Based on a court decision made in October 2019, a contractual provision is null and void based on which the payment to be made by the principal to his subcontractor is linked to the payment made by the principal’s own principal.
In the above-mentioned court case, an investor and a main contractor have concluded a contract regarding construction work. Partial implementation of such contract was provided for by subcontracting. In such subcontracts, amongst others it was stipulated that (1) the main contractor will accept additional work only in that case and only in such quantity, as such are accepted by the investor.
In the subcontract it was further stipulated that (2) only 75% of any additional work that was invoiced to the investor by the main contractor, will be paid to the subcontractors. A legal dispute has emerged between the parties to the subcontract regarding works whether such were additional work and whether such additional work can be invoiced or not.
The subcontractor claimed for an amount of HUF 175,389,949 to be paid for additional work undertaken. The main contractor claimed that such claims are to be rejected as based on the two above mentioned contractual stipulations (1-2).
The court of first instance has ordered the main contractor to pay HUF 160,529,975 to the subcontractor. The court reasoned that the parties have provided for a too strict procedure for the approval of the additional works – and it refused to accept the claim of the main contractor regarding the two contractual stipulations (1-2). The court emphasized that it is not in the interest of the investor to accept additional works. The court did thus not consider the two contractual stipulations (1-2) as governing the case.
The court of second instance has partially changed the first instance decision and reduced the payment obligation to HUF 12,339,040. It reasoned that the parties are free to decide on the contents of the contract between them as the provisions of the Hungarian Civil Code are dispositive and as long as the Civil Code does not expressly state it, a contractual provision may not be considered as not validly governing the case between the contractual parties. Thus, the second instance court reviewed the first instance decision by considering the two contractual stipulations (1-2) as governing the case.
The Supreme Court has cancelled such second instance decision and ordered the renewal of the second instance case. In its reasoning the Supreme Court has pointed out that the two contractual stipulations (1-2) are null and void due to them being provisions against the public morals. It shall be considered as obviously against the public morals, where it is stipulated in the contract that the payment to be made by the main contractor to his subcontractor is linked to the payment made by the investor to the main contractor. The second instance court shall now renew the case by considering the two contractual stipulations (1-2) as null and void thus not governing the case.