Category: Hungary

The rules on the order for payment order procedure have changed significantly as of 1 October 2023. Many of the changes are related to the simplification and digitalisation of the procedure.

An order for payment procedure must be initiated for overdue monetary claims not exceeding HUF 3 million. Above this amount, an order for payment procedure may be chosen up to HUF 30 million, and above this amount the claim must be enforced in court.

For the initiation of the procedure, those obliged to use electronic means of communication (i.e. those who have “Cégkapu” access) could only initiate the signature of an order for payment by electronic means. However, as a result of the amendments, the order for payment will no longer be served on paper but electronically by sending it to the electronic storage site. These rules do not only apply to the order for payment, but to any document arising from the proceedings.

In particular, it is always worth paying attention when an order for payment is received in electronic storage because if the debtor does not object in due time, it will become enforceable and will have the same effect as the judgment.

Another change to the procedure is that from 1 October, the tax number will also be a mandatory element of the application for an order for payment. The rules for the European order for payment have also changed, with the paper-based procedure being replaced by an electronic application for those who have to communicate electronically.

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

Attorney at Law Gyorgy Baksay-Nagy has been appointed as the Head of the Intellectual Property practice group at OPL Gunnercooke.

Baksay-Nagy has been with OPL Gunnercooke since 2022. Before that, he spent over four years with Oppenheim, including several secondments to Samsung Electronics Hungary. He started his career as an IP & Litigation/Arbitration Junior Associate at Szecskay in 2017.

“Gyorgy’s excellent leadership and business development efforts are reflected in this promotion,” the firm announced. “Our IP practice has blossomed under his guidance. This resulted mostly from Gyorgy’s support for start-ups and SMEs and [his] excellent cooperation with the IP partners of Gunnercooke […] We wish Gyorgy the best as he embarks on a new chapter in his career.”

Former MVM Deputy CEO Balazs Tomaj has joined Kinstellar in Budapest as Senior Counsel.

Tomaj had been with MVM since 2019, serving prior to his departure, as the Deputy CEO, Chief Client Relationship Officer. Between 2016 and 20203 he has also served as the Head of Legal of ENKSZ First National Public Utility. 

Tomaj also worked as legal counsel at E.ON Hungaria and E.ON Power Generation and served as a member of the Hungarian Wind Energy Association.  

“We are delighted to have Balazs on board, commented Kinstellar Budapest Managing Partner Kristof Ferenczi. “He is a highly respected energy lawyer with a strong and successful career.  His skillset, experience, and background complement our team and add strength and depth to our client offering, and I look forward to the contributions he will bring.”

“I am delighted and honored to join such a powerhouse as Kinstellar,” added Tomaj. “I look forward to contributing my knowledge and experience to further enhance the firm’s reputation as a key player in the energy sector.’’

Originally reported by CEE In-House Matters.

The draft of the new Hungarian Construction Act was recently published for public consultation. Although the act only lays down the general rules, and details will be laid down in other regulations that are not yet known, several new features can already be seen in the draft. In our short article we summarise a few important changes.

Aim of the new Construction Act

The intention of the legislator is to make a new construction act which is more transparent, modern, simpler than the current act, and more uniform.

We can agree with the above, as the current Construction Act, which has been in force for more than 25 years, has been amended many times, consequently, its text is often incoherent. Moreover, in many cases the different parts of construction law are regulated by other legislations, which does not help transparency.

Unified regulation of construction

In line with the above, the new Construction Act will govern more matters than the current Act, as it will include provisions on professional chambers of design engineers and architects, and provisions on the protection of the townscape, which are currently covered by separate acts.

New general principles

The new Act sets out more general principles and in much more detail than the current Act. The new Act lays down its own objectives, as well as the principles to be applied, in contrast to the few lines of the current Act’s “essential requirements”. The new Act’s general principles include, among others, the principles of “civic sense”, construction quality, protection of the environment, quality of human life, furthermore, the principle of universal design, the principle of digitalisation etc.

The principles have a so-called gap-filling function, i.e., if there is no specific legal regulation on how to deal with a given issue, the building authority, the chief architect etc. can rely on the principles to make their decision.

Brownfield areas

The new Act places more emphasis on the recovery of the brownfield sites.

According to the new Act, the use of brownfield land shall be preferred (e.g., through tax reductions) to greenfield land, moreover, a new digital public register of brownfield sites shall be also created.

Design architect’s mandatory site supervision

According to the current Act, the designer architect may provide site supervision if the builder requests it.

In contrast, under the new Act, it will be obligatory for the designer architect to provide site supervision services.

