1. LEGAL SYSTEM

Hungary has been traditionally considered to have a “continental” legal system, in which the main source of law comes from acts adopted by the Parliament, rather than case precedents made by the courts. The major governing principles of the Hungarian legal system are set forth in the Constitution Act enacted on 25 April 2011.

The Constitution Act replaced the previous Constitution that had been in force since 1949, and which had undergone several significant amendments and revisions. The Constitution Act reflects a democratic basis of government. As a member of the European Union since 2004, Hungary has the continuing obligation to ensure that all Hungarian laws and subordinated pieces of legislation are in accordance with acquis communautaire.

A completely renewed and restructured Act No. CXXX. of 2016 on Civil Procedures (Civil Procedural Act) entered into force on 1 January 2018 which contains the relevant procedural rules for civil lawsuits. Court decisions are generally not deemed as binding case precedents, but are often referred to in litigation to strengthen the grounds of the parties' respective positions. It is the responsibility of the Curia (playing the role of the Supreme Court of Hungary) to lay down uniform guidelines for the lower level courts in the judicial hierarchy. As part of this function, the Curia adopts harmonized decisions and publishes all its rulings. A harmonization procedure shall be conducted if (a) a harmonized decision is required in a matter of doctrine to achieve improvements in precedent cases or for the approximation of sentencing policies; or (b) a panel of the Curia intends to deviate from a legal issue in a decision adopted by another adjudication of the Curia.

The Hungarian civil court system is divided into three levels in terms of ordinary litigation proceedings: local courts (járásbíróság), county courts (törvényszék) and courts of appeal (ítélőtábla). This hierarchy prevails in both civil and criminal law cases. The Curia, in addition to its competence described in the preceding paragraph, serves as an extraordinary forum to judge supervisory review requests submitted against final and binding civil judgments on an exceptional basis.

Local courts have jurisdiction to decide in first instance on (a) matters with a case value not exceeding HUF 30 million (except a statutory list of matters set out in the Civil Procedural Act, i.e. copyrights and related rights matters, industrial property rights matters, claims for damages caused by public servants, certain types of litigations related to corporate law actions, etc.); (b) matters concerning the status of a person; and (c) lawsuits related to enforcement.

Special courts of public administration and labour law are, in first instance, exclusively dealing with litigations arising from (a) labour law relations; and (b) the challenge of final decisions of public administrative organs.

County courts, in first instance, are considered as courts with general competence, meaning that local courts have competence only in procedures listed in the Civil Procedural Act. County courts, as second instance forum, are competent to decide on appeals submitted against the judgments of (a) local courts; and (b) courts of public administration and labour law. County courts allocate cases, by their nature, to criminal, civil, commercial, labour law and public administrative panels acting within their organisation.

Courts of appeal, in civil procedural cases, act as a second instance forum to decide on appeals submitted against the first instance judgments of county courts.

Generally, the ordinary remedy available to a party is to appeal against the first instance judgment to a court of second instance. There is no ordinary remedy against the second instance court’s decision. In other words, the judgments of second instance courts are final, non-appealable and binding. Only an extraordinary legal remedy is available (felülvizsgálati kérelem) to challenge such a decision before the Curia. To achieve this, the Curia grants an extraordinary remedy (typically the annulment or alteration of the first and/or second instance judgment). The applicant must evidence that a material breach of substantive law has occurred, or certain fundamental procedural rules have been breached.

On the basis of general experience, it may be stated that first instance procedures in civil cases last between 8 (eight) to 18 (eighteen) months, but this duration may be exceeded in more complex cases (in particular when expert evidencing is required).

The Civil Procedural Act introduces a divided process structure - in time and function - during the first instance procedures. Namely, the procedure is divided into two consecutive parts: (a) first the preparatory phase (perfelvételi szak) and then (b) the hearing / evidencing phase (érdemi tárgyalási szak). The purpose of the preparatory phase is to identify the substance and the procedural framework of the legal dispute and hence to facilitate the decision-making process in the hearing / evidencing phase. In the course of the preparatory phase, the parties have to make their full statements of facts and law, make all procedural motions and submit their available evidence. All these statements and matters will be heard at a preparatory hearing where further statements will be possible, but once the preparatory hearing is closed, statements and motions will not be altered. When the court closes the preparatory phase it is bound by its resolution thereon. The hearing / evidencing phase continues on the basis of such established statements and motions and its function will be to hear and decide on evidence.

Under the Civil Procedural Act, parties must fully support the expeditious conduct of the procedure, must make their statements and submit their evidence in a timely manner and in good faith, and their statements must reflect the truth. Failure to observe these rules may result in fines and other sanctions.

