Harmonization of consumer protection laws in Hungary

In the course of the session of 5 November 2002 the Parliament approved Act No. XXXVI of 2002 (the "Act"), which amended the Civil Code, the Act on Consumer Protection, the Product Liability and the Act on Business Advertising Activity. The aim of this amendment was to harmonize the laws on consumer protection.

Grouped according to the date of the entry into force, the Act primarily amended the following fields:

1. Provisions Entering into Force on 1 July 2003

1.1 Due and Proper Performance

Formerly the Civil Code contained a general definition of what constitutes due and proper performance. Now the Act makes this definition more precise and clear by defining the additional conditions of the due and proper performance concerning mainly the quality of the service.

A new concept, consumer agreement is introduced in the Act. An agreement is considered to be a consumer agreement if it is made between a consumer (person concluding the agreement outside his/her professional or business activity) and a person who performs professional or business activities. With respect to the guaranty and warranty rules, another condition is that the subject of the agreement should be a movable thing except for some special things determined by the Act (e.g. water, gas and electricity)

1.2 Warranty

With respect to the warranty rules, deadlines for the enforcement of a claim are modified and new regulations are introduced concerning consumer agreements.

(i) Deadline for the enforcement of a claim after the discovery of a defect Footnote 1

Pursuant to the Act, the complaint is to be made to the warrantor as soon as it is practicable. In the case of a consumer agreement, a complaint made within two months of the discovery of a defect is to be deemed to be made in due time.

(ii) Deadline for the enforcement of a claim after the performance

A deadline of 6 months remains available for the enforcement of a warranty claim. However, the burden of proof is reversed in the Act, that is, if the warrantee discovers a defect in the service or the product within the deadline of 6 months for the enforcement of a claim, then it is to be presumed that the defect already existed at the time of the performance and the warrantor is to prove the contrary (formerly, the burden of proof was on the warrantee). Footnote 2

(iii) Final deadline for the enforcement of a claim from the performance if the claim is not enforced by the above deadline for a justifiable reason Footnote 3

Departing from the main rule, with respect to consumer agreements the Act fixes a period of three years, upon the expiry of which the right is lost for ever.

It is also new that the Act expressly designates unworkmanlike assembly as improper performance giving rise to a warranty claim. Unworkmanlike assembly does not only mean that a supplier or its employee assembles a product in an unworkmanlike manner, but also that a warrantee assembles a product incorrectly due to a mistake in the manual or instructions.

The Act establishes a hierarchy between warranty claims differently than until now. So warrantees may firstly request repair or replacement and may only request a reduction in the price or cancel the agreement if the warrantor does not agree to repair / replace the product or fails to do so within the appropriate period.

The Act introduces a new provision that in the case of a consumer agreement a warrantor (e.g. retailer) may enforce the warranty claim enforced by a consumer against such a retailer, further against the third person with whom such a retailer has got a contract (e.g. wholesaler) within 60 days of the enforcement of the claim by the consumer, but not later than 5 years after the performance by such third party in the case when it carried out a quality inspection upon receipt.Footnote 4

The parties may only depart from rules on consumer agreements in a restricted manner. For example any departure from the period of two years for the submission of warranty claims and the priority of the enforceability of warranty claims is only permitted if made in favour of or for the benefit of consumers.

1.3 Changes in the Laws on Guarantee

A guarantee obligation may only be undertaken in an agreement or in some cases it is prescribed by the law. The essence of the legal institution of the guarantee is that here always the guarantor has to prove that a defect reported by the receiver of the guarantee arose after performance. The Act has not modified this concept.

Upon the performance of the guarantee obligation under the Act, the guarantor does not only have to take into consideration the terms and conditions set out in the agreement giving rise to the guarantee obligation or in the laws, but in the advertisements or commercials relating to the service.

The Act determines the mandatory elements of consumer agreements not regulated by the main rule. Footnote 5

The guarantee statement has to be made in writing and delivered to the consumer. It does not affect the guarantee obligation if some elements are missing from the guarantee statement or was not made in writing, since even in this case the guarantor is obligated to provide guarantee in the same manner as if the guarantee statement had been issued properly.

The receiver of the guarantee may enforce his/her claims arising from the guarantee during the entire period specified in the guarantee statement, i.e. the Act does not define a special period to be reckoned from the time when the receiver of a guarantee becomes aware of or discovers a defect giving rise to a claim.

