Category: Hungary

Schoenherr has advised the MET Group on the completion of its photovoltaic plants located in Buzsak, Gerjen, and Sojtor, Hungary, with a total capacity of almost 169 megawatts and spanning 134 land plots with a total area of almost 310 hectares.

“The three completed projects are regarded as the first solar projects of such significant size which are fully completed. With these projects, the MET Group strengthens its local footprint in the renewable sector,” the firm announced.

The Schoenherr team included Partner Laszlo Krupl and Associate Viktoria Magyar.

Nagy & Trocsanyi has announced the appointment of its new Managing Partner – Balazs Karsai – set to take over stewardship of the firm on January 1, 2024.

According to the firm, Karsai “will focus on further enhancing the firm’s presence in strategic sectors such as environment and energy, technology and IP & IT, compliance and financial services, together with dispute resolution, including tax litigation.”

Karsai started his career by joining Nagy & Trocsanyi as a Legal Trainee back in 2007. He became an Attorney At Law in 2010, before making Partner in 2021 (as reported by CEE Legal Matters on June 30, 2021).

“N&T’s core strategy of providing market-leading local assistance to law firms not present in Hungary will continue, while its decades-long EU law practice will be further strengthened,” Karsai commented. “In furthering our traditional quality management philosophy, all members of our firm will continue to pursue long-term success in terms of client satisfaction in an innovative and dynamic way.”

An increase in foreign investor activity, energy sector regulation shifts, as well as the incoming challenges brought by the impending ESG Act and NIS2 cybersecurity directive are all keeping lawyers in Hungary quite busy, according to Partner Gergely Szabo of Ban, S. Szabo, Rausch & Partners.

“The market for M&A transactions in Hungary and across Europe experienced a slowdown, but we observed an unexpected uptick in autumn,” Szabo begins. “Interestingly, there’s been a notable increase in transactions involving foreign investors and not just Hungarian state and Hungarian-owned investors – this trend suggests a positive outlook. Also, we’ve seen companies acquiring others to meet the target’s capital requirements, using acquisitions as a strategy for financing the target,” he says.

Szabo then highlights a particularly dynamic regulatory landscape. “A key area of focus is the impending ESG Act. Set for early December adoption, it outlines a framework for ESG compliance and due diligence, significantly impacting the supply chain of corporations,” he explains. According to him, this will be a major challenge for mid-sized companies as suppliers. “The act will fundamentally change how companies operate, particularly in terms of supply chain management. It will be interesting to see how companies adapt to these new requirements and how the various ESG questionnaires and corporate requirements will drive this transformation – compliance will be a significant hurdle, especially for mid-sized companies,” Szabo explains.

“Another crucial topic is the NIS2 Directive on cybersecurity compliance, which necessitates extensive preparation and implementation,” he continues. “The NIS2 Directive requires thorough preparation – it’s not just about IT procurement; it also involves drafting documents, reviewing company compliance, and training staff. With appropriate strategy and thorough preparation, the given company would get a huge competitive advantage through NIS2 compliance,” he explains. 

“And changes in regulations for Hungarian energy communities and new detailed rules on microgrids are imminent,” Szabo goes on to add. “These are eagerly anticipated by the energy sector as they’ll enable a more flexible energy transition in Hungary, with significant economic implications. Additionally, the EU AI Act, which is nearly enacted, will be a pivotal legislative instrument, as will be the EU Data Act and the fully-applicable Digital Services Act,” he says.

Finally, Szabo underscores that 2022 “was challenging in terms of electricity and gas procurement, with a lot of disputes about traders’ actions. This year, the process has been smoother mainly because of the lower market prices. Moreover, many businesses have secured fixed prices, aided by Hungarian subsidies for certain industries,” he says. “However, the future of pricing remains uncertain – a key lesson is that clients are now more attentive to contract details, enhancing their expertise in these matters,” Szabo concludes.

On 19 October 2023, Ambassador Harry Alex Rusz, Permanent Representative of Hungary to the Council of Europe deposited the instrument of ratification of the Amending Protocol to the Convention for the Protection of Individuals with regard to the Processing of Personal Data.