The principle and specific rules of active judge control authorize judges to efficiently apply all reasonable tools to expedite the procedure, in particular to clarify contradictions between a party's statements, call parties to supplement their statements, give directions on evidencing matters, set the legal frameworks of the case and promote appropriate exercise of the parties' procedural rights.

The Civil Procedural Act provides an efficient tool to the claimant in order to safeguard its rights and interests in cases where time is of the essence. As a new legal instrument, a request on interim measures can be filed before the full statement of claim is submitted to the court, provided that the claimant demonstrates that any delayed order on interim measures would render the purpose impossible. However, it is a precondition of continuing effect of the interim measure that the claimant submits its full statement of claim and commences the litigation procedure.

The Civil Procedural Act lays down the specific rules for class-actions (társult per) and defines also the scope of application, such as (a) claims arising out of consumer contracts; (b) labour disputes; and (c) certain environmental claims. At least ten claimants may pursue claims on grounds of the same rights and facts. The claimants are required to file a request for class-action in the statement of claim, which has to be approved by the court. Before the launch of class-actions, the claimants have to conclude a contract in respect of the class-action; the content of which is determined in detail in the Civil Procedural Act.

In general, legal representation during the procedure is mandatory unless otherwise provided by law. However, legal representation is not mandatory in case of lawsuits belonging to the local courts' competence.

The Civil Procedural Act introduces the "private expert" concept, meaning that, if a professional aspect of the case has to be examined, a party may decide to appoint a private expert to support its case. However, the party appointing the expert must contact the opposing party as well in order to produce a neutral and unbiased expert report on technical matters.

Litigation costs mainly consist of stamp duties, party counsels' fees and costs of expert opinions, evidencing actions and translations/interpreters. Generally, stamp duties, payable in advance at the outset of the case, are equal to 6% of the amount in dispute subject to a cap of HUF 1.5 million. Appeals against first instance judgments in general carry a stamp duty of 8% of the amount in dispute subject to a cap of HUF 2.5 million. In case of challenging a judgment before the Curia, in general a stamp duty of 10% of the amount in dispute shall be paid subject to a cap of HUF 3.5 million.

In addition to the above, Act No. I of 2017 on Public Administration Procedures, which entered into force on 1 January 2018, is specifically tailored to public administration disputes.

Not part of the ordinary litigation system, Hungary's Constitutional Court is responsible for interpreting the provisions of the Constitution and supervising the continued conformity of laws adopted under the Constitution.

Business crime offences in general include bank fraud, bribery, blackmail, counterfeiting, embezzlement, forgery, insider trading, money laundering, tax evasion and antitrust violations, and are most often committed for illegal monetary gain. Although the importance, volume and complexity of such criminal cases have shown increasing trends over the past 5 to 6 (five to six) years, the ratio of such offences within the overall criminal statistics does not qualify as outstandingly significant. Certain trends have been clearly visible in recent years: commercial entities use more and more the legal tool of criminal reports against suppliers, competitors and business partners; while banks are turning their growing attention from client frauds to internal frauds.

In business crime matters the instrument of plea bargaining has a greater significance than in general criminal cases to counter-balance the often very high degree of difficulties and inefficiency of investigation work in business crimes.

It is a fundamental peculiarity of business crime matters that, unlike in general criminal cases, the suspected person is formally charged only at a late stage of the police investigation, and the overwhelming amount of the investigation work (witness interrogations, collection of evidence, expert work) is completed before such formal charge is notified. This gives the police more room for timing and planning the strategy of the case.

Criminal cases typically commence with a criminal report filed with the competent police or the prosecutor's office. The police then decide whether to (a) order an investigation; (b) request more information; or (c) reject the report. In business crime matters, due to their complexity and technical elaboration, it is essential that the criminal report is prepared by legal experts of the particular business field in order to give a proper description and legal ammunition to the police to enable them to successfully proceed with the case. Reports prepared improperly are often rejected without any investigation on the merits, due to the police's lack of adequate and in-depth knowledge of the particular business.

If an investigation is ordered, the police will take the procedure forward. When all relevant investigation actions are completed (such as collection of documents, hard drives, interrogation of the injured party, witnesses, expert work) the police formally closes the investigation and refers the file to the prosecutor with a proposal to formulate a charge. The prosecutor (who usually supervises the entire investigation work) will decide whether a charge is properly grounded. If so, the prosecutor prepares and files the bill of indictment with the competent court. It is the court that finally judges the indictment.

