Blog

Blog » LITIGATION REFORM IN HUNGARY FROM JANUARY 2021 - TOWARDS A FAIRER BALANCE OF FORM AND CONTENT

LITIGATION REFORM IN HUNGARY FROM JANUARY 2021 - TOWARDS A FAIRER BALANCE OF FORM AND CONTENT

03 February 2021

After three years, the legislature has finally amended the Civil Code of Procedure (CCP), which took effect in 2018 and has since been criticised for sacrificing fundamental rights in favour of accelerated civil proceedings. This article examines the key changes, which took effect on 1 January 2021, and whether a fairer balance has been reached between form and content in civil litigation.

1. New CCP: objectives and issues

The codification of civil procedure law was a long-awaited project as the courts applied the former CCP, adopted in 1952,(1) for almost three decades following the political transition in 1989 to 1990. The growing number of never-ending court proceedings was the most frequently raised concern regarding the former CCP, so reducing the length of litigation was the main expectation of the new CCP.

As expected, the new CCP(2) focused on accelerating court proceedings and strived to achieve this by substantially reforming the first-instance procedure.

By highlighting the new principle of 'concentration of proceedings', the new CCP made starting litigation substantially harder for plaintiffs. In addition, the division of the first-instance procedure into two stages (the preparatory stage and the main hearing) restricted both litigants in amending their positions. Further, defendants were considerably limited in submitting counterclaims and set offs.

Due to the strict, formalistic procedural rules which manifestly restricted party autonomy as a fundamental right, the number of new litigations dropped by more than 50% for certain types of litigation.

In addition, plaintiffs which were brave enough to test the new CPP just after its entry into force often had their statement of claim rejected on formal grounds. As such, the right to access the courts, another fundamental right, was also limited.

Considering that under substantive law, the limitation of civil claims is interrupted by starting court action only if the court adopts a final and binding judgment on the merits that concludes the procedure, the significant number of statements of claims which were rejected by the courts under the new CCP jeopardised the enforcement of civil rights.(3)

Noticing this dangerous trend of form triumphing over content, the Supreme Court set up a practice group in March 2019 to review the grounds of rejection of statements of claims. In February 2020 the practice group published its report, highlighting that the courts were attaching too much importance to compliance with the formalistic rules.(4)

2. 2021 amendment

The legislature seems to have taken the poor court statistics and the judiciary's feedback seriously, as three years after the new CCP took effect, it has finally adopted the first amendment thereof.(5)

The amendment, which entered into force on 1 January 2021, concerns the first-instance court procedure and aims to better serve parties' right to access the courts and party autonomy by mitigating the overly formalistic approach.

Parallel to this focus on the flexibility and simplification of the first-instance procedure, the legislature has strived to maintain the benefits of its division when it comes to accelerating litigation.

The three main reforms introduced by the amendment are as follows.

Bringing actions easier for plaintiffs
Several strict provisions of the new CCP were disadvantageous to plaintiffs, casting doubt on the effectiveness of the right to access the courts.

For example, the new CCP obliged plaintiffs to draft the operative part of the would-be judgment in their statement of claim so that the judge could copy this in the final judgment. If the statement of claim filed by a legal representative was insufficiently precise, the court could reject the action at the beginning, despite the fact that these problems could have been resolved in later phases of the litigation.

Therefore, the amendment expressly provides that judges cannot review questions on the merits of a case at the beginning of the procedure. Following the amendment, plaintiffs must indicate the kind of relief which they are seeking, without proposing the wording of the operative part of the would-be judgment. In addition, if the plaintiff invokes an incorrect legal provision, the statement of claim cannot be rejected for this reason; rather, the issue must be clarified at a later stage of the proceedings.

Under the former rules, if the statement of claim submitted by a legal representative did not contain all of the obligatory elements, it had to be rejected and the plaintiff was not invited to remedy the deficiencies.

The amendment provides that judges must invite a plaintiff to remedy any formal or substantive deficiencies in its statement of claim, even if it was submitted by a legal representative. In addition, judges must list all of the deficiencies. If the plaintiff complies with the judge's request, the judge cannot reject the action on different grounds.

