Category: Hungary

Cerha Hempel, working with the Italian offices of K&L Gates, has advised the EBRD on the sale of a 15% stake in Erste Bank Hungary to the Erste Group Bank. Addleshaw Goddard reportedly advised the Erste Group Bank.

According to Cerha Hempel, “the transfer of the shares was executed in line with a put and call option agreement dated 2016, and followed the Hungarian government’s recent exit from Erste Bank Hungary.”

The Cerha Hempel team included Austria-based Partners Peter Knobl, Heinrich Foglar-Deinhardstein, and Jakob Hartig and Associate Isabella Patt and Hungary-based Partners Edina Nagy and Marton Kocsis and Senior Associate Magdolna Macsuga.

The K&L Gates team was led by Partner Paolo Zamberletti.

Do defendants need to make a formal setoff statement against the creditor’s claim in front of the judge to extinguish the claimant’s claim? Or is it enough to refer informally to an earlier setoff made by them prior to the litigation? A fresh decision of the Hungarian Supreme Court, analysed in this article, gives answer to these questions.

Facts

The claimant as a contractor and the defendant as a client entered a contract to  ensure the operability and full servicing of various medical devices and equipment owned by the defendant (“Service Contract”).

In May 2018 a CT device malfunctioned, and the defendant requested the claimant to repair the defect. Although the claimant’s colleagues examined the faulty CT device, they did not fix the error, so the defendant engaged another contractor to carry out the repair works.

The defendant refused to pay the invoices of the claimant due under the Service Contract, thus the claimant sued him. The defendant pleaded that the claimant infringed his contractual obligations and the fee paid by him to the other contractor is considered as damages which was set off by the defendant against the claimant’s contractor’s fee under the Service Contract.

The first and second instance decision

In the litigation, one of the main arguments of the claimant was that although the defendant referred to the setoff, he failed to file a formal setoff statement as required by the Civil Procedure Code thus the court should refuse it.

The first instance court upheld the claimant’s action and ordered the defendant to pay the claimant’s contractor’s fee. According to the court it is true that the defendant failed to file a formal setoff statement within 45 days, but he referred to his offset as an objection of performance so the court can examine the setoff in the merits.

In the court’s view, the claimant acted in accordance with his contractual obligations while the defendant did not follow the order of warranty rights as prescribed by the law since first, he should have called the claimant to correct the error if it was still existing.

By contrast, the second instance court rejected the claimant’s action. According to the court, the claimant infringed his contractual obligations since he has failed to specify the cause of the defect and failed to engage a suitable subcontractor who could repair the device.

Since the defendant was entitled to enforce his warranty rights as an objection against the claimant’s claim, the defendant’s objection extinguished the enforceability of the right claimed by the claimant.

The decision of the Hungarian Supreme Court

The claimant requested the judicial review of the final decision as in his opinion, the defendant could have asserted the setoff only in a formal setoff statement, made during the litigation, thus the lower courts should have rejected it.

According to the Hungarian Supreme Court, the final judgement is not unlawful on the merits, however, the court examined the claimant’s procedural arguments regarding the setoff and made the following conclusions.

In the Supreme Court’s view in case the defendant alleges that he performed the claimant’s claim by a setoff prior the lawsuit, he can refer to the legal effect of the set-off (i.e. that the claim against him is extinguished) within the scope of the defence statement, as a so-called plea of performance.

In this case the defendant could not submit a formal setoff statement, because given the legal effect of the setoff, not only the claim against him was settled (terminated), but also the defendant’s own claim has ceased to exist, i.e. he had no counterclaim, which could have been communicated in a formal setoff statement during litigation.

Comment

The Civil Procedure Code which entered into force in 2018 redefined the legal instrument of setoff since it treats setoff not merely as a substantive objection forming part of the defence but as a separate procedural legal instrument. The early commentaries on the new Civil Procedure Code have adopted a formal approach and required the defendant to file a formal setoff statement in every case.