Initially established in 1981, Convention 108 stood as a groundbreaking treaty focused on safeguarding individuals’ rights concerning the automatic processing of their personal data. The merit of the 1981 Convention is that it is the first international legal instrument to include the right to the protection of personal data, derived from, but independent of, the right to privacy, and the most binding international legal standard on data protection with the largest territorial scope to date. However, as technology evolved and the digital landscape expanded exponentially, a modernized framework was needed to address new challenges. Thus, Convention 108+ emerged, aiming to fortify data protection practices in today’s complex environment, reflecting the challenges of the digital age while respecting the principles and strengthening the monitoring mechanism of the Convention.

At its core, Convention 108+ revolves around a set of fundamental principles governing the handling of personal data. These principles emphasize legality, fairness, transparency, and accountability in the collection, storage, and usage of individuals’ information. Moreover, it champions the rights of individuals, granting them access to their data, the ability to rectify inaccuracies, and the power to request data erasure. Recognizing the global nature of data flows, the convention also tackles cross-border data transfers. It stresses the importance of stringent safeguards to ensure that personal data remains protected when transmitted across international boundaries.

Central to the implementation of Convention 108+ are independent supervisory authorities. These entities play a pivotal role in upholding data protection laws, monitoring compliance, and ensuring that organizations handling personal data adhere to the stipulated regulations. In essence, Convention 108+ serves as a beacon of modern data protection principles, striving to maintain a delicate equilibrium between technological progress and individual privacy, fostering trust and confidence in the digital sphere.

Hungary, an active participant in Convention 108 since 1998, has now become the 30th State Party to join the modernized Convention 108+. This commitment underscores Hungary’s dedication to upholding data protection standards in line with contemporary needs. Hungary’s proactive support for this landmark instrument significantly contributes to expediting the ratification process among State Parties to the Convention. Notably, there have been ten more ratifications and two additional signatures since the beginning of 2023. With this momentum, the Convention edges closer to its entry into force, as the minimum threshold required for it to become operational is 38 ratifications.

By Rita Parkanyi, Partner, KCG Partner

NH Partners has advised Waberer’s International on its acquisition of a 51% stake in Petrolsped.

The Petrolsped Group is a logistics service provider in Hungary. It provides rail logistics services mainly in Hungary and Romania, either directly or through its subsidiaries Pultrans and PSP Cargo Romania. It is currently in the final phase of the construction of a modern intermodal terminal in the southern part of Hungary, which could represent an optimal basis for supporting intermodal transport between the Balkans and Western Europe.

Waberer’s is a road transport company in Hungary and a significant road freight transport player in Europe, operating a fleet of 3,500 trucks. It has a presence in Belgium, Germany, France, Italy, the Netherlands, Poland, and the UK.

“With the acquisition of Petrolsped, Waberer’s takes a significant step towards building a multimodal service portfolio, will further broaden its service portfolio, develop its rail logistics capabilities, and enter the specialized logistics segment that currently predominantly uses rail services, like agricultural and construction products,” Waberer’s International Chairman and CEO Zsolt Barna commented. “The move will also bring Waberer’s closer to EU’s strategic directions to increase the share of long-distance transport by rail.”

The NH Partners team included Managing Partner Gabor Hollos and Counsel Emese Szitasi.

Kinstellar has announced that  Budapest’s Kristof Ferenczi has been appointed as the new Firm Managing Partner, succeeding Patrik Bolf in that position.

According to Kinstellar, Bolf “will take on a new position within the firm focusing on certain firm-wide projects, after having spent a very successful six years in the role.”

Ferenczi has already served on Kinstellar’s Firm Management Committee, since 2018, and as the Managing Partner of the firm’s Budapest office. With over 20 years of experience, he has been with Kinstellar since the firm’s foundation 15 years ago. Ferenczi is “a very well-regarded energy sector specialist and has served for many years as Head of Kinstellar’s energy sector team, building a successful and respected firm-wide energy sector practice,” the firm reported.

“I am honored and excited to take on the Firm Managing Partner role,” Ferenczi stated. “I am grateful for the strong foundation laid by my predecessor, Patrik Bolf, with whom I have worked closely over the years. Building upon the diversity and talent of our teams, our commitment to the values Kinstellar represents, and our culture of seamless collaboration, I will work with the Kinstellar community to drive forward our business, ensure that our clients achieve their goals, and that our teams realize their full potential.”