General construction manager

The new Act makes it the defaults that the general construction manager is an employee of the contractor as this will ensure the proper performance of the activity, in particular regarding quality and safety.

Pursuant to the new Act, the general construction manager can be hired under a mandate contract only in the exceptional cases specified in a government decree.

Terms of the building permit

Under the current Act, a building permit is valid for 4 years, during which time construction must begin. The building shall be completed within six years of the start of construction.

According to the new Act, a building permit will be valid uniformly for 10 years, consequently, the construction can be started at any time within term of the building permit, but it shall be completed within the 10-year-term of the building permit.

New rules regarding the commissioning of the buildings

Consent of the designer: A declaration of consent from the designer will be required for the commissioning of the certain buildings. In the declaration, the designer shall confirm that the construction has been carried out in accordance with the plans and specifications.

Service Logbook: According to the new Act, after the building has been commissioned, a service record book must be kept for certain building types on information and documents related to future maintenance, renovation, conversion, and extension.

Questionable provisions regarding Hungarian constructions products

The draft of the new Act contains certain questionable provisions, mostly in connection with Hungarian construction products.

According to the draft, to ensure the supply chain of construction materials in Hungary, construction materials of strategic importance may be defined. The export and import of these materials shall be notified to the competent authority.

Furthermore, in certain cases, the Hungarian State shall have the right of pre-emption in respect of construction materials, if the domestic use of the construction material is necessary for the performance of a public task or for the achievement of a similar purpose.

The minister responsible for the construction industry could also ban the export of strategic products from the country in certain cases, e.g., in the event of a disaster or in the event of a shortage or price increase of strategic products, etc.

Moreover, in the event of the transfer of ownership of a factory producing building materials of strategic importance, the Hungarian State shall have the right of pre-emption on the factory in question.

Entering into force

The new Law would enter into force on 1 February 2024, but some of its provisions would apply later, between 2025 and 2027.

Details

We would like to point out that the draft Act for public consultation is known, so the final text of the Act may differ significantly from this version.

Moreover, many details are not yet known as they will be covered by separate government or ministerial decrees.

By Peter Korozs, Junior Associate, SmartLegal Schmidt & Partners

When we consider the validity of a contract on the basis of the parties’ will, it is usually the will at the time of the conclusion of the contract that is relevant. In a recent decision, however, the Supreme Court of Hungary has pointed out that in the case of a long-lasting legal relationship, such as an employment relationship, the parties’ actions after the conclusion of the contract in order to perform it must also be taken into account when determining the contractual intention.

Facts of the case

The plaintiff was a company that employed the defendant as an employee. The main task of the employee was to do market research in connection with car diagnostics. The two managing directors of the company were the defendant’s husband and his business partner. The defendant was employed 40 hours per week, her workplace was the plaintiff’s premises, and the person exercising employer’s rights was her husband. A few days later, the parties changed the employment contract to remote working. After 3 months, the parties terminated the employment relationship by mutual agreement.

Following a breakdown in relations between the defendant’s husband and the other manager, the company started lawsuit against the ex-employee and claimed compensation for the wages paid to the her. In its action, the plaintiff claimed that the employment contract was a sham because the defendant had no intention of working at the time the contract was concluded and did not actually work after the conclusion of the employment contract.

First instance decision

The first instance court upheld the action. It found that the defendant had not undergone an occupational health examination and did not have the necessary competence, knowledge and experience for the job. It concluded that the parties could not realistically have intended to create an employment relationship in accordance with the terms of the employment contract and that the employment contract was therefore null and void.

Second instance decision

The second instance court altered the judgment of the first instance court and dismissed the plaintiff’s action.

It held that the first instance court had based the nullity of the employment contract solely on the defendant’s failure to perform her work, however this circumstance did not correspond to the parties’ intention at the time of the conclusion of the contract. All of the circumstances listed by the first instance court examined the work itself, its content and quality, which is irrelevant for the purposes of assessing the intention to conclude the contract.

In its judgment, it referred to previous case-law according to which invalidity is a defect which arose at the time of the conclusion of the contract, and therefore the invalidity of the contract can only be examined and interpreted at the time when the employment relationship was created.

The decision of the Supreme Court

Although the Supreme Court did not find that damages could be awarded since the damage was not caused by the defendant’s wrongful conduct, the Court disagreed with the reasoning of the second instance court.

The Supreme Court stated that intention expressed in an employment contract must be to establish an employment relationship, and there was no such serious intention between the parties according to all the circumstances of the case. This is demonstrated, inter alia, by the fact that there was no examination as to fitness for work, no substantive work and no educational qualifications to prove the defendant’s technical knowledge, and that the employment contract was amended three days after its conclusion to allow for remote working.

