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Hungary: A New Era of Collective Claims

07 December 2017 | legal insights

On 1 January 2018, a new Act on civil court procedures will come into force, bringing a 50-year-long era to an end. The new law reforms existing shortcomings, such as lengthy and tedious procedures, and introduces mechanisms already widespread in Western and common-law jurisdictions, such as collective redress.

Hungarian law already provided for a "collective redress in the public interest" in certain sectoral legislation, although this right was granted only to certain state actors (the prosecutor or other administrative bodies, eg the Hungarian Competition Authority) to enforce collective interest claims. The new Act reregulates "collective redress in the public interest" by introducing the procedural rules applicable to collective claims initiated in accordance with the substantive provisions of the particular sectoral legislation. Thus, the new Act will now also provide for the respective procedural framework.

The new Act will also introduce class actions, which generally may be enforced by private actors, too.

Instead of separate, individualised lawsuits, class actions aggregate claims arising from the same background into a single, representative procedure in which the claimants will be represented by a so-called representative claimant. In order to have the right to launch a class action, there will have to be at least 10 claimants who are similarly situated, ie have been harmed in similar ways leading to identical claims.

The admissibility of a class action must first be confirmed by the court. Its decision will broadly depend on the representativeness of the claims, ie whether the claims are in fact identical, as required by the new Act. Should the court reject the class action, claimants are not de facto prevented from enforcing their claims, but will have to initiate individual lawsuits.

The new Act also contains a couple of other preconditions for a class action. Prior to initiating a procedure, claimants must conclude a contract among themselves stipulating who the representative claimant will be, whether other claimants' approvals are necessary for statements, or who will bear the costs of the lawsuit. The court will inspect the contract at the beginning of the procedure, but will not monitor whether the claimants – mostly the representative claimant – comply with its provisions.

Nonetheless, class actions may not be initiated for any claims sharing a common question of fact or law. Rather, the new Act still limits the cases where such a procedural instrument is available. A class action therefore may only be commenced by a "class" consisting of employees or consumers or by claimants harmed by human activity or negligence enforcing claims stemming from health impairment or damage. Though class action may make sense for other claims too, the legislative aim is to provide collective redress to a group whose members otherwise would be unlikely to initiate lawsuits (eg due to the low value of the individual claims). Class action thus aims at protecting the interests of an entire group by addressing and healing the multiple small damages or losses from which a more significant economic player may realise a significant benefit.

Class action simultaneously provides legal protection and allows the courts to manage lawsuits that would otherwise be unmanageable if each class member were required to seek redress on their own. This can increase the efficiency of the legal procedure and lower the costs of litigation, while excluding the risk that cases – based on identical claims – end up in differing, or even contradictory judgments. This was the case earlier, for example, in hundreds of lawsuits regarding the foreign exchange based loan agreements of commercial banks in Hungary.