefore developed different practices. As a result of the amendments, the substantive requirements relating to submissions have been significantly simplified. The amended rules are also more flexible regarding how the facts and the legal reasoning can be changed.
Three types of court have jurisdiction in first-instance cases:
Different type of courts may proceed on appeals:
The Supreme Court has jurisdiction in legal review (“felülvizsgálat”) cases.
The jurisdiction of same-level courts is divided geographically.
Appeal against the ruling of the first-instance court may be submitted within 15 days after the ruling of the court of first instance has been served. Ruling in the second-instance procedure is delivered without a formal hearing, unless the parties request the hearing or the court finds that a hearing is necessary.
In certain cases, legal review of the final judgment by the Supreme Court is available. The general deadline for the submission of the request for legal review is 45 days after the final ruling is served. As a general rule, the Supreme Court delivers its ruling without a hearing. The Fundamental Law further provides that the basic rules on courts shall be adopted by the Parliament with a qualified majority.
The integrity of the system is also supported by the Fundamental Law, which provides that judges are appointed by the President of Hungary, and judges are independent.
In accordance with the Fundamental Law, which provides the basic principles of the judiciary power, the Supreme Court not only acts in legal review cases, but also guarantees the uniform application of law. The activity of the Supreme Court in standardising the interpretation of the law has been strengthened by the introduction of the “limited precedent system”.
As of 1 April 2020, courts shall give specific reasons in the legal justification if they deviate in questions of law from the previously published decision of the Supreme Court. If the final judgment differs from such a decision on a question of law, the parties may submit an extraordinary appeal (application for review) against the final judgment to the Supreme Court. In the event of doing so, the Supreme Court examines whether the deviation was justified or not. If the derogation was not justified, the Supreme Court shall grant the extraordinary appeal, abolish the final judgment, and bring a new decision in conformity with the statutory provisions instead.
As of 1 July 2020, an extraordinary appeal (uniformity complaint) can also be lodged against a judgment of the Supreme Court if its judgment differs from its own previously published judgment. This kind of complaint shall be adjudicated by a panel of at least nine members (“Uniformity Complaints Chamber”), chaired by the President or the VicePresident of the Supreme Court, and shall consist of at least eight other members selected by the President of the Supreme Court on a case-by-case basis. If the deviation was not justified, the uniformity complaint shall be granted and the Uniformity Complaints Chamber shall vacate the decision and order the Supreme Court to carry out a new procedure and to give a new decision.
If the Supreme Court intends to deviate from its own previous decision in an individual case, it may request a preliminary ruling from the Uniformity Complaints Chamber. If this panel of the Supreme Court considers the deviation justified, it shall grant the deviation by way of a uniformity decision.
In order to ascertain that case law is applied uniformly, the Supreme Court may also issue an abstract decision (also called a uniformity decision) on the motion of the head of a court or the Prosecutor General. The decision is taken by a panel of at least nine members (“Uniformity Chamber”), chaired by the President or Vice-President of the Supreme Court. The members of the Uniformity Chamber are selected by the President on a case-by-case basis.
Legal privilege and disclosure, as understood in common law, do not exist in Hungarian law. There are some provisions, however, in the Civil Procedure Act, that enable the party to obtain documents from the other party.
Generally, the party shall submit the evidence that supports its factual claims. If the party is unable to present a document that would support its claim because it is in the possession of the other party, the party may request the other party to present that evidence. If the opposing party does not provide evidence in response to the request and certain other conditions are met, the court may recognise factual claims to be corroborated by the party under such predicament as true if there is no doubt as to their authenticity (“evidentiary predicament”). Where a document is held by a person who is not involved in the action, such a person may be ordered to present the document as a witness in the course of questioning by the court.
At the parties’ request, the court shall obtain any document from another authority or organisation, if such document cannot be released directly to the party. If the document contains any confidential information, the court shall require an exemption under the obligation of confidentiality.
Any part of a document that contains confidential information shall be inadmissible as evidence if the original classifier refuses to allow the party’s access thereto.
The most relevant types of litigation cost are the following:
The parties advance their costs upon their occurrence. The court will decide on the bearing of all costs and duties in its final ruling. Generally, the expenses of the successful party shall be covered by the losing party.
Decree No. 32/2003 (VIII. 22.) of the Minister of Justice determines the amount of the costs of attorneys that can be awarded (e.g., if the amount in dispute is HUF 10 million, HUF 500,000 will be awarded) or the parties may claim costs based on their agreement with their attorneys; however, the court may reduce the requested costs. The Act on attorneys provides that the mandate fee is subject to free negotiations, and the Act expressly acknowledges contingency fees.
Security for legal costs is available for the defendant if the plaintiff’s domicile is not within the EU or the EEA.
Hungarian law also opens the door to both complete and partial exemption from costs and expenses. The exemption is generally dependent on the income and financial situation of the given party, but in certain proceedings, it is granted by the subject matter of the proceedings. There are no rules in Hungarian law on costs budgeting and litigation funding.