Considering the above it is rather surprising that the Hungarian Supreme Court concluded that in case the setoff was already communicated before the litigation, the defendant only had to refer to this fact without submitting formal setoff statement during the litigation.

Although, from the defendants’ point of view, it is to be welcomed that the Supreme Court bated the formalism required by the Civil Procedure Code, from the claimants’ point of view it is an unfavourable turn, because it may leave room for possible multiple claims, and as such may delay the resolution of legal disputes.

In the article, we analysed the Hungarian Supreme Court decision published under No. BH 2023.10.245 (Kúria Pfv.V.20.929/2022/4.)

By Richard Schmidt, Managing Partner and Anita Vereb, Attorney-at-law, SmartLegal Schmidt & Partners

Oppenheim has advised the China National Machinery Import & Export Corporation and China Power International Holding on the acquisition of a project company developing a photovoltaic project with an installed capacity of 53.9 megawatts in Tiszafured, Hungary. Schoenherr advised the ID Energy Group on the sale.

CMC is focusing on providing renewable energy solutions in the European market.

CPIH’s main business covers the development, investment, construction, and operation of conventional power, new energy, integrated smart energy, and hydrogen projects. Currently, CPIH owns power-generating assets of coal, hydro, natural gas, wind, solar, biomass, and waste-to-energy, distributed across 24 provinces, cities, and autonomous regions in mainland China, as well as in the Hong Kong and Macau SAR, and also expanded to Pakistan, Vietnam, Brazil, Chile, Australia, Mexico, Kazakhstan, Germany, and other countries.

The Oppenheim team included Partner Peter Horvai-Hillenbrand, Principal Associate Zoltan Kolodzey, Senior Associate Gergely Szecsenyi, and Associate Patrik Pazmandi.

The Schoenherr team included Partners Laszlo Krupl and Gergely Szaloki and Associate Viktoria Magyar.

Editor’s Note: After this article was published, Schoenherr clarified that the sell-side workstream was spearheaded by ID Energy Group’s in-house team, which included Head of Legal Eszter Berki and Legal Advisor Eszter Szentpeteri.

AegisLegal has advised STRT Holding on the listing of its shares on the Budapest Stock Exchange.

According to AegisLegal, “founded in 2022, STRT Holding, led by Angel Investor and Hungarian Shark Tank member Balogh Petya, is dedicated to supporting and investing in Hungarian and regional early-stage start-up ventures.”

STRT Holding focuses on start-ups primarily engaged in software-based B2B solutions, artificial intelligence applications, education, mobility, and other technological domains.

The AegisLegal team included Partners Stella Simon and Gabor Perger, Associate Milan Hejas, and Junior Lawyer Nikolett Hevesi.

In the summer 2022, the United States unilaterally terminated the US-Hungary double tax treaty with Hungary.

According to the Hungarian Tax Authority, the treaty is already to be considered terminated, however, its provisions can still be applied until the end of this year. Thus, income earned by the end of the year is still taxed as if nothing had happened. From 1 January 2024 however, income from the US can be taxed in both countries, and income from the US will be treated as “nontreaty country” income. It is important to highlight that so-called “source income” (in Hungarian “forrásadós jövedelmek”) will be subject to double taxation.

This means that, as it stands, one will be taxed twice on any capital gains, interest or dividend income earned by holding US stocks and bonds. In the worst-case scenario for a US stock market transaction, 35% of the gain would be taxed. There is a lot of uncertainty at the moment, while domestic brokerage firms and fund managers are holding out for the time being and hope that the two countries will eventually bring a new agreement to a head.

By Rozsa Rusvai-Darazs, Attorney at law, KCG Partners Law Firm

The Cybersecurity Act imposes new requirements on many companies regarding the operation of their electronic information systems. Organizations have until the end of 2023 to prepare to comply with the new rules.

Cybersecurity is a high priority today due to technological advances and the digital transformation of businesses. The Act on Cybersecurity Certification and Cybersecurity Supervision aims to strengthen the security of organizations particularly exposed to threats related to IT systems.

