Surprise clauses are general contract terms which differ significantly from customary contract practice or from legal provisions governing contract law. Can the user of a general contract term limit its liability by a surprise clause? Can a surprise clause become a standard clause by way of established practice between the parties? What constitutes an established practice? In this article, we analyse a recent decision of the Hungarian Supreme Court which examined these questions in detail.
ILF’s Hungarian member, Smartlegal Schmidt&Partners summarizes this issue in the article.
Facts
The applicant, which is engaged in the manufacture of concrete products for construction, ordered the supply of concrete element production equipment indirectly from the defendant through a contractual chain, which led to the conclusion of several contracts. The defendant referred to its General Terms and Conditions (GTC) in its quotation before placing the order.
In the GTC, among the warranty and guarantee conditions, it was stipulated that the client could not make any other claims beyond the warranty claims. In particular, the compensation for consequential damages (e.g. loss of production, damage to machinery) was excluded, and the defendant’s liability for any claim was limited to 15% of the net fee by the GTC.
The plaintiff asserted a claim for damages, while the defendant sought the dismissal of the application on the basis, inter alia, of the exclusion and/or limitation of its liability under clauses of the GTC.
Decision of the Court of First Instance
The Court of First Instance found that the GTC has become part of the parties’ contract.
It held that, although the GTC deviated from the provisions of the Hungarian Civil Code, such a restriction could not be considered as an unusual contractual practice in view of the general terms and conditions of other undertakings containing a similar clause submitted by the defendant.
The Court of First Instance stated that there was no need for a preliminary notification of the use of the GTC, since it was in line with the established practice between the parties, taking into account the fact that there had been business negotiations between the parties.
Based on the above it ordered the defendant to pay damages amounting to 15% of the net fee.
Decision of the Court of Second Instance
The Court of Second Instance upheld the judgment of the Court of First Instance.
It stated that, the defendant’s offers and confirmations prior to the conclusion of the contract stated that the GTC was part of the contract and drew attention to the fact that the GTC was available on the website of the defendant, thus the defendant enabled the client to familiarise himself with the contents of the GTC prior to the conclusion of the contract.
The Court of Second Instance pointed out that the disputed clause was already contained in the first contract of the project between the defendant and its client, and was therefore in line with the practice previously established between the parties.
Decision of the Supreme Court
The Supreme Court held that the limitation of liability clause in the dispute was substantially different from the provisions of the Civil Code and could therefore only become part of the contract if its user had preliminarily informed about the clause its contractual partner, and the latter has expressly accepted it.
In the context of the requirement of a separate preliminary notice, the Supreme Court highlighted that it must be provided in an appropriate manner, in particular in case of longer contracts (e.g. underlining, different printing, separate express statement)
However, the Supreme Court pointed out that no separate preliminary notice is needed if i) the clause in the dispute corresponds to the parties’ previous contractual practice, or ii) there are general standard contractual practices from which the GTC do not depart substantially.
According to the Supreme Court the established practice between the parties necessarily implies a long-standing business and contractual relationship, and a certain degree of frequency and regularity.
However, between the parties in the case at hand there was only one contract prior to the contract at issue, and the Supreme Court remarked that a single earlier contract and a single quotation for the same project, in no way implied an established contractual practice between the litigants.
In relation to the term which constitutes a normal contractual practice on the market, the Supreme Court has held that it shall always be reasonable, shall be adapted to the market, the sector and the contracts or operators specific to it, and shall be rationalised and explained.
However, the mere fact that several entities have recognised the possibility that liability for breach of contract may be limited does not imply that the defendant’s limitation of liability clause is widely known and regularly used by the parties to contracts such as the one at issue in this case.
Based on the above, the Supreme Court set aside the final judgment and ordered the court of second instance to reopen the proceedings and issue a new judgment.
Analysis
Concluding contracts with the use of General Terms and Conditions, prepared in advance by one of the parties, has become the default way of contracting in international and domestic business transactions.
Among GTCs, there are clauses which differ significantly from statutory provisions or from standard contract practice. These terms, often referred to as “surprise clauses”, can be particularly dangerous for the party contracting with the user of the GTC, therefore both international soft law instruments and national commercial laws deal with this matter as a specific problem.
For example, the UNIDROIT Principles[i] require the other party’s express acceptance of a clause in the general terms and conditions that the other party could not reasonably have expected. The PECL[ii] stipulates that the party applying terms which have not been individually negotiated must take reasonable steps to bring them to the attention of the other party and that a mere reference in the contract document to them is not considered sufficient.
In the same vein, the Hungarian Civil Code[iii] requires a specific notice to be given in order for GTCs to become contractual term if it departs substantially from law or from standard contractual practice, unless it is in accordance with established practice between the parties.
When it comes to the concept of “established practice”, the Civil Code is silent, therefore the case law has to fill this legislative gap. Until this decision, it was uncertain whether one contract concluded previously between the parties can create an “established practice”.
By ruling that the established practice shall imply some degree of frequency and regularity, the Hungarian Supreme Court clarified that more previous contract shall be concluded between the parties, to consider that there is an established practice between the litigants.
In case there is an established practice, even surprise clauses incorporated in the GTC can become part of the parties’ contract.
In this article we analysed the judgement BH 2025.1.17 of the Hungarian Supreme Court.
Written by Dr. Richard Schmidt and dr. Agnes Bartus
SMARTLEGAL is a team of agile business & litigation lawyers in Budapest, Hungary, helping international corporate clients and individual entrepreneurs doing business in Hungary. For more information please visit our website at smartlegal.hu
[i]Article 2.1.20 of the UNIDROIT PRINCIPLES OF INTERNATIONAL COMMERCIAL CONTRACTS 2016 of the International Institute for the Unification of Private Law
[ii] Article 2:104 of the Principles of European Contract Law – PECL
[iii] Section 6:78(2) of the act V of 2013 on the Civil Code