The Civil Procedure Act provides that interim relief may be sought in order to prevent the occurrence of damage, preserve the status quo giving rise to the dispute or protect the rights of the party.
A request for interim relief may be submitted together with the claim or before the statement of the claim. Submitting the request before the statement of claim is possible only if further delay would jeopardise the aim of the provisional measure.
When deciding on the request for interim relief, the court measures the detriment caused by the interim relief to the other party and the detriment caused by rejecting the request. The other party may react in writing to the request for interim relief, and the court also has the power to hold a hearing about the request.
The decision of the court is delivered in an expedited procedure. An appeal is available against this decision; however, the decision is provisionally enforceable immediately. In certain cases, the court may order interim relief if the party requesting the interim relief provides security covering the potential damages caused by it.
Judgments of Hungarian courts are enforced in accordance with the rules of Act LIII of 1994 on Judicial Enforcement (hereinafter: Judicial Enforcement Act).
In EU-related affairs, Regulation (EU) No. 1215/2012 primarily determines recognition and enforceability. Under this Regulation, in general, a judgment delivered in a Member State shall be recognised in the other Member States without any special recognition procedure and under no circumstances may such judgment be reviewed as to its substance in the addressed Member State. Similarly, a judgment enforceable in the Member State where it was delivered shall be enforceable in the other Member States without any declaration of enforceability being required. Similar rules exist in relation to judgments delivered in Switzerland, Norway and Iceland in accordance with the Lugano Convention. In cases when the Regulation is not applicable, the provisions of Act XXVIII of 2017 on Private International Law (hereinafter: Private International Law Act) and of the Judicial Enforcement Act apply. Based on these, a foreign judgment may be recognised and enforced if it meets certain requirements (e.g., jurisdiction of the foreign court is considered legitimate, the judgment is construed as final and binding by the law of the State of origin, and the grounds for denial shall not apply). No special recognition procedure is necessary. Nevertheless, the recognition is not automatic; the fulfilment of the requirements is usually examined by the competent court. Awards may be enforced in accordance with a statutory provision on the enforcement of such awards, international treaties or reciprocity.
Rules on cross-border litigation are regulated by both domestic and international norms. International regulation consists of international agreements, directly applicable EU law and reciprocity. Regarding domestic regulation, both the Civil Procedure Act and the Private International Law Act contain relevant provisions.
Regulation (EC) No. 1393/2007 of the European Parliament and of the Council of 13 November 2007 on the service in the Member States of judicial and extrajudicial documents in civil or commercial matters (service of documents), and Council Regulation (EC) No. 1206/2001 of 28 May 2001 on cooperation between the courts of the Member States in the taking of evidence in civil or commercial matters, apply directly in Hungary. Under the EU regulation in civil or commercial matters, the courts of the Member States (with the exception of Denmark) could take evidence both directly and indirectly. EU Member States are required to designate a central authority to transmit the documents needed to be served and to receive such documents from other Member States. Each Member State is entitled to serve judicial documents through its diplomatic or consular agents or by postal services. The central authority designated in Hungary for the taking of evidence and the service of documents is the Ministry of Justice, whereas the receiving and transmitting agencies are the courts.
Hungary also signed the Hague Conventions regulating the taking of evidence and the service of documents regarding civil and commercial matters. Under the Hague Conventions, similarly to the EU regulation on the service of documents, the courts of the Contracting States are not entitled to enter into contact directly with each other. The Contracting States are required to designate a central authority to receive the letter of request coming from a judicial authority of another Contracting State and to transmit it to the competent authority. Also, similarly to the EU regulation, under the Hague Conventions, a diplomatic officer or consular agent of a Contracting State may also take the evidence for the court of the State that she/he represents if the competent authority designated by the State in which she/he exercises her/his functions has given its permission for such activity.
Under domestic law, in the absence of any international regulation, the request for legal assistance may be complied with if so agreed by the Minister in charge of the judicial system and the Minister of Foreign Affairs, and, if necessary, the Minister competent according to the subject of the matter. Legal assistance shall be refused if compliance with the request would be contrary to Hungarian public policy.
The most important legal sources of international arbitration in Hungary are Law-Decree No. 8 of 1964 implementing the European Convention on International Commercial Arbitration, Geneva, 1961 (hereinafter: Geneva Convention), Law-Decree No. 25 of 1962 implementing the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, New York, 1958 (hereinafter: New York Convention) and Act LX of 2017 on Arbitration (hereinafter: Arbitration Act). Both the Geneva Convention and the New York Convention were adopted under the auspices of the United Nations.
The Geneva Convention applies to arbitration agreements concluded for the purpose of settling disputes arising from international trade between physical or legal persons having, when concluding the agreement, their habitual place of residence or their seat in different Contracting States, and also to arbitral procedures and awards based on such agreements. The parties to an arbitration agreement could apply to either a permanent arbitral institution or to an ad hoc arbitral procedure. In the latter case, the parties are free to appoint arbitrators, determine the place of arbitration and lay down the procedure to be followed by the arbitrators.