The first stage of a criminal process is investigation. This is conducted by the competent bodies of the police or the national tax and customs authority. Business crimes are usually investigated by the local police department or, in high value cases, the county police departments. In the event of organised crime, country-wide crimes or in highly specialised fields the investigation is conducted by the specialised investigation office of the national police headquarters. In addition, certain business crimes are investigated by the central criminal directorate of the national tax and customs authority.

The public prosecutor overviews and supervises the process of investigation. Once the investigation is closed and the file is transferred from the police (or the national tax and customs authority) to the public prosecutor, it will decide whether to (a) formally submit a charge to the competent first instance court; (b) refer the file back to the police for supplementary investigation; or (c) drop the charges.

The Hungarian criminal court system is divided into three levels in terms of ordinary criminal procedures: local courts (járásbíróság), county courts (törvényszék) and courts of appeal (ítélőtábla). In addition, the Curia acts in certain cases as a third level of appeal. Similarly to civil litigation proceedings, a usual criminal court case consists of two instances, and the final and binding judgment is adopted by the second instance court. As an exception, if the first and second instance judgments are completely contradictory to each other, only in respect of finding or not finding the charged person guilty, an appeal is possible to the third instance court, which then adopts the final and binding judgment.

There is no ordinary remedy against the second or third instance court’s decision. In other words, these judgments are final, non-appealable and binding. Only an extraordinary legal remedy is available (felülvizsgálati kérelem) to challenge such a decision before the Curia. To achieve this, the Curia grants an extraordinary remedy (typically the annulment or alteration of the previous judgments). The applicant must evidence that a material breach of substantive law has occurred, or certain fundamental procedural rules have been breached.

The injured party (typically the person filing the criminal report with the police) has a legitimate right to pursue civil law claims to recover the damages that it suffered as the consequence of the business crime offence. Such a claim may be presented in the criminal proceedings free of any charges or duties (excluding legal fees of counsel). In order to secure such claims the investigation authority may order a freeze over bank accounts or assets or other means of security.

The injured party's best tool to expedite its interests in the criminal proceedings is to retain highly qualified legal advisors experienced in the field of commercial law and business crime. Such advisors will keep in contact with the relevant authorities to gain up-to-date knowledge on the status of the proceedings, and they can present motions to accelerate the case and to improve the chances of recovery of the damages caused by the criminal offence. It is important that a criminal report, once filed with the police, may no longer be withdrawn, and therefore this cannot be a tool of settlement with the criminal offender.

The investigation stage of the proceedings lasts in general 1 to 2 (one to two) years, subject to the complexity of the case. After a lapse of 1 (one) year the prosecutor introduces a more scrutinised control and supervision over the investigation process. After a lapse of 2 (two) years, the investigation must be closed. All such deadlines start from the first interrogation of the suspect. Given that suspects are usually interrogated for the first time in a late stage of the investigation, the duration of the investigation may in practise be significantly extended.

Following the completion of the investigation the procedural stage before the prosecutor's office may last 30 (thirty) days to 6 (six) months. Court cases usually terminate after a period of up to 3 (three) years.

All costs of the criminal proceedings (in particular, expert fees) are advanced by the state, and are finally borne by the charged person if found guilty at the completion of the court case. If the investigation is cancelled, the charge is dropped or the charged person is released due to lack of any criminal offence or insufficient evidence, all costs are finally borne by the state (and not the injured party which filed the criminal report).

Business crimes are criminal offences of public prosecution (and not private), and the injured party which files the criminal report in such cases does not have to pay any stamp duties.

The Act No. XLIX of 1991 on Reorganization Proceedings and Liquidation Proceedings (Insolvency Act) originally entered into force on 1 January 1992 and has been amended from time to time.

Hungarian insolvency law distinguishes between two kinds of insolvency proceedings: reorganization proceedings (csődeljárás) and liquidation proceedings (felszámolási eljárás).

A debtor's petition for reorganization proceedings is an attempt to reorganize the business of a financially solvent debtor, which is experiencing financial turbulences. The reorganization proceeding is aimed at granting a temporary relief (payment moratorium) for 120 (one hundred and twenty) days or 240 (two hundred and forty) days (if agreed by the creditors) to the debtor for performing its financial obligations and achieving an arrangement with the creditors. Reorganization proceedings do not necessarily lead to the debtor's termination. On the contrary, if the creditors are willing to co-operate with the debtor and support the reorganization agreement, the debtor goes back to its ordinary course of business. On the other hand, if the reorganization proceedings do not conclude in a reorganization agreement, the reorganization proceedings will automatically be converted into liquidation proceedings.