The Act only applies to organizations in certain industries or carrying out certain activities, such as car manufacturers, electronics manufacturers, many energy and pharmaceutical companies, cloud service providers, and data center service providers. The full list of industries and activities covered is set out in the annexes to the Act. With some exceptions, the legislation does not apply to micro and small enterprises. It only applies to them if they are, for example, an electronic communications service provider or a trust service provider.

Organizations covered by the Act will have to comply with a number of new rules: They will have to classify their IT systems into security classes and ensure that they are protected at a reasonable level proportionate to the potential risks. In connection with setting up, operating, maintaining and repairing their IT systems, organizations concerned may engage contractors – such as external IT service providers – only if such contractors also meet the requirements of the Act. The organizations concerned must appoint a person responsible for information security, defining their tasks and responsibilities.

Organizations covered by the Act are advised to review their contracts with their IT service providers and, if necessary, initiate contract amendments to comply with the new law. The employment contract and job description of the person responsible for information security may also need to be reviewed and amended as necessary. If there is no such person in the organization, the organization must ensure that the said person is appointed.

In addition to the above, the organizations concerned must establish an information security policy and take the necessary technical measures. It is common that employees have little or no knowledge of the risks associated with IT systems; therefore, the Act also covers training users of IT systems: the organizations concerned must organize regular information security training for their employees.

The new cybersecurity law also entails administrative tasks. Companies subject to the law must register with the Hungarian Supervisory Authority for Regulated Activities (“SZTFH”) – it is advisable to prepare the registration application as soon as possible. In addition, every two years, these firms must have a cybersecurity audit carried out by an independent auditor, the results of which are sent to the SZTFH by the auditor.

If a company’s IT system is affected by an event that causes an adverse change or previously unknown situation that results in the loss or corruption of the confidentiality, integrity, authenticity, functionality or availability of information managed in the IT system (a “security incident”), the organization will be required to investigate the security incident and, if necessary, report it to the relevant incident management center, which, in Hungary, is currently the National Security Services.

It is of paramount importance that the organizations concerned have internal, predefined rules in place to enable them to manage security incidents effectively. Security incidents can easily lead to situations where the organizations concerned have to react very quickly. In such situations, it is necessary to prevent or mitigate the adverse consequences of the security incident and to comply with the associated reporting obligations. If the security incident involves personal data, it is also necessary to consider whether the incident should be notified to the data protection supervisory authority.

In the event of noncompliance with the obligations under the Act, the SZTFH may, among other things, impose a fine of up to HUF 50,000,000, which may be repeated in the event of further noncompliance and may be added together in the event of multiple infringements. If the noncompliance also affects the security of personal data, the competent data protection supervisory authority – which, in Hungary, is the National Authority for Data Protection and Freedom of Information – may also impose a fine of up to EUR 20,000,000 or 4% of the concerned undertaking’s worldwide turnover in the previous year (whichever is higher).

By Csaba Vari, Counsel, and Andras Gaal, Attorney, Baker McKenzie

Kinstellar Partner Balazs Sepsey has been appointed the new Office Managing Partner of the firm’s Budapest Office. Sepsey is taking over from Kristof Ferenczi, who has recently been appointed Kinstellar’s Firm Managing Partner (as reported by CEE Legal Matters on December 8, 2023).

According to Kinstellar, “a recognized energy market expert, Balazs has been a key driver of the growth and success of the Budapest energy practice over the years.” Sepsey began his career at what was at the time the Budapest office of Linklaters in 2005, staying with the team after it transformed into Kinstellar in 2008, and making Partner in 2021 (as reported by CEE Legal Matters on April 6, 2021).

“Balazs will be an excellent Office Managing Partner and I am confident that he will provide outstanding leadership to the Budapest office, taking the team from strength to strength,” Ferenczi commented. “His proven leadership skills, profound personal qualities, strong work ethic, and core values make him the perfect choice to lead the local practice. I am delighted to be handing over the reins to such an outstanding and talented individual and look forward to continuing to work with Balazs in his new role.”

