TO WHAT EXTENT CAN THE JUDGE HELP PLAINTIFFS IN HUNGARY? – THE CURIA RULED

17 March 2022

One of the major innovations of the new Civil Procedure Code ("CPC"), which entered into force in 2018, was the introduction of the so-called "substantive legal guidance by the court", under which the judge may "assist" the parties under certain conditions to define the framework of the dispute as soon as possible and to bring the dispute to a conclusion within a reasonable time. Can the judicial assistance extend to the type of action that the plaintiff may bring? We examine the above question in the light of a recent decision of the Curia.

1. Background

The obligation of the court to clarify the parties' statements (substantive legal guidance by the court, hereinafter "legal guidance"), which is regulated in detail in the CPC, is closely linked to the new definition of "action" in the CPC.

The previous rules of the Civil Procedure Code(1) and the domestic judicial practice of several decades, based on the so-called "two-part definition of action", followed the principle that being bound by the application did not mean being bound by the legal title.(2)

However, the CPC in force since 2018 introduced the concept of a "three-part action", according to which the plaintiff shall present their claim together with the facts on which it is based and the relevant legal title.

The CPC provides for three types of action:

• an action seeking the imposition of an obligation;
• an action for declaring the existence or non-existence of a right or legal relationship; and
• an action for creating the legal status or legal relationship.

In the case of an action seeking the imposition of an obligation, the plaintiff seeks an order for payment of a specified sum against the defendant. In an action for a declaration, the plaintiff seeks a declaration of the existence of a right or a legal relationship, which is possible only under certain conditions. In an action for creating the legal status or legal relationship, the plaintiff seeks the creation, modification or termination of a legal relationship, which is possible only if the law expressly provides for it.

The court may, in the context of providing legal guidance, inform the parties that it interprets the law referred by the parties differently from them, in which case the plaintiff may amend their action.

However, it is questionable whether, in the context of providing legal guidance, the court may inform the plaintiff if it considers that they intend to pursue their claim through an inappropriate type of action.

2. Facts

In this case,(3) the plaintiff as buyer and the defendant as seller entered a pre-contract for the sale of real estate (the pre-contract) in December 2017 for a real estate property. The defendant undertook to construct the property up to the structural completion stage as set out in the technical specifications, while the plaintiff undertook to carry out the final construction works.

At the time of the conclusion of the pre-contract, the plaintiff paid an earnest money of 10%, with the remaining 90% of the purchase price to be paid in instalments in accordance with the schedule set out in the contract. According to the pre-contract, if the purchaser was in default of any of the instalments for more than 15 working days, the defendant was entitled to withdraw from the contract by applying the provisions applicable to the earnest money, in writing, without any prior notice.

On 7 May 2018, the defendant and the claimant recorded a report that, on that date, the structural building was completed in perfect quality and quantity, but that certain final works (eg, painting and rendering) had not yet been completed.

On 23 January 2019, the defendant completed the works under the pre-contract and the additional works ordered by the plaintiff and called upon the plaintiff to pay the remaining 5% of the purchase price.

However, the plaintiff failed to pay the remaining amount to the defendant despite the extension of the grace period, and the defendant subsequently withdraw from the pre-contract on 12 March 2019.

The defendant subsequently refunded the plaintiff all the purchase price paid up to that time in respect of the withdrawal, but retained the 10% earnest money.

The plaintiff then brought an action against the defendant, seeking a declaration that the defendant's withdrawal was unlawful. The plaintiff also brought an alternative claim that the court shall create a contract of sale between the parties, but he withdrew this claim at first instance. In his defence, the defendant sought the dismissal of the action.

3. First-instance court

The first-instance court dismissed the action, having found, after examining the merits of the case, that the defendant's withdrawal was lawful.

4. Second-instance court

The second-instance court upheld the judgment of the first-instance court, but on different grounds.

The second-instance court held that the plaintiff's principal claim was for a declaration, but that the conditions for bringing an action for a declaration had not been met, as the necessary legal requirements for such an action were not satisfied.(4)

According to the CPC, the conditions for an action for declaration are that the plaintiff:

• is entitled to legal protection against the defendant; and
• cannot bring an action seeking the imposition of an obligation by reason of the nature of the legal relationship or the absence of expiry of the obligation or for other reasons.

The second-instance court held that the plaintiff was entitled to seek the performance of the pre-contract – that is, the conclusion of the sale contract, or its conclusion by the court. The plaintiff could therefore have brought an action seeking the imposition of an obligation – including the formation of a legal relationship – against the defendant.

The second-instance court dismissed the action, without examining the merits of the case, on the ground that the plaintiff had brought an inappropriate type of action.

In his application for judicial review, the plaintiff complained, among other things, that the second-instance court:

• had not informed him that his action for declaration was in fact inadequate; and
• had not invited the parties to submit observations on the matter within the framework of legal guidance by the court.

5. Supreme Court

In this context, the Supreme Court first noted that the plaintiff had not even mentioned the problem of the action for declaration in his appeal against the judgment of the first-instance court, so the second-instance court had not been obliged to give legal guidance based on its own legal standpoint.(5) The second-instance court had been bound by the parties' application for appeal(6) and the applicant had not even mentioned the issue of the action for declaration in his appeal.

In the light of the above, the second-instance court did not even get to carry out a substantive review of the judgment at first instance. Therefore, the examination of the judgment and the procedure of the first-instance court in the context of the legal guidance by the court had not been at issue.

The Supreme Court also stated that the examination of the procedural requirements of the action for a declaration did not fall within the scope of legal guidance by the court and that the court had therefore been under no obligation to give legal guidance in that regard. Therefore, the court could not have assisted the plaintiff in bringing an appropriate action even if the plaintiff had expressly requested it.

According to section 172(3) of the CPC, the second-instance court could also have lawfully examined ex officio whether the conditions for an action for declaration had been met and could have lawfully ignored the plaintiff's statement in this regard.

In view of the above, the Supreme Court upheld the final judgment.

6. Comment

With this decision, the Supreme Court confirmed its consistent practice, according to which in the system of the new CPC based on the concept of professional litigation, the court may exercise its substantive guidance powers within the rights "brought to court" by the parties, and may not go beyond them. The court may not provide substantive legal training or legal assistance (advice) in connection with the enforcement of the parties' substantive rights and interests.

The decision further stated that the examination of the procedural requirements of the action does not fall within the scope of legal guidance by court, so the plaintiff must be able to determine not only the appropriate legal ground but also the appropriate type of action. Thus, the court cannot "assist" the plaintiff in the framework of legal guidance by indicating the appropriate type of action to be brought.

In light of the above case law, where there is doubt as to the type of action that may be brought in respect of a claim, it is advisable for plaintiffs to indicate several alternative actions when starting a litigation.

 

Endnotes

(1) Act III of 1952 on the Civil Procedure Code.

(2) "Da mihi facta, dabo tibi jus" ("give me the facts, I will give you the law"), section 342(3) of the CPC.

(3) Judicial Decision No. 2022.2.47.

(4) Section 172(3) of the CPC.

(5) Section 369(4) of the CPC.

(6) Section 370(1) of the CPC.