“I congratulate Kristof on his appointment and I am hugely confident that under his leadership, Kinstellar will continue to thrive and to exceed the expectations of both our clients and our own people,” Senior Partner Jason Mogg commented. “Kristof has been the driving force behind many of the most successful firm-wide projects and initiatives. His strategic thinking, savvy and strong leadership, his dedication and instincts will enable Kinstellar to continue its remarkable success story.”

In a recent case, the Hungarian Supreme Court had to decide whether a Hungarian undergraduate student studying economics and carrying out international forex transactions can be considered as a “consumer” and thus eligible for starting litigation at his residence, in Hungary against the foreign platform service provider?

Facts

An undergraduate student, domiciled in Hungary, studying economics (“Plaintiff”) traded on the foreign exchange market from August 2014 to January 2015, under a contract (“Contract”) concluded with a brokerage firm established in Cyprus through a website provided by the latter (“Defendant”).

The Plaintiff made profit on one of the accounts held by the Defendant and, in January 2015, he submitted a request for a transfer of the profit to the Defendant. However, the Defendant refused the payment.

Relying on his status of consumer, the Plaintiff started litigation for the profit in Hungary where he was domiciled.

The Defendant primarily sought the dismissal of the action on the grounds of lack of jurisdiction of the Hungarian courts. He argued that the Plaintiff could not be considered as a consumer.

Regarding the merits of the case, the Defendant argued, among others, that the law applicable to the Contract is not the Hungarian law, but Cypriot law.

First and second instance court

Both the first and second instance court found that the statement of claim of Plaintiff was well founded on the merits and ordered the Defendant to pay the requested amount.

Concerning the Defendant’s objection to jurisdiction, relying on the case-law of the Court of Justice of the European Union (CJEU), the second instance court held that the conclusion of the Contract did not fall within the Plaintiff’s professional activity. Consequently, the Contract was a consumer contract which allows to start litigation in Hungary, the domicile of the Plaintiff.

Hungarian Supreme Court

The Defendant submitted a request for judicial review of the final judgment to the Supreme Court of Hungary.

According to the Supreme Court, to decide on the question of the jurisdiction it was necessary examine whether the Plaintiff had concluded the Contract with the Defendant as a consumer. The special provisions of Brussels Ia Regulation are applicable only if, among other things, one of the contracting parties acts in a consumer capacity.

Based on the relevant case-law of CJEU, the Supreme Court laid down that the second instance court rightly established that the Hungarian court had jurisdiction. The Plaintiff’s sole purpose in concluding the Contract was to satisfy his private consumption needs. It was, therefore, correct to conclude that the special rule of jurisdiction laid down in the Brussels Ia Regulation for consumer contracts was applicable to the present case.

Thus, the jurisdictional objection of the Cypriot Defendant was unfounded.

However, the Defendant’s secondary request concerning the applicable law was successful as the Defendant rightly complained that the courts in the case did not apply Cypriot substantive law and did not clarify its content.

Consequently, the Hungarian Supreme Court set aside the final judgment and ordered the first instance court to start a new procedure and issue a new decision on the merits of the case.

Comment

The question in the present case was whether the Plaintiff concluded the Contract with the Defendant as a consumer within the meaning of Article 17(1) of the Brussels Ia Regulation, and whether he can invoke Article 18 (1) of the Regulation.

The latter provision created an exception from the actor sequitur forum rei principle of the Brussels Regime, based on which defendants can be sued at the place of their domicile as a main rule.

Article 18 (1) of Brussels Ia Regulation allows consumers to bring legal proceedings either in the Member State where the defendant is domiciled or before the courts of their own domicile.

When it comes to Article 17(1) of the Regulation, the CJEU has made several decisions which have developed case law on the qualification of a consumer.

Among others, in the Jana Petruchová v FIBO Group Holdings Limited case, the CJEU laid down that, among others, the value of the transactions carried out under contracts, possible knowledge or expertise in the field of financial instruments are irrelevant to the question of the classification of the client as a “consumer” within the meaning of Brussels Ia Regulation.

