Hungary: New rules on standard terms and conditions

Hungary: New rules on standard terms and conditions

With effect from 1 March, 1998 changes have been made to Act IV. of 1959 (the "Civil Code") which governs, inter alia, the Hungarian rules of contract. The previous regulations on standard terms and conditions and unconscionable terms have been extended and clarified, with the emphasis being on protecting the consumer.

The new provisions define a standard term as one which one of the contracting parties determines unilaterally and in advance, in order to use the term in several contracts provided that the other party does not participate in determining the term.

Under the new rules a standard term will only be validly incorporated into a contract if the party using the term enabled the other party to familiarise himself with the term and the other party accepted the term, either expressly or by implication. In addition, there is an obligation to notify the other contracting party of the standard term if it significantly differs from usual contractual practice, or from statutory provisions on the particular type of contract or if it differs at all from any term previously used by the parties. In such a case the standard term will only be validly incorporated into the contract if, following such notification, the other party expressly accepts the term.

If there is any difference between a standard term and another term of the contract, the latter will be incorporated.

Any contractual party may challenge a standard term on the basis that it is unfair. In addition, if the term was used by a company, a separate organisation to be announced later (this will presumably be the Consumer Protection Authority) may also initiate such a challenge. If such a claim is upheld by a court, the standard term in question will be void in all the agreements concluded by the defendant, other than those already performed.

In addition, even if a contractual term does not qualify as a standard term, it may be challenged by a consumer on the basis that it is unfair, if the agreement is between a company and a consumer.

A term will be deemed to be unfair if it regulates the parties’ contractual rights and obligations in a "one-sided and unreasonable way, to the detriment of one of the parties", in breach of good faith. Regulating the rights and obligations in a one-sided and unreasonably detrimental way means, in particular, if the term significantly differs from statutory provisions on the particular type of contract or is irreconcilable with the subject or the purpose of the contract.

In judging whether a term is unfair, all the circumstances around the conclusion of the contract must be examined, as well as the nature of the services to be provided and the relationship between the term in question and the other terms of the contract. The Act refers to a separable rule of law to be announced which will list terms which will be deemed to be unfair in consumer agreements and those which will be deemed to be unfair until the opposite is shown.

There is one liberalising factor among the strict rules: the rules on unfair terms cannot be applied to a term defining the product or service to be provided and the consideration, if its wording is clear for both parties. This means that price clauses should not be challenged. A further new provision aimed at the protection of consumers states that in case a contractual term between a company and a consumer is unclear and its meaning cannot be ascertained by examining the presumed intentions of the parties and the circumstances of the contract, then the interpretation most in favour of the consumer must be used.

Finally, the basic rule on exclusion clauses and the restriction of liability has been extended. The general rule remains that liability for contractual breach may not be excluded or restricted unless this is accompanied by a respective reduction of the consideration payable or the provision of some other advantage to the person against whom the exclusion or restriction clause is being enforced.

On the basis of the above, companies are advised to carry out a thorough review of their standard terms and conditions used in Hungary.