The New York Convention applies to the recognition and enforcement of arbitral awards (adopted either by ad hoc or permanent arbitral bodies) made in the territory of a State other than the State where the recognition and enforcement of such awards are sought. It also applies to arbitral awards not considered domestic awards in the State where their recognition and enforcement are sought. The Contracting States are required to recognise such arbitral awards as binding and enforce them without imposing substantially more onerous conditions than imposed in case of recognition or enforcement of domestic arbitral awards.
Recognition and enforcement of an arbitral award can only be refused for reasons listed in the New York Convention. However, Hungary made a reservation that it will only recognise and enforce awards made in countries that are signatories to the New York Convention relating to a dispute arising from an activity that qualifies as a business activity. Decree No. 12/1962 (X. 31.) of the Minister of Justice provides that a copy of the original award qualifies as duly certified, in accordance with Art. IV of the New York Convention, if it is an official copy done by the permanent court of arbitration, a notarised copy of the original award of an ad hoc court of arbitration, and if it is a notarised copy of the arbitration agreement.
Certain provisions of the Arbitration Act also apply to international arbitration unless an international treaty regulates otherwise. An arbitral procedure is deemed to be international under the Arbitration Act if the places of business of the parties are in different States at the time of the conclusion of the arbitration agreement. In case the parties have their places of business in the same State, the international element could also be based on:
Mediation and ADR are acknowledged in Hungary. The most important rules are found in:
The law tries to encourage the parties to settle their disputes out of court. The court may attempt, at any time during the procedure, to support the parties to settle their dispute. The conclusion of settlement is encouraged by determining reduced duty on proceedings. If the parties settle their dispute at the first court hearing, the plaintiff or the defendant submitting a counterclaim is entitled to reclaim 90%, while if settlement is reached at a later stage, the parties are entitled to reclaim 50% of the duty advanced by them.
Disputes may be settled by way of arbitration if at least one of the parties is professionally engaged in business activities and the legal dispute arises out of or in connection with this activity; furthermore, the parties may dispose freely of the subject matter of the proceedings, and if arbitration was stipulated in an arbitration agreement. Decisions of the arbitration tribunals have the same effect as that of a binding court decision, and their enforcement shall be governed by the regulations on judicial enforcement. The parties may choose the permanent arbitration tribunals, e.g., the court of arbitration attached to the Hungarian Chamber of Commerce and Industry, Budapest, or they can choose ad hoc arbitration.
As for arbitration tribunals, local courts may impose provisional measures upon the request of either party. The court may order protective measures in a case pending before an arbitration tribunal. If the presentment of evidence before the arbitration tribunal is likely to entail considerable difficulties or unreasonable extra costs, upon the request of the arbitration tribunal, the local court shall provide legal assistance in the form of conducting the procedure for the presentment of evidence and by the application of the coercive means necessary in the procedure for the presentment of evidence if conducted by the arbitration tribunal. However, such powers are seldom exercised.
Decisions of an arbitration tribunal may not be appealed; however, the national courts may annul the award delivered by an arbitration tribunal for the reasons listed in the Arbitration Act; e.g., the award is in conflict with the rules of Hungarian public policy.
The following arbitration boards are set by law in Hungary:
The available remedies against the decisions of the Financial Arbitration Board depend on the value of the matter and whether the financial service provider submitted to the proceeding of the Financial Arbitration Board. The panel of the Financial Arbitration Board can adopt a binding resolution on the merits of the case if the financial service provider has undertaken to be bound by the decision of the Financial Arbitration Board, or if the claim does not exceed HUF 1 million. In other cases, the panel may make a recommendation on the merits of the case. The decision or recommendation of the panel is adopted without prejudice to the consumer’s right to have her/his claim enforced in court. The party may file an objection against the binding resolution of the panel, in which case the dispute will be decided by the court. The annulment of the decision may be requested from the court in certain cases.
The parties may choose whether they wish to use the court’s mediation process or opt for a mediator outside of the court.
Court mediation is a non-judicial procedure, conducted by judges and court officials with special qualifications.
In the case of undertaking mediation outside courts, an independent third party (mediator) is involved in order to solve the dispute of the parties. The goal of the procedure is to reach a written agreement. The database of mediators is kept by the Ministry of Justice.
In certain cases, the court may order compulsory mediation for the parties as well and simultaneously suspend the civil procedure, whereas, in other cases, the court may inform the parties about the availability of mediation. If the parties reach an agreement in the mediation proceedings, it may be submitted to the court for approval as a settlement.
According to the general rule, arbitration is available to the parties. However, neither arbitration nor mediation may take place in the following procedures: libel proceedings; administrative proceedings; guardianship proceedings; proceedings on the termination of parental responsibility; enforcement proceedings; procedures establishing paternity or ancestry; or constitutional appeals. Further statutory regulations may restrict the arbitrability of certain types of dispute.
The Fundamental Law provides that Hungary protects the rights of consumers. Such protection is provided by several acts and authorities, e.g.:
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