In its judgment the second instance court wrongly held that the conduct of the parties after the conclusion of the contract has no relevance with regard to the parties’ intention at the time of conclusion of the contract.

In the case of long-term legal relationships such as agency contract or employment, that is to say, contracts which are not intended to provide a one-off service and consideration, the conduct of the parties after the conclusion of the contract cannot be disregarded. In the case of a continuing legal relationship, the parties’ post-contractual conduct in order to perform the contract must be expressly taken into account when determining the contractual intention.

Comment

With the above decision, the Supreme Court supplemented its previous practice by stating that although the validity of a contract must be examined primarily at the time when the employment relationship is established, in the case of long-term legal relationships the conduct of the parties after the conclusion of the contract cannot be disregarded.

By Agnes Bartus, Junior Associate, SmartLegal Schmidt & Partners

Presently, a legislative proposal has been placed on the agenda, focusing on measures aimed at streamlining governmental operations. This comprehensive proposal encompasses various modifications, one of which pertains to an amendment to the personal income tax act (“PIT Act”).

The principal objective of this legislative initiative is to alleviate the administrative burdens faced by both individual taxpayers and businesses. This would be achieved through a targeted amendment to the PIT Act, specifically with regard to the mid-year claim process for the first-married couples’ allowance, the family allowance, and the benefit for mothers with four or more children. The proposed amendment would eliminate the requirement for individuals to repetitively submit annual declarations for these benefits, provided that the circumstances supporting the claim remain unchanged.

To implement this streamlined process, the proposal seeks to modify the advance tax declaration rules outlined in the PIT Act. It introduces the concept of a “continuous declaration”, which enables eligible individuals to request the payer to maintain their existing declaration, unaltered, until a new declaration is submitted or until they request that it no longer be taken into account.

This measure carries dual implications. Firstly, it stands to significantly reduce the administrative burden on employers and payers responsible for these specific benefits. Nevertheless, it also imposes a heightened degree of responsibility on the individual claimants. A guarantee provision within the proposal specifies that should the individual fail to report any changes in their eligibility status, and subsequently, the tax authority identifies a tax shortfall due to the application of the continuous declaration, the associated legal consequences for the individual (late payment penalties, tax penalties and differential penalties) would not be reduced.

It is imperative to note that the methods of submitting these declarations, either in writing to the employers or electronically through an electronic identification service via a dedicated electronic interface established for this purpose to the tax authority, will remain unchanged. This aspect of the proposal is particularly noteworthy, as a substantial portion of these declarations continue to be submitted in paper form. Therefore, the introduction of the continuous declaration would not only simplify the process but also contribute to a reduction in paper-based environmental impact, as there would be no need for repetitive declaration submissions at the commencement of each calendar year.

Should this bill receive parliamentary approval, the new rules will come into effect for advance tax returns initiated after 31 December 2023. Given the increased level of responsibility vested in individual taxpayers through this legislative amendment, it is of utmost importance that individuals diligently monitor their obligations and promptly update their declarations in the event of any changes to the information contained therein.

In conclusion, the proposed amendments to the Hungarian personal income tax system herald a promising era of reduced administrative complexities for both citizens and businesses. However, it is essential to recognise that these benefits come hand in hand with an increased level of responsibility for individuals. Vigilance and diligence will be paramount in ensuring that any changes to the content of advance tax returns are promptly reported. By embracing this reform, Hungary can take a significant step towards fostering a more efficient, environmentally conscious and accountable tax system.

By Eszter Kamocsay-Berta, Managing Partner, KCG Partners Law Firm

A package called “Provisions on further simplification of the functioning of the state” has been discussed at the Hungarian Parliament in the autumn of 2023.

Among others, the proposed new law would amend the Act on Occupational Safety and Health. One of the new rules is that the health and safety training for new employees (or for those who enter into a new position) can be delivered by providing them with the general training material or even by publishing them on an internal electronic network.

The actual training to ensure that the employee has the theoretical and practical knowledge of safe and healthy working practices and is familiar with the necessary rules remains compulsory only when work equipment is modified, or new equipment is installed or when new technology is introduced.

The planned amendment has raised concerns among trade unions, as there might be life-threatening consequences if the employers leave it up to employees to learn about the dangers they face at work and how to prevent accidents. As a result, the number of workplace accidents may rise, as without training, many people might not read or properly understand the provided materials.

At the time of releasing this article, according to the official website of the Parliament, the final version is not yet available, as only the detailed debate stage has been completed. 