The aim of liquidation proceedings is to liquidate the assets of an insolvent debtor, to satisfy the creditors' claims, and ultimately to terminate the debtor without legal successor. In Hungary, liquidation is more common than reorganization and is used primarily to satisfy creditors' claims where a company seems to be insolvent.

The usual scenario of a liquidation proceedings consist of three stages:

-in the first stage the creditor files its request with the competent court for the debtor's liquidation. Thereafter, the court investigates the financial standing of the debtor. The first stage ends, when the court renders its decision and orders the commencement of liquidation proceedings;

-the second stage commences when the court publishes its decision about the commencement of the liquidation proceedings in the Company Gazette. During the second stage the court-appointed liquidator liquidates the debtor's assets. At the end of the second stage, the liquidator submits to the court the final liquidation balance sheet with his/her proposal for the distribution of the debtor's assets;

-in the third stage the court examines and decides on the final liquidation balance sheet and the liquidator's proposal for the distribution of the debtor's assets. Simultaneously it orders the termination of the debtor without legal successor and closes the liquidation proceedings.

The debtor itself and its creditors have the right to file a petition for liquidation with the competent court. In some cases the court may commence liquidation proceedings ex officio following unsuccessful reorganization proceedings, or upon the request of the company courts or the criminal courts. If the liquidation proceedings were initiated by the company itself or by the creditors the legal representation of the petitioner is mandatory.

Most commonly creditors initiate liquidation proceedings against their debtor. In such cases the court examines the request made by the creditor and orders the commencement of liquidation proceedings against the debtor, if, according to the documents filed by the creditor:

-the debtor failed to settle or dispute its previously undisputed or acknowledged respective payment obligation within 20 (twenty) calendar days from its due date and following the expiration of such date it has failed to satisfy such obligations upon receipt of the creditor’s written demand note;

-the debtor failed to settle its payment obligations within the deadline set forth in a final and binding judgment;

-enforcement proceedings against the debtor were unsuccessful; or

-the debtor did not fulfil its payment obligations set out in a reorganization agreement or a settlement agreement in reorganization proceedings or liquidation proceedings, respectively.

If the liquidation proceedings are requested by creditors, creditors must prove that the debtor is insolvent, by indicating the title, the amount, the due date of the underlying overdue payment obligations of the debtor (i.e., claims against the debtor) and specifying the reasons for the debtor’s alleged insolvency. The nominal amount of the creditor’s claim must exceed HUF 200,000 in order to form the basis of a request for the commencement of liquidation proceedings.

In order for a claim to qualify as the basis for the commencement of liquidation proceedings against a debtor, various timing requirements must be observed for sending demand notes to the debtor and granting a final cure period to the debtor for the payment of the underlying claim. The demand note sent to the debtor must, inter alia, indicate the title, amount and the due date of the claim and must specify the final deadline after which the creditor intends to file a petition for liquidation in the event of non- compliance.

Typically, the debtor’s assets are sold to the highest bidder, via auction sales or public tenders by the liquidator. Both forms of sale process take place electronically.

Creditors' claims are ranked in the order of priority prescribed by the Insolvency Act; however claims which are secured will enjoy priority in satisfaction irrespective of such order.

The procedural fee for filing a petition for liquidation amounts to HUF 80,000 if the debtor is a company with legal personality, such as limited liability companies (Kft. or korlátolt felelősségű társaság) and public or private companies limited by shares (Nyrt. or nyilvánosan működő részvénytársaság and Zrt. or zártkörűen működő részvénytársaság). If the debtor is a company without legal personality such as partnerships (Kkt. or közkereseti társaság and Bt. or betéti társaság) the procedural fee amounts to HUF 30,000. The publication fee for the liquidation proceedings amounts to HUF 25,000, irrespective of the debtor's legal personality.

In liquidation proceedings initiated by the debtor, the court orders the commencement of liquidation proceedings, if the debtor has liabilities, the amount of which exceeds the value of its assets, or the debtor is unable or presumably will not be able to settle its debt on the respective due date, and the shareholders of the debtor fail to guarantee the funds necessary to overcome such financial shortfalls.

In both proceedings, creditors may form a creditors' committee for the protection of their interests, the representation before the competent court, and especially to keep monitoring the activities of the administrator (vagyonfelügyelő) and the liquidator (felszámoló).

In addition, in both proceedings the most effective procedural tool available for creditors is the objection. By way of filing an objection with the competent court, diligent creditors may contest any unlawful acts or omission of the administrator or the liquidator (in practice, typically the classification of other creditors' claims).