Amending actions and defences more flexible
The rigorous provisions of the new CCP substantially restricted party autonomy for both litigants because they brought forward the restrictions that normally apply in appellate proceedings to the second phase (ie, the main hearing) of first-instance proceedings.

Therefore, it was possible to amend an action or defence only during the preparatory stage of the first-instance procedure. Parties could subsequently modify their positions only in exceptional cases and with the judge's permission.

Further, the concept of 'amendment' was too rigid because the modification of a statement of facts or even the legal reasoning amounted to an amendment of action or defence. Consequently, any new fact or legal reasoning, even if not substantial, amounted to an amendment of claim or defence, creating an unnecessary administrative burden for all participants.

Litigants were also limited in submitting written pleadings and preparatory documents during the procedure.

The simplification of the 'amendment of action or defence' concept is a conceptual change to the new rules. As of 1 January 2021, stating new facts or introducing new legal arguments will not amount to an amendment of claim or defence.

In addition, plaintiffs can make a new statement of facts in the second phase of the first-instance procedure if these facts took place or became known to the plaintiff, through no fault of its own, after the preparatory stage. The legal reasoning can be amended throughout the entire first-instance procedure. In light of the 'equality of arms' principle, the same rules apply to defendants regarding their defence.

According to a new provision which grants wider party autonomy, if any party makes a new statement of fact, the plaintiff is entitled to amend its claim; the defendant can also amend its defence throughout the first-instance proceedings.

The amendment allows the parties to submit, without the judge's preliminary permission, preparatory documents in which they can modify the:

  • action;
  • defence; or
  • counterclaim.

Due to the above provisions, not only is party autonomy served more effectively, but judges can also better identify the merits of a legal dispute and thereby deliver a more established judgment thereon.

Counterclaims and set offs
The new CCP was disadvantageous to defendants which had a counterclaim against the plaintiff. According to the former provisions, defendants could enforce their counterclaim in the same litigation by submitting a counterclaim or set off within 45 days of the date on which they received the plaintiff's statement of claim.

Based on the above provision, if a defendant, through no fault of its own, missed the 45-day deadline, it had to start a separate litigation in order to enforce its counterclaim against the plaintiff. This rule generated future legal disputes and ran counter to the principle of the 'economy of the procedure', according to which related actions and counterclaims should be tried in the same procedure where possible.

Further, it was unclear whether the 45 days restarted if the plaintiff amended its claim during the first-instance proceedings. Despite a non-binding opinion of higher court judges supporting the view that in such case, the defendant's deadline started again,(6) the new CCP did not confirm this view. This created a risk of divergent court practice.

To address the above problems, the amendment provides that if a defendant cannot submit its counterclaim or set off through no fault of its own, it can submit a counterclaim during the preparatory phase or a set off throughout the main hearing phase.

The amendment also clarifies that defendants will not be at fault if they cannot comply with the 45-day deadline due to the plaintiff having amended its action in the meantime.

Based on the above, the amendment has remedied the provisions of the new CCP which were the most disadvantageous to defendants in light of the equality of arms principle.

3. Comment

The new CCP of 2018 sacrificed party autonomy and the right to access the courts in favour of accelerated civil litigation. The formalistic approach did not help judges to resolve disputes on the merits; in addition, some provisions generated further litigation and uncertainty.

By adopting the amendment, the legislature has strived to strike a fairer balance between form and content by reconciling procedural acceleration with the effectiveness of fundamental rights. The new provisions introduced by the amendment make first-instance litigation more flexible and simpler for both parties.

Should the judiciary get on board with this initiative, the winners will be not only litigants, but also legal representatives and judges who, instead of bothering with questions of form, can focus on the merits of dispute resolution.

Endnotes

(1) Act 3 of 1952 on the CCP.

(2) Act 130 of 2016 on the CCP.

(3) Section 6:25(1)(c) of Act 5 of 2013 on the CCP.

(4) The practice group's report is avalaible here (in Hungarian).

(5) Act 119 of 2020 on the amendment of Act 130 of 2016 on the CCP.

(6) Point 12 of CKOT Opinion adopted on 15 April 2019.