Furthermore, in AU v Reliantco Investments LTD, Reliantco Investments LTD Limassol Sucursala Bucureşti case, the CJEU concluded that for the purposes of that classification, among others, factor such as the fact that that person carried out a high volume of transactions within a relatively short period is, in principle, irrelevant.

Based on the above case-law, the Supreme Court examined only whether the Contract was for the Plaintiff’s private consumption or whether it was part of his professional activity.

The decision of the Supreme Court meant that FOREX transactions used for satisfying personal needs of natural persons will be considered consumer contracts in Hungary.

Therefore, customers domiciled in Hungary can initiate proceedings under the Brussels Ia Regulation in front of the Hungarian courts against FOREX platform providers registered in other EU member states, or even in third countries.

In the article, we analysed the Hungarian Supreme Court decision published under No. BH 2023.9.219 (Kúria Gfv.III.30.388/2022/6.

By Richard Schmidt, Partner, and Peter Korozs, Junior Associate, SmartLegal Schmidt & Partners

Wolf Theiss has advised the Kyoto Group on the agreement to deliver its Heatcube thermal energy storage system to Hungarian food ingredient producer KALL Ingredients.

Together with financial partner Kyotherm and energy trading partner in Hungary Energiaborze, the Kyoto Group has “entered into a set of agreements to deliver Heat-as-a-Service to KALL Ingredients, while also acting commercially as a balancing asset on the Hungarian grid. The total investment cost will amount to EUR 6.4 million,” Wolf Theiss reported.

The transaction also included a long-term heat purchase agreement; the engineering, procurement, and construction contract for the building phase; and the operation and maintenance agreement for the operating period. According to the firm, “the 15-year heat purchase agreement outlines the commercial conditions for delivering high-quality steam to one of the newest corn processing plants in Europe, which was installed as a greenfield investment in 2017.”

The Heatcube is a thermal energy storage system that uses molten salt and excess electricity. It will reduce KALL’s current natural gas demand and is designed with 56 megawatt-hours of storage capacity, offering an annual capacity of more than 30 gigawatt-hours. This will result in a carbon dioxide reduction of up to 8,000 tons annually.

The Heatcube also contributes to the balancing of the Hungarian grid by taking excess energy from the public network when available, which is a much-needed solution given prevailing market conditions in Hungary, Wolf Theiss noted. The parties intend to install the Heatcube within the next 12 months and commissioning and final hand-over to KALL Ingredients will take place in December 2024.

The Wolf Theiss Team was led by Partner Laszlo Kenyeres and Associate Adam Lukonits and included Associate Dori Budai.

On 19 July 2023, the Constitutional Court established that certain provisions of the act on public construction investments are unconstitutional, therefore, it could not enter into force as planned on 1 August 2023.

The act laid down detailed and comprehensive rules on the public works investment regime, some of which are also set out as cardinal provisions (in Hungarian: “sarkalatos rendelkezés”), the modification of which is only possible by the votes of the two-thirds of the present members of the Parliament. However, the bill allowed for derogations from its own rules in the provisions at issue, even by ministerial decree.

As a result, the bill was amended in line with the decision of the Constitutional Court. A cardinal provision has been added to the act ensuring the necessary flexibility in individual cases and authorizing the Government to grant exemptions from the obligations contained in certain specific provisions of the act or to grant benefits to certain specific actors of public investment. The Hungarian Parliament accepted the amended bill on 25 October 2023 and the act entered into force on 8 November 2023.

At the beginning of November 2023, the substantial part of the provisions of a new act on the provisions relating to further simplification of the operation of the State entered into force which amended several acts such as the Road Traffic Act, the Building Act and the Code of Civil Procedure. The act aims to significantly reduce the administrative burden on citizens and businesses. The administrative burden on businesses will be reduced by narrowing the scope of the various types of regulation, for example in the case of fire safety or accounting regulations. By transposing the emergency regulation on public hearings into law, the possibility is created to hold public hearings without the personal appearance of the persons concerned, by means of electronic communication or by publication on a website. The legislation is not new, as it was and is already being used by public authorities and municipalities during the coronavirus epidemic. The act also affects the public notification (in Hungarian: “hirdetmény”) of a decision taken by a public authority:  the public notification must be performed by means of notice if the customer is in an unknown location, if there are other unavoidable obstacles to notification, if an attempt to notify the customer is already unsuccessful, or if notification is required by law or government decree. For the convenience of customers, instead of publication on notice boards, in most cases, only the publication of decisions on a website will be regulated.