Arbitration has had a growing significance over the past two decades. An increasing number of contracting parties, in particular those active in the construction and energy industry, have submitted their disputes to arbitration in recognition of the advantages of these procedures. Timely process, efficiency, confidentiality and the freedom to appoint arbitrators with particular professional knowledge and expertise are the most commonly listed advantages of arbitration. The relatively high costs of arbitration are often referred to as a key disadvantage. The final and binding nature of arbitral awards (i.e., that no appeal is available) is seen as a disadvantage predominantly in the public sector.

Arbitration in Hungary is governed by Act No. LX. of 2017 on arbitration (Arbitration Act) which entered into force on 1 January 2018. The re-tailored Arbitration Act closely follows the UNCITRAL Model Law as amended in 2006. The Arbitration Act applies to both domestic and international commercial arbitration proceedings.

The Arbitration Act introduces the institutional framework for Hungarian commercial arbitration on the basis of which the following permanent arbitration courts have been established:

-Commercial Arbitration Court with general jurisdiction in Hungary as the main institution dealing with arbitration;

-Sports Arbitration Court under the provisions of the Act on sports which is competent for the matters defined in such Act; and

-Arbitration Court for agricultural disputes which is attached to the Hungarian Chamber of Agriculture.

The above arbitration courts deal with domestic and international commercial disputes and have adopted their own rules of procedure which are fully compatible with the UNCITRAL Model Law and UNCITRAL Arbitration Rules.

Under the regime of the Arbitration Act, it is also possible to conduct ad hoc and international arbitration proceedings in Hungary.

Arbitration agreements must be in writing, and must contain the parties’ submission of their disputes, arising from their contract, to arbitration; either to a permanent institution or to ad-hoc arbitration. The arbitration agreement may be entered into on a stand-alone basis or as part of another agreement (i.e. arbitration clause). An arbitration agreement will only be valid if duly signed by all parties.

Arbitration agreements will also be valid if such agreements are included in a document separate from the parties’ contract, and the parties’ contract includes such arbitration agreement by express reference to that separate document, provided that the parties’ contract expressly sets out that the arbitration agreement in the separate document must be deemed part of the parties’ contract.

Arbitration agreements are also deemed to have been concluded in writing if the party alleges the existence of the arbitration agreement in its declaration to refer the dispute to arbitration or in its statement of claim, and it is not disputed by the other party.

There are a number of disputes that cannot be submitted to arbitration: those arising from consumer contracts, marriage, personal or family status and capacity, labour relations, false or defamatory press statements, and enforcement procedures.

In previous years severe statutory restrictions were in effect in respect of disputes arising from contracts that related to “national assets”. There was a comprehensive ban on arbitration in disputes, the subject matter of which were rights, claims or demands arising from civil law agreements governing “national assets” located on the territory of Hungary. “National assets” are assets under the ownership of the Hungarian State or the local municipalities, such as company shareholdings, rights with quantifiable value, emission quotas, the airspace above the territory of Hungary, etc. These legislative bans and prohibitions completely ceased to exist recently, and the full scope and powers of arbitration have been restored in the Hungarian legal system.

Arbitrators may issue a wide range of interim measures (including those devoted to preserving a situation of fact or law, to preserving evidence, to seizing assets or freezing bank accounts). Interim measures of arbitral tribunals are adopted in the form of orders (i.e. not awards). Such order will only be granted following the constitution of the tribunal (the emergency arbitrator instrument has not been introduced into the rules of the major arbitration institutions in Hungary). When requesting interim measures the party may also request preliminary measures. Preliminary measures may be capable of preventing the other party from frustrating the purpose of the interim measure. The provisions of the Arbitration Act explicitly stipulate that the above orders should be enforced in accordance with the rules of judicial enforcement (i.e. the same way as regular court orders).

The Arbitration Act reflects the UNCITRAL Model Law when it sets out that it is not incompatible with an arbitration agreement for a party to request, before or during arbitral proceedings, from a regular court an interim measure of protection and for a regular court to grant such measure. Accordingly, Hungarian state courts will accept applications for protective measures related to disputes that are submitted to arbitration. Nevertheless, courts are willing to grant such measures only if the arbitration is in process (i.e., the request for arbitration has already been filed), and it is hard to track down cases where the measure was granted prior to the launch of the arbitration process. It can therefore be concluded that the term "before […] arbitral proceedings" in the text of the Arbitration Act does not in fact grant a seamless route to a protective measure unless a request for arbitration has already been filed. Such measures may be ordered after the constitution of the arbitral tribunal, and the court ordered provisional relief will remain in force following the constitution of the arbitral tribunal.

