Blog » ON THE WAY TOWARDS COMMON-LAW? – NEW LAW REFORMING LITIGATION IN HUNGARY
ON THE WAY TOWARDS COMMON-LAW? – NEW LAW REFORMING LITIGATION IN HUNGARY
06 May 2020
While COVID-19 has been dominating the headlines, a new act, which entered into force on 1 April 2020 and fundamentally reforms the role of judge-made law in Hungary, has received less attention. This article examines why this landmark bill was passed, the extent to which it means the adoption of common law and what its potential impact will be on litigation in Hungary.
The radically different approaches of the continental and common law systems regarding judge-made law can be demonstrated by:
- the principle of praetor ius facere potest, ius dicere non potest, derived from Roman law, according to which the judge can apply the law, but cannot make the law; and
- the adage of Oliver Wendell Holmes, according to which "the prophecies of what the court will do in fact, and nothing more pretentious, are what I mean by the law".(1)
The act was adopted by Parliament in December 2019 and entered into force on 1 April 2020. It marks a milestone in the development of Hungarian law (which belongs to the Romano-Germanic legal family), since it is a shift from the above principle according to which law is made by the legislature, towards common law, where the existence of judge-made law is widely accepted.
2. Judge-made law in Hungarian legal system
Thus far, judge-made law has not been officially present in the Hungarian legal system as the Fundamental Law does not list high court decisions among the sources of law.(2) However, the lower courts tend to invoke Supreme Court judgments in the reasoning of their decisions.
Nevertheless, according to the Fundamental Law, the main function of the Supreme Court is not to make the law, but to ensure that it is uniformly applied. To achieve this objective, the legislature allows the court to:
- make uniformity decisions which are binding on the courts;
- publish decisions which will broadly affect society or have a significant impact on public interest as 'decisions in principle' from which the lower courts could not derogate (the so-called 'EBH' and 'EBD');
- establish jurisprudence-analysing working groups, which analyse the final decisions and publish non-binding summary opinions under which the uniformity procedure can be established or initiate legislation in front of the law maker; and
- issue department opinions, in which the designated judges in each department interpret the legislation with a non-binding nature.
In addition to fulfilling its legal obligation by publishing its final decisions in the Collection of Court Decisions, the Supreme Court published non-binding guidelines without any legal authorisation.
For example, in 2017 the Supreme Court issued general guidelines in the field of civil and business law to interpret the new Civil Procedure Code, which entered into force in 2018.(3)
3. Theoretical and practical problems
In practice, judge-made law was present as a kind of 'secondary law' to fill gaps in legal provisions with content.
However, the majority of the Supreme Court's instruments were not judicial decisions delivered in individual cases, but rather abstract guidelines of an administrative nature, which were hardly reconcilable with the classic function of a court.
The above practice, according to which higher courts issue general guidelines as quasi-law makers, was often criticised by the Venice Commission. Thus, the Council of Europe aims to ensure the consistency of case law through judicial decisions brought in individual cases.(4)
In addition, since 2012, the published decisions of the Supreme Court in individual cases have not had the same binding force in Hungary. While 'decisions in principle' (the so-called 'EBD' and 'EBH'), which were selected by judicial leaders in an administrative way, were binding for the lower courts, other published judicial decisions could be derogated from. In practice, this caused legal uncertainty.
4. Major novelties of reform
The main concept of the reform effective from 1 April 2020 is that, instead of administrative activity, the uniform application of law will be ensured by classical judicial decisions, and the published individual decisions of the Supreme Court will have equal weight.
To this effect:
- the Supreme Court will not be entitled to issue general resolutions or guidelines on its own initiative; it can use only the instruments laid down by law for the uniform application thereof;
- the distinction, made through administrative means, between binding 'decisions in principle' and non-binding decisions of the Supreme Court will cease to exist;
- a so-called 'limited precedent system' will be introduced, according to which all published decisions of the Supreme Court will be equally binding for the lower courts as a main rule; and
- a new kind of legal remedy, the so-called 'uniformity complaint', will be introduced.
5. Limited precedent system
The limited precedent system means that the lower courts must follow the interpretations of Supreme Court decisions as a main rule. In exceptional cases, a lower court wishing to derogate from a Supreme Court decision must justify the reasons for doing so in its judgment.
Supreme Court decisions will not be a "source of law" in the classic sense, as judges can derogate therefrom on a discretionary basis; however, their role will become significantly stronger because any derogations by the lower courts must be duly justified.
Such derogations will presumably occur if:
- the facts of the case before the lower court are different from those which provided the basis of a previous Supreme Court decision; or
- the previous Supreme Court decision cannot be maintained due to socioeconomic changes.
