Legal Briefing

Hungary – discouraging litigation?

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Disputes | 15 October 2019

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Since 2018, Hungary has a new act on civil court procedures (Act CXXX of 2017 – the Act) which has brought about significant reforms after 50 years. The reforms were aimed at healing previous shortcomings, such as lengthy and tedious procedures, and making court cases concise, yet professional in quite a tight structure. As almost two years have passed since then, it is time to examine how real-life court procedures have changed, if at all.

Decreasing number of court cases and willingness to litigate

According to the statistics, between 2014 and 2017 approximately 350,000 court cases were pending country-wide every year. Among these, 10-12,000 new cases were lodged every month, an average of around 140,000 per year. The Act has discouraged the lodging of claims and, by the beginning of 2018, only approximately 6,000 new cases were lodged each month and in total only approximately 266,000 cases were pending in 2018. But what exactly was the reason for this sudden drop of almost 30%?

First, the Act is very strict with respect to the structure and content of the statement of claim, which can lead to the upfront rejection of the statement of claim for formal reasons if it fails to comply with all detailed requirements. The courts checked compliance with the preliminary admissibility requirements even more stringently from the beginning of 2018. Multiple press releases reported on claims being allegedly rejected upfront, for example for reversing the order of contact details of the acting legal representative or for other less precise reasons, like the claim being not adequately detailed. However, no transparent or reliable statistics have been published about the exact percentage of statements of claim that were rejected.

Second, the above requirements apply only if the claimant acts with a legal representative. If there is no legal representative or if legal representation is not mandatory in the given case, courts are more lenient in terms of content but require a rather detailed and long form to be filled out by claimants in each case. As a result, lawyers with moderate experience considered which option would make the chances of rejection less probable – and oftentimes recommended the statement of claim to be submitted by their clients directly, and not through the lawyers. This could have led to a general distrust in lawyers and a decrease in the willingness to litigate.

Third, even if a claim is rejected upfront due to non-compliance with the formal and preliminary admissibility requirements, it may be submitted again. Re-submission entails, however, further court fees for claimants. As a rule, the claimant must pay a court fee of 6% of the claim (with certain restrictions and limits), when lodging a statement of claim. If the claim is rejected upfront, the claimant may apply for reimbursement of 90% of the court fee already paid. This means that 10% of the court fee is still payable despite having no case at court. This rule was deemed discriminative towards poor claimants in the media as less wealthy claimants often gave up litigation instead of risking another upfront rejection and the loss of another 10% court fee.

Reaction to the sudden drop in court cases

The relapse in the willingness to litigate was presented by the administrative office of state courts in a rather controversial way. The administrative office interpreted the court statistics as an improvement of the courts’ efficiency. However, the real reason behind the improved statistics was different: if a claim is rejected and re-submitted, for the purpose of the statistics, this leads to two separate cases where the first is recognised as a quickly closed case. Consequently, the upfront rejection and the subsequent re-submission improve the statistics of the courts as it produces a number of quickly closed cases on paper.

Unlike the reaction in the administrative office, when the first statistics came out, the despair only intensified within the legal profession: many lawyers demonstrated their dissatisfaction in professional and less professional (eg facebook groups for lawyers) forums. Some even started collecting signatures in support of an amendment to the Act or a change in the court practice about upfront rejections.

Also, the media continued to present the Act as prejudiced, indicating that it would prevent claimants from initiating litigation. Yet again, the Act was labelled as being discriminatory towards poor claimants who could not afford the risk of spending unnecessary court fees on potential upfront rejections. As for business, there were hopes that, since ordinary courts had become less favourable for claimants, arbitration for example could become a real alternative. This however has not happened, and arbitration has not become any more popular than it was before.

Therefore, the need emerged for solutions how to make litigation more attractive to claimants again and, in this sense, a few legislative changes were passed and interpretations on the application of the Act were adopted.

Solutions to strengthen the desire to litigate

Pursuant to an amendment to the relevant law, the prior rule about the reimbursement of 90% in the event of an upfront rejection was repealed and from November 2018 onwards, claimants may apply for a full reimbursement. This could better allow the poorer part of society to turn to courts as there is no longer a risk of losing money only because of problems with the statement of claim.

Also, pursuant to a decree by the Minister of Justice, from April 2019 onwards the electronic forms for court submissions – which are mandatory for those acting without a legal representative – were shortened and simplified. For example, the statement of claim form was shortened from 26 to nine pages, thereby making litigation easier for those unfamiliar with legal procedures and formalities.

Furthermore, the Supreme Court in Hungary (Curia) set up a working group to (i) analyse why the lower courts’ practice was too restrictive in admitting statements of claims and (ii) provide unified guidance towards the lower courts on the interpretation of the Act, ie to eliminate that the admissibility of the statement of claim depends on the appointed judge’s individual interpretation of the Act.

Evaluating the developments

In line with expectations, the simplification of forms and the introduction of full reimbursement of the court fee in case of an upfront rejection of the statement of claim has generally facilitated access to justice.

In addition, the working group established by the Curia passed many legal interpretations fostering the effective and unified application of the Act both formally and content-wise. Some of these interpretations even repeal prior court practice under the Act.

Among the formal clarifications, the working group addressed how the Act’s rule on structuring the statement of claim into three (introductory part, merits part and closing part) sections are to be interpreted. The group aborted the courts prior verbatim interpretation of the Act about having these sections explicitly mentioned in the statement of claim and clarified that the statement of claim may not be rejected if the party fails to explicitly name these different sections but by reading the statement of claim, the segmentation is apparent.

As for substantive issues, the working group interpreted eg how the court must handle a statement of claim if it contains alternative causes of action. The group explained that if the claimant failed to explicitly state in which sequence the causes of action are to be assessed by the court, the court must call the claimant to expressly indicate the sequence. Failure to do so leads to a rejection. However, this must be distinguished from the scenario where the claimant indicates the desired sequence of the causes of action, but the court considers the sequence wrong (illogical or pointless). In this case, the court may as well call the claimant to change the sequence but if the claimant insists, the court may not reject the statement of claim. Instead, courts may educate and guide the claimant towards the right sequence of the causes of action during the proceeding.

Despite having no official statistics on court cases initiated in 2019, those from the second half of 2018 already confirmed the slow recovery of the former litigation ‘willingness’ level as approx. 9-9,500 statements of claim were submitted per month on average. Bearing in mind that the simplification of electronic forms was introduced this spring, this recovery is expected to continue with approximately 10,000 new statements of claims monthly. If this is the case, approximately 120,000 new claims in total are expected in 2019, thereby getting closer to the levels prior to the Act.

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