Supreme Court decision
In its recent decision, the Hungarian Supreme Court examined whether liquidation proceedings can be started against a debtor who received online invoices via email and failed to pay them. Is the principle of free evaluation of evidence in civil litigation also valid in insolvency proceedings in Hungary? Are contract provisions relating to the service of contractual notices applicable in such cases? This article analyses the decision and answers the above questions.
In July 2018, the creditor and the debtor concluded an agency contract (the contract) for processing accounting documents.
In the contract, as is usual in a business-to-business (B2B) relationship, the parties set out very detailed provisions governing the service of contractual notices. The primary channel of communication between the parties was email.
The contract set out a presumption that an email sent from one party's email address under the contract to the email address provided by the other party was deemed to have been delivered if the party did not respond to it within three working days.
The contract also contained a presumption in relation to the sending of invoices that if a copy of the invoice was sent by electronic means to the debtor's email address, the invoice would be deemed to have been delivered. The debtor's managing director was designated as the debtor's contact person.
In accordance with the contract, the creditor sent four invoices (the invoices) between August 2018 and July 2019, totalling 1,315,400 Hungarian forint, to the email address provided by the debtor.
As the debtor did not pay the invoices, the creditor sent two notice letters to the debtor in September and October 2019.
Subsequently, the creditor started liquidation proceedings against the debtor, arguing that the debtor had failed to pay the debt of 1,315,400 Hungarian forint arising from the contract despite acknowledging it in writing.
The debtor requested termination of the procedure. The debtor did not admit part of the creditor's claim, claiming that for the period from 1 July 2018 to 31 January 2019, the creditor had not issued or sent the invoices indicated in the notice letter.
According to section 27(2)(a) of the Liquidation Act,(1) the court shall declare the debtor insolvent if the debtor has not paid or contested their uncontested or acknowledged contractual debt within 20 days of its due date and has not paid it in response to a written notice letter by the creditor.
In the reasoning of its order, the first-instance court stated that the creditor had sent the invoices to the debtor by electronic means in accordance with the contract, and that the debtor had replied, acknowledged the debt and offered to pay it in instalments in July 2019. It highlighted that if the debtor had not received the invoices, the debtor should have notified the creditor about this after the first notice letter in September 2019.
Having regard to the above provision of the Liquidation Act, the first-instance court declared the debtor insolvent and ordered the debtor to be liquidated.
The second-instance court, acting on the appeal of the debtor, overturned the order of the first-instance court and terminated the liquidation procedure.
The second-instance court explained that the parties had indicated the debtor's managing director as the debtor's contact person in the contract, and therefore the debt acknowledgement made by another person in July 2019 could not be taken into account.
Considering the lack of acknowledgement of the debt, the second-instance court assessed whether the creditor had complied with the 20-day period between the deadline for performance indicated in the invoice or, in the absence of this, the deadline set in the creditor's first and second written notice letter, as provided for in the Liquidation Act.
In the second-instance court's view, based on the information available, the content of a printed email, which is not authentic, does not in itself establish with absolute certainty that the email or the attachment was received by the addressee.
In view of this, the second-instance court did not take into account the creditor's email, in which the creditor had sent the invoices, when calculating the 20-day period required by the Liquidation Act. The court came to the conclusion that the legal conditions of insolvency of the debtor had not been met, so it dismissed the application of the creditor.
The Supreme Court overturned the second-instance decision, emphasising that the Liquidation Act does not contain any special mandatory provisions regarding the form and communication of the invoice or, in the absence of an invoice, the first notice bringing its claim to the debtor's attention.(2)
In this respect, as is also clear from the reasoning of the uniformity decision in civil matters No. 4/2013, the basic requirement is that the creditor provably notifies the debtor of the invoice or notice letter with the appropriate content, since the debtor cannot be ordered to be liquidated on the basis of a claim that has not been brought to the debtor's attention before, and that was not known to the debtor.
In the Court's view, the creditor proved in the first-instance procedure that it had sent the invoices issued concerning the majority of its claim, amounting to approximately 1 million Hungarian forint, to the debtor's email address as indicated in the contract.
Considering that no evidence had been produced to refute the contents of the documents submitted in the procedure, the invoices concerned were considered to have been delivered under the contract.
The debtor did not contest the invoices after they had been delivered to its managing director, who was authorised to act as a contact person. Therefore, the Court overturned the final order and upheld the order of the first-instance court ordering liquidation.
According to the Liquidation Act, the creditor shall attach to its application not only the second notice letter sent to the debtor – pursuant to section 27(3) of the Liquidation Act – but also documents proving that the creditor notified the debtor of its claim (most often by its invoices or, in the absence of this, the first notice letter) prior to the notice letter.
However, while the Liquidation Act contains provisions about providing proof of the creditor's second notice letter, and to which the creditor shall provide return receipt if the notice letter is sent by post, it does not contain any provisions on the sending of the creditor's invoices or first notice letter to the debtor.
Given that in matters not regulated by the Liquidation Act, the Code of Civil Procedure applies,(3) the principle of free evaluation of evidence, which is a cornerstone of the latter, shall be applied mutatis mutandis to the above issues in liquidation proceedings, too. This principle has already been confirmed by the Court of Appeal(4) in respect of the proof of the sending of invoices under the former Civil Code of Procedure.
According to the free evaluation of evidence, which is a principle of the current Code of Civil Procedure(5) as well, not only is the return receipt or registered letter sufficient to prove the delivery of the invoice, but so is any evidence, on the basis of which, as a result of the free assessment of the evidence by the judge, this fact can be established.
In its new decision, the Supreme Court has essentially supplemented the above decision of the Court of Appeal by stating that in liquidation proceedings, when assessing the evidence, the judge can also consider the contractual clause governing the service of contractual notices between the parties, which sets forth a presumption of delivery of documents sent via email.
This decision therefore highlights the respect given to party autonomy in civil proceedings by Hungarian courts. This is very important, especially in B2B relationships, where the parties' commercial contract usually contains well-drafted service clauses in order to avoid legal uncertainty in respect of the delivery of contractual communications.
For further information on this topic please contact Richard Schmidt or Péter Korózs at SMARTLEGAL Schmidt & Partners by telephone (+36 1 490 09 49) or email ([email protected] or [email protected]). The SMARTLEGAL Schmidt & Partners website can be accessed at smartlegal.hu.
(1) Act XLIX of 1991 on the bankruptcy and liquidation procedure.
(2) Decision, published under No. BH 2021.11.313.
(3) Section 6(3) of the Liquidation Act.