2. Provision Entering into Force upon Accession

2.1 Calculation of Interest

The rules of the calculation of the transactional and default interest defined in the Civil Code will change upon our accession to the European Union, because after the accession in each case the interest rate will be calculated on the basis of the base interest rate of the bank of issue valid on the last day preceding the six calendar months' period in which the interest became due, for the entire duration of such six calendar months' period. Footnote 6

If a party is obliged to pay both transactional and default interest, then the default interest rate is equivalent to 1/3 of the base interest rate of the bank of issue, but the sum of the transactional and default interest rate has to amount to the base interest rate of the bank of issue valid on the day specified above.

With respect to transactions between business organisations the Act determines a rate of default interest to be the base interest rate of the bank of issue plus 7 per cent. Footnote 7

2.2 Protection of Consumers

The Act enables consumer protection organisations operating in other member states of the European Union to submit a claim or commence state administrative proceedings subject to certain conditions as granted by the Consumer Protection Act after our accession to the European Union.Footnote 8 Similarly organisations based in other member states have got a restricted right to submit claims and commence proceedings in promotion supervision proceedings or to contest the general terms and conditions of contracts applied by business organisations.

After the accession consumers may only exercise their rights set out in the Product Liability Act in the case of damage exceeding 500 euros (approx. HUF 12,000), however this does not prevent consumers from acting in accordance with the general rules of recompense and damages set out in the Civil Code. Footnote 9

For further information please contact Dr Gabriella Ormai at [email protected] or on 00 36 1 4834800.

Footnotes

Footnote 1
Pursuant to former rules, the warrantee was obliged to make its complaint to the warrantor immediately after the discovery of a defect. This rule often gave rise to disputes as it was doubtful what was to be considered as making a complaint "immediately".

Footnote 2
In the case of a consumer agreement, there is a deadline of 2 years instead of 6 months available for a warrantee to make its warranty complaint to the warrantor. If the subject of the consumer agreement is a second-hand product, then the parties can agree on a deadline shorter than 2 years, however, a deadline shorter than a year cannot be fixed even then.

Footnote 3
As a main rule, consumers may make their complaints within 1 year of the performance and upon the expiry of this period of one year this right is lost. After the expiry of this period of one year no warranty claims may be submitted any longer even if the warrantee discovered any defect later. Differently from the main rule, this deadline is three years in the case of durable consumer goods, or where the law stipulates a mandatory qualified period with respect to a given product and this qualified period is longer than 3 years, then rights are lost upon the expiry of this qualified period (these rules do not change).

Footnote 4
The warrantor has been entitled to enforce any claim enforced against it further against a third person on the basis of the agreement between such warrantor and such a third person, however what the Act added to this possibility is that now the Act sets a deadline (of sixty days or maximum 6 years) and a condition (quality inspection) for the enforcement of claims.

Footnote 5
In the case of a consumer agreement, the mandatory elements of the guarantee statement: name and address of the guarantor, duration, scope, territorial effect of the guarantee, method of enforcement of the rights of guarantee and a provision that the guarantee does not affect other possibilities granted to the consumer by the law for enforcement of his/her rights.

Footnote 6
So far the Budget Act in effect from time to time has determined the rate of the default interest set out in the Civil Code, after the accession, however, both the default interest rate and the transactional interest rate will be based on the base interest rate of the bank of issue in effect from time to time. This also means that the Budget Act determined a fixed interest rate for one year, the base interest rate of the bank of issue may change several times in a year.

Footnote 7
The Act determines the due date of the payment of interest between business organisations; the due date is 30 days from the later of the receipt of the invoice or performance, unless otherwise agreed on by t he parties. The court may vary the parties' agreement if they agreed on a period different than 30 days or on a rate of interest considerably lower than the one specified above.

Footnote 8
Only organisations based in any member state of the European Union and listed in the Official Journal of the European Union have this right and they may only act against any offence committed in Hungary if this offence contravenes any provision of any laws in any relevant directives of the European Union, so they do not have a general right to submit claims or commence proceedings.

Footnote 9
The product Liability Act currently enables consumers to commence proceedings in the case of damage exceeding HUF 10,000.