6. Uniformity complaint
According to the previous system of remedies, a final second-instance court decision could be challenged before the Supreme Court by a request for judicial review. There was only one legal remedy against a Supreme Court judgment made in the judicial review procedure – namely, the constitutional complaint, by which a review of the unconstitutional judgment could be requested in front of the Constitutional Court.
The latest reform introduces the uniformity complaint as a new legal remedy, which can be used:
- if a lower court derogates from a published Supreme Court decision; however, the Supreme Court takes a different view when allowing or conducting the judicial review procedure; or
- if a lower court respects the Supreme Court's previous judicial practice, but the Supreme Court itself derogates from its previous published decision without initiating the uniformity procedure.
A separate chamber of the Supreme Court (the so-called 'uniformity council') adjudicates the uniformity complaint. Its members include the president of the Supreme Court and other president-appointed judges of the court.
If the uniformity complaint procedure is successful, the judgment delivered has the same effect as a decision made in a uniformity procedure by the Supreme Court – namely, it is published in the Hungarian Gazette, which means that in addition to binding the parties in litigation, the judgment will oblige the courts adjudging the same legal issue in the future.
7. Assessment of reform
The reform aims to make the legal situation clearer and more transparent than before and strengthen legal certainty; therefore, its aim cannot be contested.
Critics of the reform point out that there is no guarantee that importing a well-established legal institution from a foreign legal system – namely, the system of precedent of common-law jurisdictions – will have a positive effect in a country whose legal culture has developed differently for centuries.(5)
With regard to the reform's practical difficulties, it is worth considering that the Supreme Court has approximately 40,000 published judgments. Since 1 April 2020 all of these decisions have the same legal effect.
At first sight, this seems like a great opportunity for legal representatives to find the most suitable Supreme Court decisions to supports their client's case. However, this enormous legal database has not been properly organised; therefore, it will make litigation more difficult and delay proceedings in the short term.
When it comes to the new extraordinary legal remedy, the uniformity complaint, in addition to the fact that the president of the Supreme Court has relatively broad powers because they can choose the judges who adjudicate the complaints, this extra legal remedy is likely to delay litigation.
Arguably, the reform's effectiveness will depend on how effectively an organisation can monitor itself, as in the uniformity complaint procedure the Supreme Court judges must review and self-monitor the decisions of their colleagues.
The reform's objectives cannot be called into question; however, whether the abovementioned novelties will strengthen legal certainty in Hungary remains to be seen.
Laws shall be Acts, government decrees, prime ministerial decrees, ministerial decrees, decrees of the Governor of the Hungarian National Bank, decrees of the heads of independent regulatory organs and local government decrees. In addition, decrees of the National Defence Council adopted during a state of national crisis and decrees of the President of the Republic adopted during a state of emergency shall also be laws.
The practice of guidelines adopted by the Supreme Court or another highest court and binding on lower courts which exists in certain post-Soviet countries is problematic in this respect… 'Under a system of judicial independence the higher courts ensure the consistency of case law throughout the territory of the country through their decisions in the individual cases'.
CAN A 20-YEAR-OLD CHOICE OF COURT AGREEMENT BE ENFORCED IN HUNGARY?
In business, it often happens that the parties enter into a contract with a choice of court agreement for eventual legal disputes and then, years or even decades later, the legal dispute occurs. What is the effect of changes that have occurred in legislation on the choice of court agreement? Will the applicability of the choice of court agreement be decided according to the rules in force at the time of the conclusion of the contract or those applicable when the lawsuit was initiated? A recent decision of the Hungarian Supreme Court allows for an analysis of these questions.(1)Read more »
HUNGARIAN COMPANIES ACT CHANGED – ONLINE LLC FORMATION FROM AUGUST 2022
Due to the recent amendment of the Companies Act with effect from 1 August 2022, EU citizens and companies can form a limited liability company or a branch office in Hungary fully online, in a fast-track registration procedure. The new provisions make it easier and faster to start a business in Hungary, even if there is minor restriction in relation with capital contributions. In this article we sum up the most important new rules.Read more »
WHO PAYS THE PRICE OF A CLERICAL MISTAKE UNDER HUNGARIAN LABOUR LAW?
As the well-known proverb says humans make mistakes. Thus, it can happen that a contract prepared by the employer contains clauses that do not represent his real will. What measures can the employer take in such cases under Hungarian labour law? Is the employee expected to point out the error? The recent judgement of the Hungarian Supreme Court answers these questions.Read more »