“It is a great honor to be appointed as the Office Managing Partner of one of the most respected law firms in Hungary,” Sepsey added. “I am grateful for the support of the team as I step into this new role. It is a privilege to lead such an outstanding team and build on the success achieved during Kristof’s excellent leadership, as well as previously under the leadership of Csilla Andreko.”

Ban, S. Szabo, Rausch & Partners has advised ITK Holding on its acquisition of Omnibus Hungaria Kereskedelmi es Szolgaltato, a joint venture of EvoBus and Pappas Holding. Noerr reportedly advised the sellers.

According to BSRP, “ITK Holding is a member of the MOL Group focusing on mobility solutions in Hungary. It is a provider of public transportation services in various Hungarian cities including Budapest. At the same time, the ITK Group is the general distributor of Daimler trucks in Hungary. Through this recent transaction, the ITK Group complemented its already existing general distribution system of Daimler Trucks with the general distribution rights of Mercedes-Benz buses. As a result, ITK Holding now offers the whole product range of heavy vehicles of Daimler Benz in Hungary.”

Omnibus Hungaria is the general distributor of Mercedes-Benz buses and coaches, and Setra buses, as well as the associated Mercedes-Benz original parts.

The BSRP team included Managing Partner Janos Rausch, Partners Balazs Unger and Almos Papp, and Associates Viktoria Utassy, Kinga Bolcskey, Szabina Bach, and Andras Zatyko.

At the II National Regulators Conference it was announced that the Digital Citizenship programme to be launched between July and September 2024 and the necessary legislation to be submitted to the Parliament in November 2023. With this step the Hungarian Government follows the trend, where citizens are dealing at an increasing rate with administrative cases on their mobile phones.

One of the important changes is that the ID card might be moved – upon the decision of the citizen – to citizens’ mobile phones. In addition, there will be an app where citizens can pay the amount owed to the state at the touch of a button. Communication with the state will be provided through a new phone app called “Digital Citizenship”.

The new system will offer two types of administrative procedures: one based on life events and the other on e-Paper. The latter already exists; however, it will go through a complete overhaul. In case of the life event based administrative procedure, the most common cases are related to birth and car transfer, which are planned to be available as early as 2025. The underlying idea is to start the process at the touch of a button, after which the state will obtain the necessary documents.

It is expected that the number of users to be less than 1 million in 2024, but by 2025 it will be 3-5 million. It is also expected that the widening of digital administration leads to a competitive advantage.

By Bálint Éberhardt, Attorney at Law, KCG Partners Law Firm

There is a bill on the new Hungarian Architecture Act, which would replace the acts on Engineers and Professional Chambers, on the Shaping and Protection of the Built Environment and on the Protection of Townscape, and will consolidate their provisions in a modernised and clear code.

The goal of the legislator is that the act should both create a more transparent, modern, simple and uniform regulation and reflect the priority given to this area.

The scope of the act as drafted will extend to all natural persons and business entities that carry out legislative activities related to architecture, are involved in the enforcement of legislation or are involved in the planning and construction process. The act aims to regulate the organisation and functioning of professional chambers, their basic tasks, as well as the rules of training and research in the field of construction.

The act will be applied to specific types of buildings together with the specific legislation applicable to them, with the additions and derogations contained therein. A significant innovation compared to the previous legislation is the inclusion of principles in the act, which must be taken into account during the preparation of plans, the application of the law by the authorities and even during the entire construction process.

One such principles is the “essential minimum”, according to which the design and construction process should always start with an assessment of real needs and the current situation. Unnecessary construction and demolition activities should be avoided. According to the bill, the act would enter into force in stages between 1 February 2024 and 1 July 2027.

By Gabriella Galik, Attorney at law, KCG Partners Law Firm