The Arbitration Act sets out that an award must be in writing, and must be signed by the members of the tribunal. If one of the parties so requests, the award must contain provisions on the amount and allocation of procedural costs and expenses. The award must describe the reasons and grounds for the decisions, and must provide a proper justification of the decision. The date of the award and the seat of arbitration must be clearly shown. A copy of the award must be delivered to each of the parties. Interim or partial awards, if these satisfy the validity criteria set out for awards in the Arbitration Act, are enforceable

Arbitral awards cannot be appealed; only a request for setting aside can be filed with the state courts on grounds specifically listed in the Arbitration Act. These grounds are fundamentally identical with those listed in the UNCITRAL Model Law, and include:

-the party concluding the arbitration agreement had no legal capacity or capacity to act;

-the arbitration agreement is invalid;

-a party was not given proper notice of the appointment of an arbitrator, or of the arbitral proceedings or was otherwise unable to present its case;

-the award was made in a legal dispute to which the arbitration agreement did not apply or which was not covered by the provisions of the arbitration agreement;

-incorrect composition of the arbitral tribunal or the proceedings were not in accordance with the parties’ agreement;

-the subject matter of the dispute is not arbitrable under Hungarian law; or

-the award is in conflict with the rules of Hungarian public order.

Challenge proceedings before the state courts are usually completed at one single court hearing. It is exceptional that a second hearing is scheduled to further discuss complicated legal issues. Therefore challenge proceedings usually terminate within 3 to 6 (three to six) months.

If an arbitral award is challenged the court may stay enforcement upon the challenging party’s request, therefore stay of enforcement is not granted ex officio. The court will assess all circumstances relevant from the perspective of deciding the stay or leave to enforce. There are no statutory aspects or factors to consider; it is at the absolute discretion of the court to make the decision.

The Arbitration Act provides for the possibility of a retrial of arbitration matters within 1 (one) year following the receipt of the award, based on facts or evidence which were not taken into account during the original arbitration procedure for any reason not attributable to the party relying on them, provided that it could have resulted in a more favourable decision for this party.

Since Hungary is a member of the European Union, the rules of Council Regulation 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters apply in enforcement proceedings between EU Member States.

Under Act No. XXVIII. of 2017 on private international law, decisions of foreign courts and authorities adopted in third countries concerning matters not within the exclusive jurisdiction of Hungarian courts or authorities shall be recognized and enforced in Hungary, provided that: (a) the jurisdiction of the foreign court or authority is legitimate under the rules of Hungarian private international law; (b) the decision is considered as final and binding or has an equivalent effect according to the law of the foreign state in which the decision was rendered; and (c) none of the legal grounds of rejection prevails. In general, in case of commercial matters reciprocity between Hungary and the state of the foreign court or authority is required. Notwithstanding the aforesaid requirements, reciprocity is not required in commercial matters where the jurisdiction of the foreign court is based on the parties' submission to that jurisdiction which is in compliance with Hungarian law.

A foreign judgment will not be recognized if:

-it violates Hungarian public order;

-a party could not attend the proceedings either in person or by proxy, because the subpoena, statement of claim or other document which formed the basis for the proceedings was not properly served upon the individual or not served in a timely manner;

-prior to the commencement of the proceedings outside of Hungary, a Hungarian court or authority commenced proceedings on the basis of the same facts, same rights and between the same parties;

-a Hungarian court or authority previously adopted a final judgment or decision on the basis of the same facts, same rights and between the same parties; or

-a court of a foreign state, other than the state of the court adopting a final judgment or decision, previously adopted a final judgment or decision on the basis of the same facts, same rights and between the same parties which meets the domestic conditions of recognition.

Hungary is a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, with the reservations that the Convention will only be applied to disputes arising out of legal relationships, whether contractual or not, that are considered commercial under Hungarian law; and only to awards which were made in another contracting state. Hungary is also a party to the 1961 European Convention on International Commercial Arbitration.

Awards of arbitral tribunals will be directly enforceable through the judicial enforcement system. The concerned party will have to file an application to the competent court of the state and pay the statutory duties and fees, and the award will be enforced by the judicial enforcement officer in the same manner as state court judgements.

Enforcement may be opposed on the grounds that (a) the subject matter of the dispute was not capable of settlement by arbitration under the laws of Hungary; or (b) the recognition or enforcement of the award would be contrary to the public policy of Hungary.

Court proceedings related to arbitration fall into the exclusive competent of county courts (törvényszék).

The party opposing enforcement may request that the court stays enforcement. The court will assess all circumstances relevant from the perspective of deciding the stay or leave to enforce. There are no statutory aspects or factors to consider; it is at the absolute discretion of the court to make the decision.

