Hungarian profile - dispute mechanisms, settlement and arbitration

The Structure of the Civil Court System

In Hungary there are four levels of Courts: Local Courts (municipal and district Courts), County Courts (including the Metropolitan Court), Court of Appeal and the Supreme Court. Each court has separate civil law and criminal law divisions. In a civil law case, a case may be initiated before a Local Court or before a County Court. In Local Court cases, the county or Metropolitan Court is the relevant court of appeal, whilst in other cases the Court of Appeal is the appellate body. In exceptional cases the parties may, jointly, appeal directly to the Supreme Court. In certain and very restricted cases, judicial review may be applied for at the Supreme Court against the final and binding decision. As far as jurisdiction and competence of a Court is concerned, all lawsuits belong to the jurisdiction of Local Courts unless otherwise delegated to the sphere of authority of a County Court. The County Courts also have jurisdiction for actions in the sphere of property law if the value exceeds five million Hungarian Forints (with the exception of those concerning indemnification for expropriation), copyright actions, patent actions, actions for revision of a decision of a business association and actions for illegal utilization of a registered trade name (name of a firm). In international commercial disputes according to the newly modified Act regarding Conflicts of Law ("Conflict of Law Act"), Hungarian courts may now generally have jurisdiction in every case if the defendant's registered office, place of business or representative office (or place of permanent residence or usual place of abode) is located in Hungary unless the Conflict of Law Act states the contrary. The Hungarian court also has jurisdiction if one of several defendants has a registered office in Hungary provided that the defendants will be co-defendants in the litigation or if the decision would apply to all the defendants regardless of their involvement in the proceedings. Defendants who do not have a registered office in Hungary may be party to proceedings before a Hungarian court if the defendant has property/assets in Hungary. The parties are free to agree upon jurisdiction with regard to employment and consumer agreements provided that the choice of jurisdiction: shall not result in actions brought against consumers or employees in any court other than courts where the consumer's or employee's permanent residence or place of abode is located; and shall not preclude consumers from bringing an action before the courts of the country where his place of residence or usual place of abode is located or employees from bringing an action before the court of the country where they usually work. Hungary civil procedure follows the inquisitorial system, whereby the judge decides on questions of fact and law. The judge may also ask for the opinion of an expert. However, the judge has the power to evaluate the report of an expert. There is no jury system in Hungary, although, there are certain cases, albeit limited, when a professional judge sits in Court with two lay assessors (for example claims in Family law and in Employment law).

Costs of Proceedings

Costs of proceedings are all costs incurred either in or out of Court in relation to the practical and bona fide conduct of the parties. The Court should decide on costs of proceedings in its judgement or in any other ruling terminating the procedure. The defeated party must refund the costs of the prevailing party as determined by the Court taking into consideration the duly certified data provided. Costs may not be charged subsequently.

Enforcement of judgement

In Hungary, once a judgement has been made a party may seek its enforcement. The winning party may ask the Court for a charging order, or in special cases, the notary public may give such an order. Enforcement is effected by the executor of the competent Court. Alternatively, the winning party may use the Court judgement to commence bankruptcy or insolvency proceedings against the losing party if satisfaction of the judgement has not been obtained. With the accession of Hungary to the EU, enforement of judgements will take place according to the Regulation 44/2001/EC

Enforcement of foreign decisions

There must be a Treaty or reciprocal arrangement between Hungary and another country for Hungarian courts to recognize and enforce foreign judgements. An exception to this rule is effective from 1 May 2001, which says that if the parties have agreed upon the place of jurisdiction where the judgement was issued then no Treaty or arrangement is necessary. However this exception only relates to general commercial contracts (for example it excludes guardianship or employment agreements). The recognition of a foreign judgement does not entail special recognition proceedings. Interested parties may still request that the court establish special proceedings to decide whether or not the foreign decision can be recognised in Hungary. With regard to the EU member states: with the accession of Hungary to the European Union, in accordance with Regulation No. 44/2000/EC (the regulation which takes over the Brussels Convention) all judgements taken in any EU memberstates can be enforced in Hungary.

Mediation

As of March 2003 Act LV of 2002 on Mediation, came into force. This area has not yet been regulated any time before in Hungary. The scope of the Act is to provide a dispute resolution procedure for parties to a conflict with the participation of a third party mediator and to assist the parties in concluding a settlement agreement in relation to the dispute. However, the range of the Act is limited, certain types of conflicts are excluded. Only listed practitioners may provide mediation services. The Ministry of Justice maintains a list of mediators licensed after an administrative procedure. Also, legal organisations (e.g. law firms) may be authorised to provide mediation services if mediation is registered among their activities in their deed of foundation and if they prove that they have an employee or a member who is registered as a mediator. The mediation procedure may terminate with the signing of a settlement agreement by the parties, and must be terminated if the procedure does not result in a settlement within 4 months from its commencement. The parties may freely initiate a court or arbitration procedure regarding the same conflict even after a settlement has been concluded, but there are restrictions on the ability of the parties to refer to information acquired in the mediation procedure in the court or arbitration procedure.

Arbitration

Since litigation in Hungary can be timeconsuming, many commercial contracts include provisions for arbitration as a means of resolving disputes. Hungary is a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. As such, an arbitration award made (in accordance with the 1958 New York Convention) outside Hungary can be enforced directly in Hungary, and vice-versa: a judgement of a Hungarian Arbitration Court can be enforced directly in other member states of the 1958 New York Convention. The rules of arbitration, including the relationship between the Court system and the arbitration system is governed by Act LXXI of 1994 on Arbitration. The Arbitration Act contains provisions on ad hoc arbitration and also on permanent institutional arbitration. The most popular permanent arbitration body is the Court of Arbitration attached to the Hungarian Chamber of Commerce and Industry.

For further information please contact Gabriella Ormai.