By Borbala Maglai, Attorney at Law, KCG Partners Law Firm

The National Water Resources Protection Map, required for the licensing of domestic and agricultural wells under the amendment to the Water Management Act, has been completed and is available on the website of National Water Directorate (in Hungarian: “Országos Vízügyi Főigazgatóság”). This Protection Map will play a central role in the future licensing of domestic groundwater wells.

According to the Water Management Act, from 1 January 2024, domestic groundwater wells (up to a maximum depth of 50 metres) located in areas that are risk-free from the point of view of water resource protection will be able to be drilled without any permit or notification. Groundwater wells for agricultural irrigation purposes can also be drilled in these risk-free areas in the future on the basis of the simplified procedure – notification and subsequent official approval.

Those areas are considered to be at risk from a water resource protection point of view that fall within the protection areas of operational or remote aquifers or under which karst aquifers are accessible at depths of less than 100 metres. The Protection Map allows to search by parcel number or address. Areas at risk for water resource protection are indicated in red on the Protection Map.

For new wells, the installation of domestic groundwater wells in areas marked in red will be subject to notification from 1 January 2024. In the areas marked in white, groundwater wells can be installed freely. From next year, groundwater wells for agricultural use in the red areas will be allowed to be built under a water permit issued by the National Land Centre, compared to the white areas, where the same wells will be subject to a simpler notification and approval procedure.

For existing wells, shallow groundwater wells are those that do not require any procedure for legalisation. After entering the parcel number in the Protection Map, the depth of the aquifer bed can be displayed by activating the layer list. If the depth of the aquifer at the point where the well is located is higher than the depth of the well, this means that a post-procedure is required.

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

In July 2023 the European Court of Justice (ECJ) gave its judgment in case no. C-106-22 (Xella Judgment). The case was referred by the Fővárosi Törvényszék (Budapest High Court, Hungary) for preliminary ruling on the interpretation of Article 65(1)(b) TFEU in conjunction with recitals 4 and 6 of Regulation (EU) 2019/452 (EU FDI Regulation) and Article 4(2) TEU.

Facts

The catalyst for the review was the blocking decision of the Hungarian Minister for Innovation and Technology that relied on the ground of “national interest” referred in the Hungarian FDI screening legislation (Act LVIII of 2020). The decisions related to the acquisition by Xella Magyarország Kft. (a Hungarian company, the parent company of which is established in Germany, and the indirect shareholders of which are established in Luxembourg and Bermuda, respectively) of the shares in Janes és Társa Kft. (Target).

The Target is a Hungarian strategic company engaged in the extraction of gravel, sand and clay. According to the Minister’s decision, given that the acquisition would mean the Target would be indirectly owned by a company registered in Bermuda, longer-term risk would be posed to the security of supply to raw materials in the construction sector.

The regional market share of the Target was 20.77%, and its national market share was only 0.52%. Around 90% of the annual production of raw materials by the Target was purchased by Xella. Xella challenged the Minister’s decision, and the proceeding national court requested the preliminary ruling of the ECJ.

Clarification in the judgment

The Xella Judgment is quite specific, but it also clarifies general points:

• As a specific conclusion, the ECJ set out that “provisions of the TFEU on freedom of establishment must be interpreted as precluding a foreign investment filtering mechanism provided for by the legislation of a Member State by means of which a resident company which is a member of a group of companies established in several Member States, over which an undertaking of a third country has decisive influence, may be prohibited from acquiring ownership of another resident company regarded as strategic, on the ground that the acquisition harms or risks harming the national interest in ensuring the security of supply to the construction sector, in particular at the local level, with respect to basic raw materials such as gravel, sand and clay” (para. 74 of the Xella Judgement).
• In its general dicta:
  • The ECJ clarified that the scope of the EU FDI Regulation is limited to investments in the EU made by undertakings constituted or otherwise organised under the laws of a third country (with the exception of artificial arrangements that do not reflect economic reality and circumvent the screening mechanisms and screening decisions, where the investor is ultimately owned or controlled by a natural person or an undertaking of a third country (paras 32, 39 of the Xella Judgement)). In this perspective the Xella Judgment materially diverged from the opinion of the Advocate General.
  • The ECJ also stressed that the freedom of establishment (set out in the TFEU) must be observed in relation to “indirect” foreign investments (eg by EU companies controlled by third-country entities). Accordingly, any restriction must be justified by a “genuine and sufficiently serious threat to a fundamental interest to society,” meet an overriding reason relating to the public interest, appropriate to ensure that the objective pursued is achieved. It also must not go beyond what is necessary to achieve the objective pursued (para 60 of the Xella Judgement). The requirements for public policy, public security, or public health as grounds for restrictions may be determined by the Member States, nevertheless derogations must not be misapplied so as to serve purely economic ends (para. 66 of the Xella Judgement). It was also reiterated that the guarantee of the security of supply of public services (or products) in the petroleum, telecommunications, and energy sectors in the event of crisis may constitute public security reasons possibly justifying a restriction on a fundamental freedom (para. 68 of the Xella Judgment).