2. LITIGATION

3. BUSINESS CRIME

4. INSOLVENCY

5. ARBITRATION

6. ENFORCEMENT OF FOREIGN JUDGMENTS AND ARBITRAL AWARDS

7. PRACTICE TIPS

PROCEDURE AND ASSUMPTIONS

TYPE OF PROCEEDINGS

PRACTICE TIPS

As a general rule documents and evidence must be produced by the party who wishes to rely on these. As a narrow exception the court may order the opposing party to produce documents provided that such documents are strictly specified in evidence, facts, or legal relations concerning the party that requested the document production. Document production cannot be a "fishing expedition" and is granted only in exceptional cases.

Document Production

Mandatory Representation

by Counsel

The stamp duty depends on the amount in dispute, as follows:

first instance: 6% of the amount in dispute, subject to a cap of HUF 1.5 million;

second instance: 8% of the amount in appeal, subject to a cap of HUF 2.5 million;

extra-ordinary remedies: 10% of the amount in dispute subject to a cap of HUF 3.5 million.

As a general rule, attorneys’ fees are subject to the engagement letter between the client and the attorney. In the absence of an engagement letter or if the court believes that the legal expenses are overstated, the court will decide on the attorney fees in accordance with a statutory provision amounting to 1-5% of the value of the case.

Approximate Costs

COURT FEES

ATTORNEYS’

FEES (NET)

In general, legal representation during the procedure is mandatory unless otherwise provided by law. However, legal representation is not mandatory in case of lawsuits belonging to the local courts' competence.

class actions

-Litigation stamp duties do not include attorney fees.

-Stamp duties must be paid simultaneously with filing a statement of claim.

-Stamp duties will be borne by the losing party.

-In the event of a partial win, the costs for both sides are divided on a pro-rata basis.

-Courts usually do not award the winning party's full legal expenses, and therefore these ex- penses are seldom recovered in full.

jury trials

Approximate Duration

The Civil Procedural Act lays down the specific rules for class-actions (társult per) and defines also the scope of application, such as (a) claims arising out of consumer contracts; (b) labour disputes; and (c) certain environmental claims.

Simple cases: first instance: 1 year; second instance: 6-12 months; extra-ordinary remedies (significant new facts or violation of proceeding rules): 6-12 months.

Complex cases: first instance: 1 to 2½ years; second instance: 1 year; special remedies (significant new facts or violation of proceeding rules): 12-18 months.

-The duration of proceedings may depend on the competent court.

-Longer proceedings can be expected at those courts with heavy workloads, such as the Metropolitan Court.

Yes. The Hungarian state provides legal aid to people who cannot afford a legal representative.

STANDARD CIVIL PROCEEDINGS

There are no jury trials in Hungary.

Pro Bono System

It is not mandatory for an injured party to retain a legal counsel, but in practice this is highly advisable to promote their interests and to improve the chances of recovery of damages caused by the criminal offence.

APPROXIMATE COSTS

Court Fees

ATTORNEYS’

FEES (NET)

All documents are collected by the investigation authority ex officio. They may request the production of documents from the suspect, the witnesses and the injured party.

Investigation stage of proceedings: 1 to 2 years (subject to the complexity of the case).

Procedural stage before the prosecutor's office: 30 days to 6 months.

Court cases usually terminate after a period of up to 3 years.

class actions

There are no jury trials in Hungary.

There are no class actions.

Approximate Duration

jury trials

Document Production

All costs of the criminal proceedings (in particular expert fees) are advanced by the state and are finally borne by the charged person if found guilty.

As a general rule, attorneys’ fees are subject to the engagement letter between the client and the attorney.

Pro Bono System

Yes. The Hungarian state provides legal aid to people who cannot afford a legal representative.

Business Crime

Mandatory Representation

by Counsel

Preliminary Injunction Proceedings

Evidence taken by a public notary can be utilized in a litigation proceeding as evidence taken by a court. Public notaries are entitled to appoint an expert if special expertise is needed. After filing a claim, only the competent court is entitled to proceed.

The public notary’s fee is based on hourly rates in preliminary evidencing procedures:

Simple cases: (without expert appointment): EUR 200 – EUR 300, according to general practice experience.

Complex cases (with expert appointment):

EUR 400 – EUR 600, according to general practice experience.

Court fees: Standard civil proceeding rules apply.

Subject to the engagement.

After a preliminary evidencing procedure, the court fee is reduced to 50%.

A request on interim measures can be filed before the full statement of claim is submitted to the court, provided that the claimant demonstrates that any delayed order on interim measures would render the purpose impossible. Besides this, preliminary evidencing is also possible.

