22
Thu, Feb
62 New Articles

Is There a Deadline for Asking the Judge to Reduce Penalties in Hungary?

Is There a Deadline for Asking the Judge to Reduce Penalties in Hungary?

Hungary
Tools
Typography
  • Smaller Small Medium Big Bigger
  • Default Helvetica Segoe Georgia Times

Under Hungarian law the judge can reduce the amount of the contractual penalty if it is excessive. The penalty reduction shall be expressly requested by the defendant during the litigation. Can the defendant submit such request at any time during the litigation, or is there any deadline for that? In a recent decision, the Hungarian Supreme Court addressed this issue.

Facts

On 28 August 2017, the plaintiff („Plaintiff”) as a client and the defendant („Defendant”) as architect concluded two design contracts (“Contracts”), in which they agreed on a 60-day deadline for the preparation and submission of permit design documentations for two projects.

The Contracts specified penalties in case of the late performance by the Defendant.

The Defendant fulfilled its contractual obligations under Contracts but with considerable delays.

Statement of claim of the Plaintiff and defence of the Defendant

The Plaintiff brought an action against the Defendant in which he claimed late performance penalties for the delays in the deliveries of the permit plans and the deliveries of each construction plans.

The Defendant's statement of defence was for the dismissal of the Plaintiff’s action.

In the preparatory phase of the litigation, the Defendant argued that the Plaintiff's failure to inform him of the data necessary for the design in due time constituted an intermediate breach of Contracts and it prevented the defendant from performing within the deadline. Consequently, he shall not pay any late performance penalty.

Later, at the trial phase of the litigation, the Defendant also requested reduction of the penalty of late performance claimed by the Plaintiff, arguing that the amount of the penalties significantly excessive even though the Defendant had fulfilled its contractual obligation.

First Instance Court

The first instance court (“First Instance Court”) founded the late performance penalty claims well-founded but reduced their amounts.

It held that the amount of penalty of late performance claimed by the Plaintiff, was grossly excessive and was not compatible with the Hungarian Civil Code and reduced them.

Second Instance Court

Following appeals by both sides, the second instance court (“Second Instance Court”), amended the first instance decision and awarded the penalty claims fully.

The Second Instance Court held that the Defendant’s request for reduction of the penalty had been introduced lately, only in the trial phase of the litigation. Since in the trial phase, the statement of defence can be modified only in exceptional circumstances, which was not the case, the Defendant could not introduce a request for reducing the penalties.

Request fort judicial review

The Defendant submitted a request for judicial review against the final judgment, arguing that according to the Civil Procedure Code (“CPC”), the request for the reduction of the penalty could not be regarded as an amendment of the statement of defence, but a "different legal argument" which could be submitted at any time during the procedure.

Hungarian Supreme Court

The Supreme Court rejected the Defendant’s requests for judicial review.

According to the Supreme Court, the request for a reduction of the penalty shall be considered as an additional substantive law objection which is considered as an amendment of the statement of defence.

The Supreme Court pointed out that, while the Defendant's defence of the Plaintiff's intermediate breach of contract would have excluded entirely the right enforced by the Plaintiff, the reduction of the penalty was intended only to (partially) terminate the right asserted by the Plaintiff. For this reason, these substantive law objections were different.

However, during the trial phase of the proceedings, the Defendant can modify its statement of defence under exceptional circumstances, which were not met in this case, consequently, the Defendant’s request for the reduction of the penalties was not admissible. Therefore, the Supreme Court upheld the final judgment in its part challenged by the judicial review.

Takeaways

The new Civil Procedure Code has significantly modified the rules governing Hungarian litigations, sanctioning severely the delays of the parties. Hungarian Courts tend to interpret these provisions strictly; therefore, Defendants should carefully consider the proper timing of introducing penalty reduction claims in Hungary.

By Richard Schmidt, Partner, and Peter Korozs, Attorney-at-law, SmartLegal Schmidt & Partners

Hungary Knowledge Partner

Nagy és Trócsányi was founded in 1991, turned into limited professional partnership (in Hungarian: ügyvédi iroda) in 1992, with the aim of offering sophisticated legal services. The firm continues to seek excellence in a comprehensive and modern practice, which spans international commercial and business law. 

The firm’s lawyers provide clients with advice and representation in an active, thoughtful and ethical manner, with a real understanding of clients‘ business needs and the markets in which they operate.

The firm is one of the largest home-grown independent law firms in Hungary. Currently Nagy és Trócsányi has 26 lawyers out of which there are 8 active partners. All partners are equity partners.

Nagy és Trócsányi is a legal entity and registered with the Budapest Bar Association. All lawyers of the Budapest office are either members of, or registered as clerks with, the Budapest Bar Association. Several of the firm’s lawyers are admitted attorneys or registered as legal consultants in New York.

The firm advises a broad range of clients, including numerous multinational corporations. 

Our activity focuses on the following practice areas: M&A, company law, litigation and dispute resolution, real estate law, banking and finance, project financing, insolvency and restructuring, venture capital investment, taxation, competition, utilities, energy, media and telecommunication.

Nagy és Trócsányi is the exclusive member firm in Hungary for Lex Mundi – the world’s leading network of independent law firms with in-depth experience in 100+countries worldwide.

The firm advises a broad range of clients, including numerous multinational corporations. Among our key clients are: OTP Bank, Sberbank, Erste Bank, Scania, KS ORKA, Mannvit, DAF Trucks, Booking.com, Museum of Fine Arts of Budapest, Hungarian Post Pte Ltd, Hiventures, Strabag, CPI Hungary, Givaudan, Marks & Spencer, CBA.

Firm's website.

Our Latest Issue