Takeaways

In general, the Xella Judgment significantly weakens the screening position of the national FDI authorities. The clarification that the EU FDI Regulation does not cover “indirect” foreign investments (ie those carried out by EU investors over which a third country entity has control) may:

• implicate national FDI screening regimes that also cover indirect investments, rendering their validity from an EU law perspective arguable. This follows from the Treaty of Lisbon based on which capital movements falling within the scope of “foreign direct investment” are within the exclusive common commercial policy competence (para. 34 of the opinion of the Advocate General); and 

in practice prove significantly advantageous to third-country investors that carry out their investments through their subsidiaries registered in the EU, as the cooperation mechanism under the EU FDI Regulation would not be set in motion. At the same time, the reiteration of the requirements for a restriction on the freedom of establishment will impact the practice of the national FDI authorities as it must be observed (and demonstrated) that restrictions should be justified by a “genuine and sufficiently serious threat to a fundamental interest to society.”

By Blanka Borzsonyi, Senior Associate, DLA Piper Hungary

The company name is an important asset of the company and also helps the customers when choosing between products or services. Therefore, a new company can only be founded with a name that is sufficiently different from existing companies. What are the legal options for a company if, despite the above, a new company with a very similar name has been registered?

Facts and the claim

In the present case, the plaintiff was a company established in 2007, with the name “CCC Ltd.”, and the defendant was a company established in 2019, with the name “CC Ltd.”. Both companies’ main activity was the sale of passenger vehicles.

The plaintiff argued that the defendant copied the plaintiff’s name in its own company name, e-mail address and domain name, without the plaintiff’s consent.

In its claim, the plaintiff sought the declaration that the defendant had infringed the plaintiff’s personality right and committed “passing-off” by choosing a company name which is very similar to the plaintiff’s company name and requested that the defendant be prohibited from further infringement.

First and second instance decision and request for judicial review

The first instance court granted the claim. In the appeal procedure, the second instance court upheld the decision.

The defendant lodged request for judicial review against the final judgment.

The defendant argued that the personal rights referred by the plaintiff apply only to the use of the names of natural persons. In addition, according to the defendant, he did business under a trade name which was different from the plaintiff’s company name, therefore the alleged similarity of the company names was irrelevant.

Finally, the defendant argued that when registering a new company, the Court of Registration ex officio examines whether the name of the company to be registered meets the criteria for the exclusivity of the company name, which is one of the conditions for registration. Since the Court of Registration has registered the defendant company in the Company Registry, its name may not violate the law.

The decision of the Supreme Court

The Supreme Court stated that the defendant wrongly claimed that the invoked personality rights could not be applied in the case. Under the Civil Code, the rules on personal rights also apply to legal entities, except where the protection, by its nature, can only be interpreted for natural persons.

Therefore, legal persons are also entitled to certain personality rights in addition to the property rights.

The right to bear a name is conferred on both natural and legal persons and is intended to distinguish a person from others. Precisely in view of this, both the Civil Code and the Companies Act contain provisions on the choice of names for companies, which serve, inter alia, to ensure that companies can be distinguished from one another.

The Supreme Court stated that, although the Court of Registration decides during the registration procedure whether the name of the company applying for registration complies with the legal requirements, registration in the Company Registry does not exclude the infringement of personality rights relating to the use of names, neither the commitment of “passing-off”, which is an unfair market conduct and therefore a violation of the Hungarian Competition Act.

Thus, although the similarity of the company names cannot be remedied in a company proceeding before the Court of Registration, claims related to the violation of personality right (such as the right to bear the name) and unfair market conduct can be enforced in civil proceedings.

Comment

The Supreme Court has confirmed its previous practice by stating that in case a company fails to distinguish its name from another company which was registered earlier, it may constitute the violation of the personality right of the latter, in which case, the company whose rights have been violated may seek the court to, among other sanctions, prohibit the infringing company from further infringement.

By Peter Gritta, Attorney-at-law, and Agnes Bartus, Junior Associate, SmartLegal Schmidt & Partners