SUSPENSION OF LIMITATION OF CLAIMS – A MORE TRANSPARENT COURT PRACTICE IN HUNGARY?

11 March 2024

When a claim is close to the end of the limitation period, it is a common tactic of debtors to engage in lengthy out-of-court settlement negotiations to render the claim time-barred. Can these negotiations suspend the statutory limitation of a claim in Hungary? We address this issue in the light of the case law of Hungarian courts.

1. The concept of limitation

Limitation is the legal effect of the passing of time on the enforceability of a claim, which was already recognized in Roman law.

Under Hungarian law, the legal consequence of the limitation is that after the expiry of the statutory limitation period – which is generally 5 (five) years – the claim will no longer be enforceable in court procedures, similarly to the moral obligations, often called as “obligatio naturalis.”[1]

2. Excusable reason suspending the limitation

There are certain periods during which the calculation of the limitation period stops for a while, which is called the suspension of limitation.

Under the Hungarian Civil Code, the running of the limitation period shall be suspended, if the obligee is unable to enforce the claim for an excusable reason.[2] However, neither the old nor the new Civil Code specified what constitutes an “excusable reason”.

It often happens in business that parties start negotiations regarding the debt, to achieve an out-of-court settlement. It is a common tactic of debtors to lengthen the negotiations and finally the claim may become time-barred.

Whether such negotiations for an out-of-court settlement can be considered as an “excusable reason” suspending the limitation of the clam in Hungary?

3. Earlier case law – ambiguity

The relevant domestic case law available in this regard goes back to the 1980s[3]. Since then, it was confirmed by multiple decisions of the Supreme Court that serios out-of-court negotiations between the parties may result in the suspension of the limitation period, for the duration of the negotiations.[4]

However, based on a 2012 legal unity decision for the Supreme Court, deciding this question is basically a matter of case-by-case consideration by the court. Therefore, the relation between out of court negotiations and the suspension of limitation period remained uncertain to some extent.

Based on two decisions of the Supreme Court brought in 2018[5], it seemed that the Hungarian courts were taking a stricter position: in the cases at hand, the Supreme Court did not establish the suspension of the limitation period, despite the fact that the claimants conducted negotiations with the debtor. The courts argued that the negotiations were not serious enough or the claimant failed to prove them in the lawsuit.

4. New decision of Supreme Court

In a recent decision of the Supreme Court published in the court reports in late 2023, the court seems to have focused on a different aspect: the conduct of the debtor during the negotiations. [6]

In this case an insurance company requested the medical examination of the claimant and made smaller payments during the out of court negotiations. After the insurer finally rejected the claim and the claimant filed a lawsuit, the insurer invoked the limitations of the claim.

The Supreme Court held that the sending of the claimant to medical examinations and the smaller payment were decisive factors when considering the seriousness of the out-of-court negotiations.

According to the Supreme Court, as long as the claimant can reasonably assume that his claim will be settled out of court in the negotiation with the debtor, this is considered to be an excusable reason that results in the suspension of the statute of limitations.

5. Comment

Based on Hungarian court practice, the suspension of limitation period due to out-of-court negotiations is only possible if the claimant initiated substantive negotiations in connection with the settlement. This practice was refined by the recent precedent decision of the Supreme Court, where the court focused on the behaviour of the debtor.

According to the finding of the new decision, the limitation of the claim can be suspended by reason of an out-of-court negotiations between the parties in case the claimant can reasonably assume that his claim will be settled out of court.