By Lidia Suveges, Attorney at law, KCG Partners Law Firm

In import-export transactions across Europe, it is common for sellers to protect the assets they have sold by retaining the ownership title until the buyer has paid the full purchase price. Retention of title allows sellers to reclaim the assets if the buyer fails to pay, and even if the buyer goes bankrupt before payment is made. In Hungary, however, such an arrangement can lead to unpleasant surprises for sellers.

Retention of title in Hungary is subject to registration. If there is no registration, which is usually the case in such agreements, the asset to be returned to the seller may be encumbered with a pledge without the buyer’s intention or knowledge. This risk may arise for anyone with a commercial relationship in Germany who routinely buys from Germany in large quantities, whether they are an SME or large corporation.

Retention of title offers significant benefits for both sellers and buyers

It gives sellers the opportunity to maintain ownership until the purchase price is paid in full, effectively reducing the risk of default by the buyer. Even if the buyer fulfils all other conditions for acquiring the assets, if they do not pay, the seller can remain the owner. This is a key protection for the seller, especially if the buyer resells the asset or establishes a pledge on it.

According to Hungarian law, the agreement must be recorded in writing, even if the contract of sale is concluded orally or by implied conduct. There is no requirement that title can only be retained at the time the sales contract was concluded. This means title can be retained at other times too, such as when the buyer encounters unexpected payment difficulties.

In the case of movable assets, the retention of title is valid if the sales contract contains the necessary details. If the retention of title is not registered, the buyer may behave in trade as if they owned the goods, which could jeopardise economic security.

Rules to consider when trading with Germany

If a sales contract contains foreign elements, the effects of the retention of title will be governed by the law of the country where the asset is located, unless the parties choose the law of the asset’s future destination.

If the retention of title under foreign law is governed by Hungarian law based on the above, the lack of registration does not affect its legal validity and it remains in force between the parties. However, the validity of the retention of title vis-à-vis third parties may be dubious.

In the German legal system, the registration of the retention of title into any register is not mandatory. It is not usually done in the Hungarian Collateral Register either.

A predicament often arises by accident, as a result of the relation of the laws applied. The German seller, who regards the retention of title as security for payment of the purchase price, does not always take into account that the buyer automatically creates a pledge on the asset when it takes possession of it, if the buyer has previously granted a pledge to one of its banks as a security for a loan that also covers assets to be acquired in the future. This is quite common in Hungarian banking practice. As a result, the seller’s claim for payment of the purchase price may rank behind the claim of the security beneficiary bank.

Hungarian law currently has no solution to this anomaly. The best and most effective way to avoid legal risks can only be determined by individual analysis.

What might be the solution?

How to resolve these potentially undesirable situations that may have national economic implications? Clearly it cannot be expected that retention of title governed by German law will be registered in the Hungarian Collateral Register or into the pertinent register. Besides the fact that these registers are only available in Hungarian, a language most German companies are unlikely to operate in, the administrative burden involved is unacceptable.

Nor is amending the legislation a welcome solution. Adapting legislation based on strict doctrinal principles to such a specific situation may be fraught with pitfalls, even if increased caution is exercised. A possible modification may do more harm than good if the general safety of market transactions is compromised.

A more detailed definition of the pledged assets in creditors’ pledge agreements may seem to be a solution. Such a definition would leave out of scope movable assets that are subject to unregistered retention of title and therefore cannot become pledged assets in any case. This requires a high degree of awareness by the security provider, i.e. the Hungarian buyer. Large Hungarian corporations might possess this, but medium-size companies, which constitute the bulk of Hungarian-German economic relations, are unlikely to. Even if they did, the possibility of negotiating financing contracts individually is very limited, as medium-size companies typically use general terms and conditions and standard form contracts from creditors.

So, while this is an anomaly of national economic importance, none of the possible solutions to this potentially delicate situation is attractive.

By Gergely Szaloki, Partner, Schoenherr Hungary