Generally, a decision on a request for a preliminary evidencing is rendered a few days after filing the request with the public notary or between 1 day and 2-4 weeks after filing the request with the competent court.

APPROXIMATE COSTS

ATTORNEYS’

FEES

Approximate Duration

The average duration of arbitration proceedings is between 5 months and 1½ years.

Arbitration Proceedings

Procedural rules of Hungarian arbitration institutions do not contain detailed rules on document production. The tribunal and the parties may agree on the scope and order of document production, either by setting up specific rules or by reference to the IBA Rules on the Taking of Evidence in International Arbitration.

Document Production

The costs of the procedure are contained in the Rules of Procedure. In case of the annulment of an arbi- tral award before the state courts, the procedure is subject to stamp duty: 1% of the amount up to a cap of HUF 250.000.

The arbitration fee depends on whether an arbitral tribunal or a sole arbitrator is appointed. The arbitra- tion fee includes the registration fee, arbitrators’ fee and administrative costs and the state duty. The ar- bitration fee does not include other cost incurred by the Arbitration Court, e.g., experts’ and interpreters’ fees.


Subject to the engagement.

Approximate Duration

APPROXIMATE COSTS

Procedural Costs

ATTORNEYS’

FEES (NET)

Enforcement of Foreign Judgments and Arbitral Awards

Stamp duty in proceedings before the enforcement officers of local courts: 1% of the enforceable amount subject to a cap of HUF 350,000.

Stamp duty in proceedings before the enforcement officers of county courts: 3% of the enforceable amount subject to a cap of HUF 750,000.

Fees of the enforcement officer are set out in a statutory rule of law. It is subject to the enforceable value, and is determined by a reducing percentage of the value starting from 3% for values between HUF 100,000 and HUF 1 million, to 0.5% for values exceeding HUF 10 million. In addition, the enforcement officer is entitled to the reimbursement of costs based on itemized costs plus a lump sum cost (50% of the fees set out above).

Subject to the engagement.

APPROXIMATE COSTS

COURT FEES

ATTORNEYS’

FEES (NET)

Approximate Duration

Duration depends on the complexity of the case but may range from 2 months to more than a year.

The order of liquidation against insolvent companies is most commonly requested by creditors on the basis of contractual claims. Such order is issued by the competent court, if the debtor failed to settle or dispute its previously undisputed or acknowledged respective payment obligation within 20 calendar days from its due date and following the expiration of such date it has failed to satisfy such obligations upon receipt of the creditor’s written demand note.

If the liquidation proceedings are requested by creditors, creditors must prove that the debtor is insolvent, by indicating the title, the amount, the due date of the underlying overdue payment obligations of the debtor (i.e., claims against the debtor) and specify the reasons for the debtor’s alleged insolvency. The nominal amount of the creditor’s claim must exceed HUF 200,000 in order to form the basis of a request for the commencement of liquidation proceedings.

Insolvency Proceedings

The court must issue the resolution on the commencement of the liquidation proceedings within 60 days of receipt of the request for liquidation.

Following the end of the second year from the date of the court resolution ordering the liquidation proceedings, a closing liquidation balance sheet must be prepared. On that basis the court decides on the insolvency (except if a creditor has a pending lawsuit against the debtor in which case the liquidation proceeding may last for several years, i.e., until the closing of the lawsuit). The court then orders the dissolution of

the debtor without a legal successor.

APPROXIMATE COSTS

COURT FEES

ATTORNEYS’

FEES (NET)

Approximate Duration

The procedural fee for filing a petition for liquidation amounts to HUF 80,000, if the debtor is a company with legal personality, such as limited liability companies (Kft. or korlátolt felelősségű társaság) and public or private companies limited by shares (Nyrt. or nyilvánosan működő részvénytársaság and Zrt. or zártkörűen működő részvénytársaság).

If the debtor is a company without legal personality such as partnerships (Kkt. or közkereseti társaság and Bt. or betéti társaság) the procedural fee amounts to HUF 30,000.

The publication fee for the liquidation proceedings amounts to HUF 25,000, irrespective of the debtor's legal personality.

Subject to the engagement.

Filing of Insolvency Claims by Creditors

-Upon the court’s resolution on ordering the liquidation proceedings, the court must arrange for the publication of the liquidation proceeding in the Company Gazette.

-Publication in the Company Gazette takes place on the official website of the Company Gazette at www.cegkozlony.hu.

CONTACT

OFFICE

Kálvin tér 12-13

H - 1085 Budapest

+36 1 4848 800

budapest@wolftheiss.com

www.wolftheiss.com/offices/hungary